RNS Number:6596A
Future Network PLC
19 March 2001
PRESS INFORMATION
19th March 2001
THE FUTURE NETWORK PLC
Preliminary results for the year ended 31 December 2000
The Future Network plc (LSE: FNET), the international specialist consumer
publishing group, today announces its preliminary results for the year ended
31 December 2000.
Key financials:
- Revenues increase to #254m (1999: #197.5m*) - up 28.6%, despite
significantly reduced computer games magazine sales.
- Underlying Profits increase to #33.2m (1999: #31.1m*) - up 6.8%
- Peak year of Investment in new magazines and Internet activities with
operating losses of #35.7m (1999: #10.9m*)
- Headline EBITA falls to a loss of #2.5m (1999: #20.2m*) - includes #
1.2m restructuring cost incurred at year end.
- Strong US performance, with revenues up 78% to #99m and Underlying
Profits up 172% to #19.6m - mainly driven by Business 2.0.
- Titles closed in restructuring (announced February 2001), accounted
for #18m revenues and operating losses of #14.7m in 2000.
- Write down of goodwill and fixed asset investments due to impairment
totalling #24m.
- Loss after tax #60.8m (1999 restated loss: #2.9m)
*Pro forma numbers restated for the French accounting irregularity and the
adoption of UITF 25 "National Insurance contributions on share option gains".
The effect of these adjustments is to reduce turnover and increase the loss
after tax for the period ended 31 December 1999 by #1,041,000 and #25,000
respectively.
Key developments:
O Successfully established position on next generation platforms -
three-year licences for Official PlayStation 2 Magazines in UK and Italy and
five-year world-wide** licence for Official Magazine for Microsoft's Xbox
console. Games magazine market share increased in UK from 52% to 57%.
Business 2.0 continued strong growth during the year, with revenues up 341%
despite facing tougher market conditions in the 4th quarter of 2000. Magazine
moved to twice monthly in May, circulation increased to 350,000. Review of
strategic options for Business 2.0 (announced February 2001) is progressing.
O
O The Group's strategic review is designed to improve long-term
profitability. Key actions included the closure of 20 magazines and five
websites; reduction in overheads and significant cuts in Investment for 2001.
O Management and Board team strengthened, with the appointment of Colin
Morrison as Chief Operating Officer, Roger Parry as Deputy Chairman and
Michael Penington as Interim Finance Director (see separate release).
O Future and its bank syndicate led by BNP Paribas have reviewed the
Group's funding requirements and have signed a new #100m multicurrency
revolving debt facility maturing in September 2002.
** excluding Japan
Commenting on the results, Greg Ingham, Future's Chief Executive said today:
"For all the revenue growth and momentum, 2000 ultimately became a bruising
year for Future. Much went right for us - as indicated by the 28.6% growth in
revenues, which was achieved despite the temporary decline in our principal
market of UK computer magazines. But a number of external and internal factors
combined to push the Group off course in the vital last quarter of the year.
"2000 was always intended to be a peak year for Investment, and our spend of #
35.7m was the principal reason for the loss incurred. However, the much
weaker games market, the dotcom collapse, a general tech downturn and softer
advertising markets all contributed to a performance that was some way below
expectations.
"These market conditions and the accounting problem discovered in our French
business identified a need to improve our management systems and revealed that
our growth plans were just too ambitious. We have taken firm action to
improve our financial and operational performance. Management and the Board
have also been strengthened with the appointment of Colin Morrison as Chief
Operating Officer, Roger Parry as Deputy Chairman and Michael Penington as
Interim Finance Director. And, I am pleased to have the continuing support of
our banking syndicate with our new debt facility. These measures, together
with our significantly reduced Investment plans will help us return the
business to profitability.
"We have market leadership in many highly attractive sectors and highly
profitable magazines on which to build. We are the world leader in computer
games magazines and are well positioned to capitalise on the continued
roll-out of Sony's PlayStation2 and the worldwide launch of Microsoft's Xbox
starting later this year. It is this strong core that will be the focus of
our drive to restore shareholder value in 2001 and beyond."
