RNS Number:5470I
Future Network PLC
11 March 2003
11 March 2003
THE FUTURE NETWORK PLC
Preliminary results for the year ended 31 December 2002
The Future Network plc (LSE: FNET), the international specialist consumer
magazine group, today announces its preliminary results for the year ended 31
December 2002.
Financial highlights
Turnover from continuing activities up 16% to #165.3m (2001: #142.9m)
Adjusted operating profit* from continuing activities up 82% to #18.2m (2001:
#10.0m)
Other operating income #2.2m (2001: Nil)
Amortisation charge #10.3m (2001: #120.6m including impairment write-downs)
Pre-tax profit #10.7m (2001: pre-tax loss #121.0m)
Net cash balances of #16.8m (2001: net debt of #7.8m)
Other highlights
Continuing circulation revenue up 22%, advertising revenue up 7%
13 magazines launched during year, performing profitably in aggregate
Strong performance in second half-year confirms seasonal trend
Proposed #3.5m acquisition of four magazines in France from Hachette
Recent trading performance encouraging
Two new non-executive appointments to Board from 12 March 2003
Definitions
*Adjusted operating profit: operating profit before amortisation and impairment
of goodwill and intangible assets, other operating income and refinancing costs
**Adjusted basic earnings per share is based on earnings before amortisation and
impairment of goodwill and intangible assets, other operating income and
refinancing costs
Commenting on the results, Greg Ingham, Future's Chief Executive said:
"Future is now well-positioned strategically, managerially and financially. It
is a successful specialist consumer magazine publisher.
"Our strategy is to both maximise our position within computer games magazines;
whilst at the same time broadening our overall magazine portfolio.
"Consistent with this strategy, in 2002 we launched a total of 13 magazines -
nine computer games magazines and four others. We have agreed to acquire four
magazines in France from Hachette subject to regulatory approval. We will launch
several new titles this year, and may make further acquisitions.
"Circulation revenue now accounts for 68% of Group turnover and is expected to
show growth in 2003. We expect advertising income to be flat this year.
"Current trading for 2003 has been encouraging. I would remind shareholders that
Future has historically shown much stronger trading in the second half of the
calendar year. It is also clear that our success in 2003 will be affected by the
general economic climate, which at present is overshadowed by much international
uncertainty."
Enquiries:
The Future Network plc
Greg Ingham, Chief Executive Tel: 01225 442244
John Bowman, Finance Director
Hogarth Partnership
James Longfield/Georgina Briscoe Tel: 020 7357 9477
Chairman's Statement
--------------------
Summary
-------
Publishing magazines can be successful as a business only if a company is
fortunate enough to have skilled and motivated people. I am pleased to report to
you that Future Network has been very successful in 2002 because of the efforts
of a talented and dedicated staff. It is the ability and enthusiasm of almost a
thousand people which creates the success of our business.
Financial results
-----------------
I am delighted to report that Group turnover from continuing activities rose by
16% to #165.3m; profit before tax amounted to #10.7m in comparison with losses
in 2000 and 2001; and basic earnings per share arose for the first time,
amounting to 1.9 pence per share. Future was able to pay off all bank debt
during 2002 and the Group ended the year with net cash of #16.8m.
2002 was a very difficult year for most media companies, particularly those
which rely on display advertising as a major part of their income. Against this
background, it is very pleasing to report that Future Network was one of the
best performing media shares in Europe according to the brokerage firm UBS
Warburg.
Business activities
-------------------
Our business of publishing a portfolio of specialist consumer magazines has been
able to expand profitably and we plan to make further progress in 2003. At the
end of 2002, Future published more than 82 magazines in four countries: the UK,
US, France and Italy; with international licensing of many of our titles in 27
other countries. The current portfolio is focused around computer games,
computing and other specialist titles.
Board and corporate governance
------------------------------
Two non-executive Directors resigned during 2002 in order to spend more time on
their other business interests. On 29 May we announced the resignation of
Elisabeth Murdoch and on 25 September, the resignation of Brendan Clouston. I am
grateful to both for their contributions over two and three years respectively.
