FNET Future

RNS Number:9236E
Future Network PLC
8 June 2001


8 June 2001


PROPOSED DISPOSAL OF BUSINESS 2.0 & TRADING UPDATE


The Future Network plc ("Future Network") (LSE: FNET), the international
specialist magazine publisher, today announces that it has entered into an
agreement for The FORTUNE Group at Time Inc., a subsidiary of AOL Time Warner
(NYSE: AOL), to acquire its Business 2.0 magazine, its global brand and
related conference and online activities.


Key highlights:


*        Future Network to sell its U.S. magazine title Business 2.0, its
global brand and related conference and online activities to The FORTUNE Group
at Time Inc. for an initial consideration of $68.0 million (#48.8 million) in
cash, plus additional considerations dependent on financial performance
through to the end of 2006;

*        The FORTUNE Group will combine Business 2.0 with its publication
eCompany Now, to create a re-designed magazine (under the name "Business 2.0")
with a monthly circulation of 550,000;

*        Net proceeds from the disposal of Business 2.0, after taking into
account taxation and transaction expenses, are expected to be approximately
$48.4 million (#34.7 million at current exchange rates). On a pro forma basis
net proceeds will be $39.4 million (#26.4 million at the exchange rate on 31
December 2000). Net proceeds will be used to fund restructuring costs and
repay Group debt;

*        Due to its size, the disposal of Business 2.0 is conditional upon
shareholders' approval, which will be sought at an Extraordinary General
Meeting; and

*        Future Network has received irrevocable undertakings to vote in
favour of the disposal from shareholders, including Director's beneficial
holdings, representing 53.0 per cent. of the Company's issued share capital.


For Future Network overall, market conditions remain challenging in both
advertising and copy sales, although PlayStation2 publishing plans are on
track.  Excluding previously announced one-off restructuring items, together
with the costs associated with the disposal and trading losses of Business
2.0, Future Network recorded a small EBITA profit in the four months to 30
April 2001.


Chris Anderson, Chairman of Future Network, commented:

"Business 2.0 has been a remarkable success story for Future, rapidly
attracting a large high-level audience, spectacular advertising growth and
numerous awards. We are delighted that the world's leading magazine publisher
has agreed to acquire the brand and take what we've built to the next level.
The combination of Business 2.0 and eCompany Now will create a magazine of
substantial scale and influence."

Jack Haire, President of The FORTUNE Group at Time Inc., commented:

''We have admired the progress made by Business 2.0 since its launch and are
delighted to have the opportunity to further build this powerful brand.  This
transaction demonstrates our commitment to this market sector, and we believe
that the formidable combination of Business 2.0 with eCompany Now will be well
positioned to flourish."

For further information:

The Future Network plc                  
Chris Anderson, Chairman                001 415 468 4684
Greg Ingham, Chief Executive            01225 442244

Hogarth Partnership

James Longfield/Georgina Briscoe        020 7357 9477

About Time Inc. and The FORTUNE Group
Time Inc., the world's premier magazine publisher and a leading direct
marketer of music and video products, is a wholly owned subsidiary of AOL Time
Warner Inc., the world's first Internet-powered media and communications
company.  The FORTUNE Group at Time Inc. publishes many of the most prominent
brands in business news, including FORTUNE, Money, FSB:FORTUNE Small Business,
Mutual Funds, and eCompany Now.



           PROPOSED DISPOSAL OF BUSINESS 2.0 AND TRADING UPDATE

Introduction

On 16 February 2001, Future Network announced that it had appointed Morgan
Stanley & Co Limited ("Morgan Stanley") to review strategic alternatives for
the next stage of the development of its US-based magazine, Business 2.0,
including a possible sale or joint venture.

Following this review, Future Network today announces that it has entered into
an agreement for The FORTUNE Group at Time Inc., a subsidiary of AOL Time
Warner, to acquire its Business 2.0 magazine, its global brand and related
conference and online activities together with the UK Business 2.0 subscriber
file.

Principal terms and conditions of the Disposal

The initial consideration for the Disposal will be $68.0 million (#48.8
million) to be satisfied by the payment of cash on completion of the
transaction. In addition, depending on the future financial performance of the
operations of Business 2.0 and eCompany Now, there will be additional payments
to Future Network for each of the five calendar years for the period
commencing 1 January 2002 and ending on 31 December 2006 equivalent to 25 per
cent of any annual net revenues to the extent they exceed $50.0 million
generated by the combined magazine operations of Business 2.0 and eCompany
Now, and 25 per cent of any annual net revenues to the extent they exceed
$10.0 million from the branded websites or conferences or any successor in
interest to the branded websites or conferences for the same period.  Except
for subscription liabilities expressly assumed by the purchaser, the assets
being sold will be assumed free of debt.