For further information:
The Future Network plc Tel: 01225 442244
Greg Ingham, Chief Executive
Colin Morrison, Chief Operating Officer
Ian Linkins, Finance Director
James Longfield/Georgina Briscoe Tel: 020 7357 9477
Hogarth Partnership
To help the understanding of our business the following definitions have been
used throughout this report:
ABC: Audit Bureau of Circulations
Adjusted earnings per share: Earnings per share based on adjusted profit after
tax.
Adjusted operating profit or EBITA: Operating profit excluding amortisation
and impairment of intangible assets.
Adjusted profit before tax: Profit before tax excluding amortisation and
impairment of intangible assets.
Adjusted profit after tax: Profit after tax excluding amortisation and
impairment of intangible assets.
CPAR: Consumer Publishing and Advertising Report
Pro forma results: Used for comparatives. Results as if the business as
constituted at Listing, with its associated post flotation funding
arrangements, had existed from the beginning of the year.
Underlying Revenues: Revenue excluding revenue from loss making titles
launched in the last two years and revenues from Internet activity (both
referred to as Investments).
Underlying Profit: Adjusted operating profit excluding losses from titles
launched in the last two years and losses on Internet activity (both referred
to as Investments).
Investment: Losses from titles launched in the last two years and losses on
Internet activity.
THE FUTURE NETWORK PLC
Preliminary results for the year ended 31 December 2000
Chief Executive's Review
(All figures relating to 1999 are pro forma restated figures)
Following a period of dramatic growth, 2000 turned out to be a more turbulent
year for Future and our markets than anticipated. The sudden change in our
fortunes overshadowed healthy revenue growth, up 28.6% at #254m, and also a
very strong performance from our US business, which grew revenues by 78% to #
99m and Underlying Profits by 172% to #19.6m.
Low levels of activity in the computer games market, including the eventual
slower European launch of PlayStation 2, dotcom collapse and fears of economic
slowdown all created a very difficult environment for our publishing
activities towards the end of 2000. These external factors were compounded by
our over-ambitious Investment plans, an accounting problem in France and poor
newsstand sales performance in Europe.
Weaker demand in the final quarter had a significant impact on our Underlying
Profitability. With our Investment for the period already committed, even a
small reduction in sales had a direct impact on reported profits. Underlying
Profits for the Group rose 6.8% to #33.2m, which after Investment of #35.7m,
resulted in a loss before interest, tax, and amortisation of #2.5m, compared
with EBITA of #20.2m the previous year.
In 1999 we had established the international network of businesses that became
The Future Network and we started 2000 with operations in the UK, US, France,
Germany, and Italy. The Network was further extended mid-year with the
acquisition of a company in Poland. With initially strong consumer interest in
the whole technology sector at the start of the year and the planned European
launch of PlayStation 2 scheduled for autumn, we were optimistic about our
strategy.
We launched 34 magazines across the group during the year, an Investment of
some #19.7m. We were particularly encouraged by the early promise of a number
of these launches. The Investment in our Internet activities amounted to #10.4
million, including the UK roll out of our strongly-growing US entertainment
and computer games site, dailyradar.com. Internet traffic continued to grow,
reaching 7.3 million monthly unique visitors and 123 million page views by
year end. Online revenues also grew strongly, up 282% to #6.5 million.
In October we discovered an internal accounting irregularity in our French
business that had resulted in newsstand sales being overstated for the
previous two years. An investigation by Deloitte & Touche established that the
problem was confined to newsstand accounting at Future France.
The details of the irregularity are explained in the Finance Director's
Report, but the impact on the French business was significant. Our internal
forecasts for 2000 had been based on incorrect information, prompting us to
downgrade our profit forecast for the French business by #2.3 million.
Across the Group, revenue shortfall in the vital last quarter sharply affected
our business and led to two profit warnings. It also revealed a need to
improve our management systems that had built up during a period of rapid
growth. The scale of change prompted us to initiate a review of all aspects
of our business and Investment plans.
The measures we have taken to restore longer-term profitability have been
wide-ranging. In total we have closed 20 titles across the Group, sharply
reduced Internet Investment, cut staff numbers by 17%, restructured our
central support functions, significantly scaled back our activities in France
and Germany and closed our small business in the Netherlands and an editorial
office in Japan. Our objective, throughout this process, has been to improve
our financial position and to ensure we have the right systems and people in
place for the long term. Though much has been achieved, further work remains
to be done.