At the end of last year, the Board as a whole agreed that, while the balance of
non-executive and executive Directors was satisfactory, it would be desirable in
due course to appoint at least one more non-executive Director. I am therefore
very pleased that we are able to announce today the appointment of John Mellon,
the former Chairman of IPC Magazines and a member of the Executive Committee of
Reed Elsevier; and Lisa Gordon, the former Corporate Development Director of
Chrysalis Group, who will both join the Board on 12 March 2003 as independent
non-executive Directors.
As a Board we are strongly focused on corporate governance issues, which we
believe can help both the health and wealth of media companies. It is my
intention to ensure that Future continues to have a good balance between
executive and non-executive Directors and I welcome comments from shareholders
on this or any other corporate governance issues.
During the last year, we took a number of steps to strengthen Group management
and control. In September, we appointed Mark Millar as our new full-time Company
Secretary and Head of Legal. Mark is a solicitor who joined us from one of the
leading international law firms, Allen & Overy. He has a wide range of UK and
international commercial and corporate finance experience, gained over a
ten-year legal career in the City.
Annual General Meeting
----------------------
This year, our AGM will be held on 15 May and the business for that meeting will
include two significant new proposals. I will be writing to you separately with
full details of our proposals, which includes the following special business.
First, the Board has decided that it would be appropriate to propose a reduction
of the Company's share premium account in order to eliminate the accumulated
deficit on the Company's profit and loss account. This step will pave the way to
enable the payment of dividends in due course.
Secondly, we propose to introduce a Long-Term Incentive Plan in order to align
the interests of executive Directors and senior management with those of
shareholders generally. I signalled that we were considering this matter when I
wrote to shareholders in April 2002, and the proposals we are putting forward
for this year's AGM are, we believe, in the best interests of shareholders and
the Company.
Current trading and prospects
-----------------------------
Current trading for 2003 has been encouraging. I would remind shareholders that
Future has historically shown much stronger trading in the second half of the
calendar year. It is also clear that our success in 2003 will be affected by the
general economic climate, which at present is overshadowed by much international
uncertainty.
Circulation revenue now accounts for 68% of Group turnover and is expected to
show growth in 2003. We expect advertising income to be flat this year.
Future is now well-positioned strategically, managerially and financially. It is
a successful specialist consumer magazine publisher. I am optimistic that our
shareholders' confidence in Future will continue to prove justified in the years
to come.
Roger Parry
Chairman
11 March 2003
Chief Executive's Review
------------------------
Overview of continuing business
-------------------------------
We began 2002 with a more focused Group and in a much stronger position than
2001. This enabled the Group to concentrate on what it does best - publishing
and launching specialist consumer magazines. Each of our four businesses in the
UK, US, France and Italy improved in 2002.
Business activities
-------------------
Our diverse portfolio of 82 specialist consumer magazines is focused around
computer games, computing and other specialist sectors and it is worth
commenting on these before considering their progress geographically.
Computer games
--------------
In 2002, 45 per cent of revenues derived from computer games magazines, a sector
which has been growing strongly. The computer games sector is estimated to have
had worldwide hardware and software sales of $27 billion in 2002. The larger
players in this market are Sony, Microsoft and Nintendo, with combined sales of
their latest games consoles (PlayStation 2, Xbox and GameCube) of an estimated
60 million since their products were launched over the last two years or so.
Future is the worldwide leader in computer games magazines, with 2002 revenues
of #76m and monthly average sales of owned and licensed magazines of some 2.5
million. We have Official magazine relationships with Sony (in the UK); with
Microsoft (worldwide Official Xbox magazine rights, excluding Japan); and
Nintendo (France and Italy). Additionally, we have a strong portfolio of
unofficial titles, including the world's biggest selling PC games magazine, PC
Gamer.
Future's Official magazines benefit from a close relationship with the console
manufacturers, though Future retains full editorial control. PlayStation 2 and
Xbox Official magazines also feature an exclusive disc of playable game demos.
The detailed financial terms of our Official magazine relationships are not
disclosed but usually represent a form of royalty payable in relation to numbers
of magazines sold.