Future Network has agreed to a termination payment of $3.0 million (#2.2
million) but only in the event that the Disposal does not close solely because
the Resolution is not approved by Shareholders at the Extraordinary General
Meeting.

Background to and reasons for the Disposal

Business 2.0 was launched in July 1998. It became profitable in 2000 and it
moved from being a monthly to twice monthly publication in May 2000 and its
circulation increased to its present level of 350,000 copies.

However, the profitability and growth of Business 2.0 has been adversely
affected by the downturn in its advertising market experienced toward the end
of 2000 and in 2001. In response to difficult market conditions, consolidation
amongst new economy magazine titles is widely anticipated.

The Board believes that further investment in Business 2.0 would be required
during these difficult market conditions in order to maintain Business 2.0's
market position.

In addition, Business 2.0 does not represent part of Future Network's core
specialism, which is to publish special interest magazines.

Future Network announced on 16 February 2001 that it was conducting a
strategic review of its business. The review was designed to enhance
profitability and to re focus Future Network's business on its core specialist
areas.

As at 31 December 2000, the net debt position of the Group stood at #68.9
million. The increased net debt position and poor trading results in the
fourth quarter of 2000 led the Company to enter into negotiations with its
principal bankers to revise the Group's existing bank facility. On 18 March
2001, the Company entered into an amended facility, repayable on 30 September
2002, designed to accommodate the debt requirements of the Group on the basis
of its revised profitability and growth projections.

In light of the strategic review, the decline in Business 2.0's profitability,
the difficult market conditions being experienced in the US, the increased
debt position of the Group, and the attractive offer received for Business
2.0, the Board believes that the Disposal is in the best interests of the
Company and furthers the Board's stated strategy of enhancing profitability
and focusing on core specialist areas.

An attractive feature of the Disposal is that AOL Time Warner will combine
Business 2.0 with its title, eCompany Now to create a magazine under the
Business 2.0 name (the "Combined Magazine") with a monthly circulation of
550,000 copies. The Board considers that the Combined Magazine will be well
placed to take full advantage of any upturn in the market. Future Network will
be able to share in the Combined Magazine's success during the five year
period from 1 January 2002 to 31 December 2006 by virtue of its revenue
sharing entitlement.

Information on Business 2.0

Business 2.0 was launched in July 1998. The twice monthly magazine occupies an
editorial position between old-economy business magazines (such as Forbes and
Fortune) and technology industry insider magazines (such as Red Herring and
Industry Standard). Circulation has grown rapidly from its first issue in July
1998 to a current rate base of 350,000. The publication carried 3,349 pages of
advertising in 2000, making it one of the top 10 US magazines for advertising
volume.

In 2000, the Company launched monthly editions of the magazine in the United
Kingdom, Italy and Germany. Following the downturn in the advertising market
in this business sector, which adversely impacted Business 2.0 in Europe, the
Company announced the closure of all three European editions on 27 April 2001.
The Disposal includes the subscriber list of the UK edition.

In the year ended 31 December 2000, Business 2.0 in the United States reported
operating profit of $15.0 million (#9.9 million) on revenues of $66.8 million
(#44.0 million). These revenues comprised $63.3 million (#41.7 million) from
the magazine title and $3.5 million (#2.3 million) from related websites and
conferences.

In 2001, Business 2.0 has been adversely affected by the decline in the
internet advertising market in the US. In addition, Business 2.0 has
experienced a significantly increased cost base for its operations as a result
of moving from monthly to twice monthly publication. As a consequence of these
factors Business 2.0 incurred operating losses for the first four months of
2001 on significantly reduced revenues. This compares to an operating profit
in the corresponding period in the year ended 31 December 2000.

Financial effects of the Disposal

The gross proceeds arising on completion will amount to $68.0 million (#48.8
million) out of which costs estimated at $4.0 million (#2.9 million) will be
paid.

It is estimated that Imagine Media, Inc. ("Imagine") will be liable to pay
taxation in the US of up to $24.6 million (#17.6 million) resulting from the
Disposal. This will be reduced to the extent that any tax losses arise in
Imagine during 2001, including the effect of restructuring charges. Management
estimates that the likely tax charge will be approximately $15.6 million (#
11.2 million).

In addition, there will be a restructuring charge resulting from the Disposal
which is estimated to amount to $5.9 million (#4.2 million), mainly in respect
of redundancy payments and property lease rental provisions.

All net cash proceeds to be received on completion of the Disposal, after
restructuring costs, will be used to repay Group debt. Based on year end
exchange rates, the effect of the Disposal on the pro forma net debt of the
Group as at 31 December 2000 would have been to reduce net debt by #26.4
million to #42.6 million.  Based on current exchange rates, the reduction in
net debt would be #28.3 million.  Under the proposed amended terms of the
Company's bank facilities, a provision is to be included for the issue of
equity warrants to the banks for up to five percent of the Company's then
fully diluted issued share capital as at 31 December 2001 if the facility
amount has not been reduced to #25 million or less at that time.  The exercise
price of these warrants will be set at the Company's prevailing market price
at the time of issue.