Closed titles accounted for #18m of revenue and represented losses of #14.7m
in 2000. In 2001, restructuring costs will be in the region of #5m and
Investment will be reduced to #12m, which includes approximately #3m for
losses incurred in 2001 on the closed titles.
We have also taken steps to strengthen the management of the business, with
the appointment of Colin Morrison as Chief Operating Officer. He is primarily
responsible for our UK and European businesses and for international
licensing. We also strengthened the Board with the appointments of Michael
Penington and Elisabeth Murdoch during the year and have announced the
appointment today of Roger Parry as Deputy Chairman. Following Ian Linkins'
decision to step down from the Board in April, we have also announced today
the appointment of Michael Penington as Interim Finance Director. I am very
grateful to the Board for their support and guidance during these difficult
past few months and would also take this opportunity to record the Board's and
my own appreciation of the contribution made by Ian to The Future Network plc
- before and since flotation.
In February 2001 we announced our plans to investigate a range of strategic
options for Business 2.0. Our new economy title has had extraordinary success
since its launch in 1998, rising to twice monthly US circulation of 350,000.
We are extremely proud of what we have achieved with Business 2.0, which has
rapidly grown from a small launch to a mainstream business title. We believe
it is appropriate now to be examining all options for the next stage in this
magazine's development.
Despite the difficulties of the second half of the year, we remain positive
about what has been achieved overall in the past two years, and are determined
to regain our strategic momentum.
We have market leadership in many attractive sectors and highly profitable
magazines on which to build. We are the world leader in computer games
magazines and are well positioned to capitalise on the continued roll-out of
Sony's PlayStation 2 and the worldwide launch of Microsoft's Xbox later this
year (and with it our exclusive international publishing licence). It is this
strong core that will be the focus of our drive to restore shareholder value
in 2001 and beyond.
Review of operations
(All results included in the review exclude amortisation and impairment of
intangible assets. All 1999 numbers are restated pro forma numbers).
United Kingdom
#m Magazine Internet 2000 1999 % change
Underlying Revenues 98.5 - 98.5 93.6 5.2%
Investment Revenues 10.6 1.3 11.9 6.6 80.3%
Total Revenues 109.1 1.3 110.4 100.2 10.2%
Underlying Profit 17.6 - 17.6 21.2 (17.0%)
Investment (4.8) (2.5) (7.3) (2.7) 170.4%
Operating profit/(loss) 12.8 (2.5) 10.3 18.5 (44.3)%
Revenues from the UK operations continued to grow in 2000, despite the
transition in the games sector. New launches accounted for the majority of
this increase. But circulation growth was also achieved from a number of
existing titles, in particular T3 (up 8.6%) and Total Film (up 7%).
Advertising revenues grew by 41% to #31.9m.
Our Investment in new magazines, including the UK edition of Business 2.0,
amounted to #5 million. There was also significant Investment ahead of the
launch of PlayStation 2 in November, where we introduced two new titles,
including The Official PlayStation 2 Magazine. These titles have helped to
increase our PlayStation market share to a record 67%. However, the much
publicised problems with the delayed PlayStation 2 launch and its impact on
the computer games sector as a whole, particularly over the key Christmas
period, resulted in lower than expected profits for the UK business.
Despite this, we increased our overall games market share to 57%, and are well
positioned for the expected growth in 2001-2002.
Our three-year licence to publish the Official PlayStation 2 Magazine, was won
against stiff UK and international competition and is an important part of our
strategy for the next generation of games consoles. Relative to the installed
base, early copy sales are encouraging. Longer term, with the planned launch
of Microsoft's Xbox in early 2002 and our official magazine, we are confident
that there are attractive opportunities in this sector.
As a result of the strategic review in the UK announced in February 2000, we
closed six small loss-making titles, four magazine websites and also reduced
overheads.