During the year, Future strengthened its worldwide leading position, with gains
in market share in the UK, US and France. We have launched the Official Xbox
Magazine in our four countries and licensed it in a further three. We have
announced today that subject to regulatory approval, we have agreed to acquire
three computer games magazines from Hachette in France.
Computing
---------
Computing titles provided 33 per cent of our 2002 magazine revenues. Future is a
significant publisher of computing magazines in its four territories, with 2002
revenues of #54m.
In 2002 the computing sector continued to experience difficult market
conditions. This has been more pronounced in the business and professional
sector than in the consumer PC sector where Future largely operates. Against
this background, we feel that our performance has been relatively robust: our
total computing revenue decline was 2%. This was driven by an entrepreneurial
determination to seek out new revenue streams, including launches, and to take
market share.
Chief amongst the launches was Windows XP: The Official Magazine, which we
published from January under an agreement with Microsoft in the UK, quite
separate from our Xbox relationship. Later in 2002, we launched this
successfully in France.
Other Specialist titles
-----------------------
These titles are published in the UK, and also represent a very significant, and
growing, part of our licensed portfolio. These other specialist titles provided
22 per cent of Group 2002 magazine revenues.
These titles are published by our Entertainment division, which is responsible
for about half of the UK's 54 titles. The division covers ten separate
sub-sectors, including technology, music and music-making, film,
mountain-biking, stitching, football, and motoring. The majority of these
sub-sectors are aimed at young male readers, and Future holds leading positions
in several of them.
Review of business by territory
UK performance
--------------
Our UK business remains by far the largest of Future's operations and provides
much of the original editorial material which is used in our licensing
activities and also by our mainland European subsidiaries. The business returned
to launching new magazines in 2002, and increased revenues and improved
profitability.
The UK business is the heart of Future, representing 58 per cent of the Group's
continuing revenues and the clear majority of its profits. It publishes 54
magazines and employs just under 600 staff. It is also the most diversified
business within the Group, covering computer games (13 magazines), computing (16
magazines), and entertainment (25 magazines). Continuing revenue split: 72 per
cent circulation, 23 per cent advertising, five per cent other (primarily
licensing). By sector, the revenue split is: computer games (34%), computing
(29%) and entertainment (other specialist) (37%).
The UK business (Future Publishing and the smaller Xbox magazine publishing
business FXMi) increased adjusted operating profits from #13.3m to #16.7m and
increased margins from 15 per cent to 17 per cent in terms of adjusted operating
profit as a percentage of turnover.
Overall computer games magazines sales, including launches, increased by 23 per
cent year-on-year to 690,000 copies per month. Future's share of the UK computer
games magazine market increased from 55 per cent to 61 per cent year-on-year by
volume and from 60 per cent to 67 per cent by value. Future estimates it gained
more than three-quarters of the overall sector increase in copy sales value
during the year.
In computing, the launch of Microsoft Windows XP: The Official Magazine offset
circulation declines elsewhere in the UK computing division, which achieved an
overall portfolio increase in copy sales of over five per cent year-on-year.
The entertainment division (other specialist) delivered a solid performance
overall - in particular the music titles, where six out of our eight magazines
recorded year-on-year growth.
UK advertising revenue increased by one per cent (advertising revenue compared
with continuing 2001 business). In addition to some impact from the
well-documented general advertising difficulties in 2002, we were also affected
by continuing toughness in technology-related advertising.
The UK business includes high margin revenues from licensing editorial content
to third parties and to Group companies in France and Italy. In 2002, third
party licensing revenues for the UK were #1.8m (2001: #2.3m) and intra-Group,
#1.2m (2001: #1.4m).
US performance
--------------
In the US we have seen dramatic progress in our operations. This has been led by
a 24 per cent revenue increase, primarily due to the success of our computer
games magazines, and also by a much tighter management focus on costs.
The US business represents 24 per cent of the Group's continuing revenues,
publishing five magazines and employing some 100 staff. The business publishes
computer games and computing magazines, with revenues split: 49 per cent
circulation, 48 per cent advertising, and three per cent other.