As at 31 December 2000, the Group balance sheet contained goodwill with a net
book value of #253.8 million. Of this amount, #15.3 million was directly
attributable to Business 2.0 and will be eliminated as a result of the
Disposal.

The Disposal will trigger a review of the carrying value of the goodwill
attributable to Imagine in accordance with FRS 11: "Impairment of fixed assets
and goodwill". The Directors estimate that a provision of #49.6 million will
be required. The provision arises as a result of the valuation of Imagine
following the Disposal being insufficient to support the carrying value of the
goodwill attributable to Imagine in the Group balance sheet.

Current Trading and Future Network Prospects

Over the course of 2001 to date, the Board has worked to improve the structure
and future profitability of the business through refocusing the company on its
core operations, strengthening group management and implementing a significant
cost-cutting programme.

As previously announced, the Company has implemented restructuring programmes
in our operations in the United States, the United Kingdom and France, the
closure of a number of loss-making magazines and websites, and the closure of
our business in Germany. The costs associated with these actions together with
the current year trading losses of the closed magazines and websites amounted
to non-recurring charges of #15.3 million.  Over the course of this year we
have incurred bank charges and associated costs of #3.3 million in order to
agree new terms to accommodate the revised debt requirements of the Group.

Reduction of debt levels has been, and remains, a priority for the Company and
the net proceeds of the disposal of Business 2.0 will be applied to this
purpose.  In negotiating this disposal, management has secured an agreement
that reduces debt whilst simultaneously ensuring the potential for upside by
retaining an interest in the combined business.

As indicated in this announcement the Disposal will result in additional
non-recurring costs covering the closure and restructuring costs directly
related to the disposal.  These, together with the operating losses incurred
by Business 2.0 in the US since the start of the year, amount to costs of #
10.0 million.

In its continuing operations, Future Network recorded a small EBITA profit on
continuing operations in the four months to the end of April, in line with our
expectations.  Current market conditions remain challenging in both
advertising and copy sales, although our PlayStation 2 publishing plans in the
UK are on track.  The fourth quarter is traditionally Future Network's
strongest trading period and this year will again be critical to achieving our
objectives of enhanced profitability in 2001, which will be particularly
important as we approach a period of major console and games launches.

The Directors believe that good progress has been made so far in sorting out
the business.  Tough actions have been taken.  Management and the Board have
been strengthened and the business has been refocused.  Work remains to be
done. Margins need to be improved and the level of debt needs to be further
reduced.  Medium term, our objective is to revert to the healthy profit
margins achieved by the Company in the past, aided by the expected up turn in
the games cycle, where Future Network holds a market-leading position and has
agreements with both Sony and Microsoft to publish Official Magazines.

Extraordinary General Meeting

Due to its size, the disposal of Business 2.0 is conditional upon
shareholders' approval, which will be sought at an Extraordinary General
Meeting.  A circular will be sent to shareholders shortly.

The Company has received irrevocable undertakings to vote in favour of the
Resolution approving the Disposal from certain institutional shareholders and
others in respect of 39,107,204 Ordinary Shares, representing 27.2 per cent of
the Company's existing issued share capital.  All shareholding Directors, who
hold in aggregate 37,121,983 Ordinary Shares, representing 25.8 per cent of
the Company's existing issued share capital have irrevocably committed to vote
in favour of the Resolution.  Accordingly, the Company has received
commitments to vote in favour of the Resolution in respect of 53.0 per cent of
the Company's existing issued share capital.

Importance of the Disposal

The Disposal is important to the future of the Company.  The Company intends
to enter into an amendment and restatement agreement with its bank syndicate
in relation to its banking facility dated 18 March 2001.  Availability of
funds under the restated agreement will be conditional upon completion of the
Disposal.

As will be more fully described in the circular the Directors believe that
having regard to the proposed amendment and restatement agreement, the working
capital available to the resultant Group will be sufficient for its present
requirements, that is for at least the next 12 months from the date of the
circular.

Recommendation

The Directors, who have received financial advice from Morgan Stanley and
PricewaterhouseCoopers Corporate Finance, consider the Disposal to be fair and
reasonable. In providing advice to the Directors, Morgan Stanley and
PricewaterhouseCoopers Corporate Finance have placed reliance on the
Directors' commercial assessment of the Disposal. In addition, the Directors
consider the Disposal to be in the best interests of Future Network's
Shareholders as a whole.

The Board unanimously recommends Shareholders to vote in favour of the
Resolution to be proposed at the Extraordinary General Meeting as each
Director intends to do in respect of his own beneficial holdings, amounting in
aggregate to 37,121,983 Ordinary Shares, representing approximately 25.8 per
cent of the Company's issued share capital.



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