United States
#m Magazine Internet 2000 1999 % change
Underlying Revenue 87.1 - 87.1 48.2 80.7%
Investment Revenues 6.8 5.1 11.9 7.3 63.0%
Total Revenues 93.9 5.1 99.0 55.5 78.4%
Underlying Profit 19.6 - 19.6 7.2 172%
Investment (12.1) (6.8) (18.9) (5.9) 220.3%
Operating profit/(loss) 7.5 (6.8) 0.7 1.3 (46.2)%
The US operations performed very strongly during 2000, with Underlying
Revenues up 80.7% and Underlying Profitability up 172%. The success was
particularly driven by Business 2.0. Investment increased from #5.9m to #
18.9m, and accounted for #6.8m of additional print revenues.
2000 was also a year of highly ambitious launch activity as we sought to
expand the portfolio and to introduce successful UK titles, including T3 and
Total Movie. The impact of the slowdown in advertising and newsstand sales in
the fourth quarter led to a review of Investment activity. As a result, six
titles were closed in February 2001, most of which had been launched during
2000. Titles closed include Revolution, T3, Total Movie and the 1999 launch,
Official Dreamcast. The six titles accounted for revenues of #10.5m in 2000.
Future's 2001 launch activity will centre on the launch of its Official
Microsoft Xbox Magazine in the autumn.
We are reviewing strategic options for the next stage in the development of
Business 2.0.
In July we made a strategic investment in TED Conferences LLC, one of the most
successful and innovative conferences in the US, focused on Technology,
Entertainment and Design. We acquired a 49% stake in this profitable business
for $8m.
Our five-year licence to publish Official Microsoft Xbox Magazine world-wide
(bar Japan) was secured in competition with some of the world's leading
publishing groups and was a significant international development for Future.
This marked the first time that any company had been awarded a global licence
of this scale, powerfully illustrating the benefit of our international games
market strategy.
Mainland Europe
Our Mainland European activities now include operations in France, Germany,
Italy, and Poland.
#m 2000 1999 % change
Underlying Revenues 36.7 37.2 (1.3)%
Investment Revenues 7.8 4.6 69.6%
Total Revenues 44.5 41.8 6.5%
Underlying (Loss)/Profit (1.1) 4.7 (123)%
Investment (9.4) (2.4) 292%
Operating (Loss)/Profit (10.5) 2.3 (557)%
Mainland Europe accounted for 17.5% of group revenues in 2000. We now publish
35 magazines and employ over 400 staff. The Polish business was acquired in
July 2000, and it publishes the country's leading computer games magazine, CD
Action.
France
#m 2000 1999 % change
Underlying Revenue 17.2 17.4 1.1%
Investment Revenues 2.8 3.6 (22)%
Total Revenues 20.0 21.0 (4.8)%
Underlying (Loss)/ Profit (1.3) 2.1 (162)%
Investment (3.3) (1.3) 154%
Operating (Loss)/Profit (4.6) 0.8 (675)%
2000 was planned to be a year of accelerated growth for our French operations
and a number of new launches were planned for the year, including Jeux Video.
These growth plans were hit, however, by the discovery of the accounting
irregularity in the business.
We responded vigorously to the problems, strengthening financial controls and
installing a new Finance Director in France. We have also closed five games
and music titles and reduced overhead costs.
Italy
#m 2000 1999 % change
Underlying Revenues 12.3 15.8 (22.2)%
Investment Revenues 2.7 0.8 238%
Total Revenues 15.0 16.6 (9.6)%
Underlying Profit 2.5 4.0 (37.5)%
Investment (2.0) (0.3) 566.6%
Operating profit 0.5 3.7 (86.5)%
Our Italian business has the greatest exposure to the computer games sector
and so was significantly affected by the delayed transition from PlayStation 1
to PlayStation 2. This is reflected in a decline in revenues from #16.6m to #
15.0m and Underlying Profitability from #4m to #2.5m.
The highlight of the year was the launch of Business 2.0, which exceeded our
early expectations. We also secured the licence to publish the Official
PlayStation 2 Magazine. This licence builds on our existing relationship with
Sony, and positions the business strongly for the next generation consoles.
Germany
#m 2000 1999 % change
Underlying Revenue 5.1 4.0 27.5%
Investment Revenues 1.9 0.2 850%
Total Revenues 7.0 4.2 66.7%
Underlying Loss (2.6) (1.4) (85.7)%
Investment (3.8) (0.7) 443%
Operating loss (6.4) (2.1) (204.8)%
We have not made the progress that we had intended to in 2000. Revenues
increased by 66.7% to #7.0m, however increased Investment costs together with
the effects of the more difficult computer games market, have contributed to
increased losses.
Our Investment in new magazine launches to expand the portfolio beyond the
computer games market amounted to #3.8 million.
Internet
#m USA Europe 2000 1999 % change
Revenue 5.1 1.4 6.5 1.7 282%
Operating loss (6.8) (3.6) (10.4) (3.6) (188.9)%
Despite the general change in sentiment towards the online sector during the
year, our Internet activities continued to make good progress in 2000.
Revenues increased 282% to #6.5m and monthly unique visitor numbers increased
to 7.3 million in December, up 58% on the 4.6 million reported in March last
year and 12% up on the number announced in September. Monthly page views were
123 million.
Investment in online activities totalled some #10m during the year, including
the UK launch of Future's most successful games site, dailyradar.com. In
2001, we will reduce Internet Investment by more than 50%, including the
closure of four magazine-related sites in the UK and our German computer games
site.
We consider that we have an appropriate long-term strategy for low-cost online
development.
Current trading & prospects
We expect the Group to record a substantial loss in the first half of 2001.
This will include losses totalling approximately #3 million from the magazines
and websites that have been closed during January and February 2001; and
restructuring costs of the closures and redundancies, which will be in the
region of #5m.
It has indeed been a bruising period but the management team believes that the
business is being rebased on a more conservative footing, with less being
risked on launches, and more growth opportunities emerging in the recovering
games market. Current performance reflects continuing tough market conditions
and is in line with our internal forecasts.
Greg Ingham
Chief Executive
19 March 2001
Finance Director's Report
(All figures relating to 1999 are pro forma restated figures)
During 2000 the Group significantly increased its Investment, in the knowledge
that this would reduce headline profits. We had expected this peak level of
Investment to be supported by a growing profit stream from the Group's core
business. But the outcome was affected by weaker than expected trading,
especially in the final quarter, which has produced a disappointing result.
Underlying Revenue and Profitability
The Group draws a distinction between Investment, ie the losses incurred on
developing products, and Underlying Profit, ie the profits (and in some cases
losses) from longer established products. The definition has been applied on a
consistent basis with previous reports. "Investment" comprises losses, at the
operating profit level on magazine properties less than two years from their
launch dates, and on Internet properties. Thus if magazines are continuing to
generate losses after two years, or if they go into profit ahead of that
deadline, their results are classified as Underlying.
All launch and promotion costs are expensed as incurred and we regard two
years as being a relatively demanding standard cut-off point for magazines to
be turned into profitable properties in our markets, although some can achieve
profitability in a significantly shorter timeframe. Investment as defined here
does not include spending on our Underlying titles, even though there will of
course be ongoing spend where necessary. The cut off is applied at the end of
the period. So in respect of 2000 results Investment will comprise magazines
reporting a 2000 loss at the operating profit level launched after January
1999, and Internet properties. The Investment figure of #35.7m is made up of #
5.1m of losses incurred on magazine launches in 1999, #19.7m for 2000 launches
and #10.4m from internet activities.
Our print business has grown its Underlying Profit by 6.8% to #33.2m. While
there has been a decline in games magazine profits this has been offset by
growth in other areas, primarily Business 2.0 in the US. Our Investment was
above that planned, as revenue growth in areas such as PlayStation 2 titles
was lower than expected, and is more than triple the 1999 level.
Revenue
In order to allow comparative margin analysis between Underlying and
Investment portfolios, we have analysed revenues between these categories as
follows:
Underlying Investment Total
2000 1999 Growth 2000 1999 Growth 2000 1999 Growth
#'m #'m % #'m #'m % #'m #'m %
Print
UK 98.5 93.6 5 10.6 6.2 71 109.1 99.8 9
US 87.1 48.2 81 6.8 6.0 13 93.9 54.2 73
France 17.2 17.4 (1) 2.8 3.6 (22) 20.0 21.0 (5)
Italy 12.3 15.8 (22) 2.7 0.8 238 15.0 16.6 (10)
Germany 5.1 4.0 28 1.9 0.2 850 7.0 4.2 67
Poland 2.1 - - 0.4 - - 2.5 - -
Total print 222.3 179.0 24 25.2 16.8 50 247.5 195.8 26
Internet - - - 6.5 1.7 282 6.5 1.7 282
Total 222.3 179.0 24 31.7 18.5 71 254.0 197.5 29
Our Underlying Revenues have grown by #43.4m (24%) in 2000, despite this
category containing many games products which have experienced weaker than
expected markets. Our Italian business - proportionately the most dependant on
games titles was affected the most. An area of significant growth was the US
particularly as Business 2.0 increased its revenues in part by publishing
twice monthly from May 2000.
#31.7m of our revenue, 12% of the total, was from products classified as in an
Investment category, in many cases representing part year revenues of products
launched in 2000. The largest contribution was in the UK from products such as
Business 2.0, and also launches connected with Sony PlayStation 2. Internet
revenues grew from a small base by 282%, as products such as dailyradar.com
were grown in the US and rolled out internationally. Year on year comparisons
are less valid in the Investment category as products will have part year
figures for their year of launch.
Advertising revenues have grown from #66.0m, (34% of revenues in 1999) to #
111.0m, (44% of revenues in 2000). This is primarily a consequence of the
relative growth of our US business where advertising is a more important
component in the mix. However our UK business has also achieved strong growth
in advertising, of #9.3m, (29% of total revenue), up from #22.6m, (22% of
revenue in 1999).
Profitability Underlying Investment Total EBITA
2000 1999 2000 1999 2000 1999
#m #m Growth % #m #m #m #m Growth %
Print
UK 17.6 21.2 (17) (4.8) (1.8) 12.8 19.4 (34)
US 19.6 7.2 172 (12.1) (3.3) 7.5 3.9 92
France (1.3) 2.1 (162) (3.3) (1.3) (4.6) 0.8 (675)
Italy 2.5 4.0 (38) (1.7) (0.2) 0.8 3.8 (79)
Germany (2.5) (1.4) (79) (3.1) (0.7) (5.6) (2.1) (167)
Poland 0.3 - - (0.3) - - - -
Print operating 36.2 33.1 9 (25.3) (7.3) 10.9 25.8 (58)
profit
Internet - - - (10.4) (3.6) (10.4) (3.6) (189)
Central costs (3.0) (2.0) (50) - - (3.0) (2.0) (50)
Total 33.2 31.1 7 (35.7) (10.9) (2.5) 20.2 (112)
Analysis of Underlying margins
2000 1999
UK 18% 23%
US 23% 15%
France (8)% 12%
Italy 20% 25%
Germany (49%) (35%)
Poland 14% -
Total 15% 17%
Our computer games magazines have generated lower margins in the Underlying
category in 2000 than in 1999 as the down cycle of the hardware market has
affected both newsstand and advertising demand. Crucially the proportion of
sale or return newsstand copies distributed to the newstrade which are
actually sold has declined. This has been the major reason why Underlying
Profits growth has been lower than expected, and also why margins have
declined in our European businesses. This is reflected in the increase in cost
of sales by 45% while revenue has grown by 29%. Margin decline has been
significantly offset in the US by the profit from Business 2.0.
The administrative expenses category of our profit and loss statement has
increased by #35m year on year, an increase of 63%. This is primarily due to
the increase in the charge for amortisation and impairment of goodwill of #47m
(1999: #16.8m).
Cash
In the year ended 31 December 2000 our net debt position has increased from #
26.9 million to #69.0 million. The major part of this growth was connected
with the expansion of the business, through acquisition and capital
expenditure. The detail is given in the cash flow statement, and can be
summarised as follows
#m
Operating cash flows including interest and tax (6.5)
Capital expenditure and financial investment (6.5)
Acquisitions (29.8)
Other cash flows 0.7
Increase in net debt 42.1
Hedging
In order to protect the Group from unexpected interest rate fluctuations, #44m
of the floating Sterling term debt is the subject of swap contracts
effectively fixing the interest rate at 5.97%. The Group does not trade in
such instruments independent of the operational requirements of the business.
The Group has considered its hedging requirements and concluded that,
currently, it does not need to be hedged against exchange rate fluctuations as
trading inflows, trading and interest costs are broadly aligned within the UK,
US, and Euro currency areas.
Financing
Towards the end of 2000 the increased debt position as discussed above, and
the poor 4th quarter trading caused the Company to enter into negotiations
with its principal bankers to restate its existing facility. Since the year
end a new agreement has been signed which is designed to accommodate the debt
requirements of the Group given the revised profitability and growth
projections for 2001 and 2002.
The restated facility is a #100m multicurrency revolving facility consisting
of a number of tranches which are all repayable on 30 September 2002. Under
the terms of the restated facility the existing bank borrowings bear interest
at rates fixed in advance for periods between 1 and 3 months by reference to
LIBOR and EURIBOR plus a margin of 3.15%. New borrowings will bear interest at
rates fixed in advance for periods between 1 and 3 months by reference to
LIBOR and EURIBOR plus a margin of between 3.15% and 6%.
Restructuring
On 16 February 2001 the Group announced plans for a restructuring of its
business designed to streamline the Group's portfolio, reduce operating costs,
pay down debt and enhance profitability. Costs of this restructuring are
expected to be approximately #5m in 2001.
As a result of restructuring, magazines and web sites responsible for nearly #
18m of turnover and #14.7m of operating losses have been closed, although they
will have continued in publication for part of 2001. A number of the titles
closed were expected to incur continuing losses in 2001, and their closure
will reduce Investment and uncertainty levels in 2001.
French Accounting Irregularity
In October 2000 the Group reported that an accounting irregularity had been
identified at its French operating company. This problem was identified
initially by local management, and was promptly investigated by Group finance
staff and by Deloitte & Touche.
The problem was confirmed to relate to the accounting entries recording
newsstand sales in France. It had originated in 1998, and resulted in an
overstatement of reported sales and debtors in 1998, 1999 and the first half
of 2000. The investigation that was carried out revealed no other material
errors in the accounting for the French business, and no other similar
practices of newsstand accounting in any other subsidiary. Errors arising in
1998 and 1999 have been corrected by restatement of the prior year in this
report as follows:
Total 1999 1998
restatement restatement restatement
#m #m #m
Turnover (3.3) (1.0) (2.3)
EBITA (3.3) (1.0) (2.3)
Tax 1.3 0.4 0.9
Loss on ordinary activities after (2.0) (0.6) (1.4)
tax
Goodwill
As the Group has been brought together by acquisition, the balance sheet
contains goodwill amounting to #253.8m. An element of subjectivity is involved
in setting asset lives of acquired businesses, and these have been decided on
a case-by-case basis. Established magazine businesses have been estimated to
have a life of 20 years and those which were not profitable at the time of
acquisition, such as Imagine Media, or requiring investment to have a
long-term future, such as those acquired in Germany, have an estimated life of
10 years.
In accordance with FRS11, the Board has carried out an impairment review on
the carrying value of goodwill in the balance sheet. On review of the
performance of the assets acquired in Germany in 1999, it has been decided to
write down their value by #6.2m to zero as at December 2000. Additionally, in
view of the lower base profitability now seen in the French business, a write
down of #12.4million, representing just under half its previous holding value
of #26.7million has been made.
Fixed asset investments
At the time of its acquisition by the Group, Imagine Media Inc, the Group's US
subsidiary held shares in Snowball.com (which has subsequently obtained a
NASDAQ listing). In the light of an uncertain future for Internet businesses,
we have decided to write this investment down to zero.
During the early part of the year we also made other minority investments in
Internet businesses, primarily in the US, which were accounted for at cost of
#4.2m. We have decided to fully write down several of these investments at a
cost of #2.5m.
Acquisitions
The three main acquisitions in the year were
* the acquisition by Future Publishing Limited of the trade and assets
relating to the following titles from Dennis Publishing Limited in January
* the acquisition of Silver Shark Sp.z.o.o. in Poland in July.
* the acquisition of a 49% stake in a US conference business, TED
Conferences LLC in July
Taxation
The Group has generated taxable profits in the UK and Italy. Taxable losses
arose in the other overseas businesses during the year.
The 31 December 1999 tax charge has been adjusted for the estimated tax credit
from the French profit overstatement of #0.4 million.
Earnings per share
The basic loss per share has declined from (2.09p) in 1999 to (42.68p) in 2000
as a result of the factors that have been discussed earlier in this report.
Dividend
No dividend is proposed
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