I am grateful to Jonathan Simpson-Bint, who became Managing Director of Future
Network USA during 2001 and who together with his team very ably led it to
profitability in 2002. The adjusted operating profit margin of 11% reflects both
the active management of costs and an ability to take full advantage of the
rising games market.
Future US gained market share in both computer games and computing sectors in
2002. The portfolio had growth of 25 per cent and 21 per cent in circulation and
advertising respectively.
Future US now publishes the biggest-selling PC games, PlayStation and Xbox
magazines in the US. The computing magazine Maximum PC was the only one in its
sector in the US to show growth in advertising pages in 2002 over 2001.
The November 2001 launch of Official Xbox Magazine performed well in 2002, both
on circulation and on advertising. We increased its ratebase (guaranteed copy
sales to advertisers) from 250,000 to 325,000 copies sold per month. This will
be increased further in 2003 to 400,000.
Mainland Europe performance
---------------------------
Our European operations in France and Italy made progress in 2002. They
increased their revenues by 18%, but have not yet reached the desired level of
profitability. We have strengthened the management of both businesses.
France and Italy are the two Future businesses in Mainland Europe and they
represent 18 per cent of the Group's continuing revenues. We now publish 23
magazines in the computer games and computing sectors, and employ around 220
staff. Continuing revenue split: 74 per cent circulation, 26 per cent
advertising.
We were pleased to welcome in the spring of 2002 Sari Zaimi and Bernardo
Notarangelo as Managing Directors of our French and Italian businesses. They
have been effective in leading change in these businesses.
Revenues in both France and Italy grew strongly during the year. On the cost
side, expenditure arose in relation to the completion of our 2001 restructuring,
and also in making selected changes in senior management. The net impact on 2002
results of these changes was #0.7m. Intra-group licensing paid to other Group
companies amounted to #1.4m during the year (2001: #1.4m).
Our French business publishes 13 magazines and we have recently agreed to
purchase three computer games titles and one other magazine from the French
company, Hachette. The transaction is subject to regulatory approval in France.
If successful, the proposed acquisition provides added scale, helping us to
build a better business in France.
It is clear that, overall, our French and Italian business have improved
compared with 2001 but work remains to be done.
Strategy
--------
Our strategy is both to maximise our position within computer games magazines;
whilst at the same time broadening our overall magazine portfolio.
Consistent with this strategy, in 2002 we launched a total of 13 magazines -
nine computer games magazines and four others. We have agreed to acquire four
magazines in France from Hachette subject to regulatory approval. We will launch
several new titles this year, and may make further acquisitions.
Future employs a large number of creative and commercial people, and I am proud
to have led the Group through what has been a successful year. I am grateful to
our management teams for harnessing the many talents which lie at the heart of
this successful publishing Group. We are in good shape and look forward with
confidence.
Greg Ingham
Chief Executive Officer
11 March 2003
Operating and Financial Review
------------------------------
Purpose of Review
-----------------
The main purpose of this review is to explain the financial results for 2002 and
thereby to assist assessment of the future performance of the Group by setting
out the Directors' analysis of the business. Accordingly, I comment in
particular on accounting policies that have required the exercise of judgement
in their application, and to which the results are most sensitive; and the
measures used by the Directors as key performance indicators in managing the
business.
Structure and size of the group
-------------------------------
By the end of the year under review, the Group published 82 specialist magazines
and operated subsidiary companies in the UK and three overseas countries. In
addition, the Group licensed local editions of its magazines in a further 27
countries. The Group's progress in comparison with 2001 can be seen from the
following information.
2002 2001 Change
Total turnover #165.3m #174.1m 5% decrease
Continuing turnover #165.3m #142.9m 16% increase
Magazines 82 76 See table overleaf
Overseas subsidiaries 3 3 No change
Year end headcount 934 1,002 7% down
Net cash / (net debt) #16.8m (#7.8m) Net inflow of #24.6m
Magazine portfolio
------------------
By the end of the year, the Group published 82 specialist magazines in four
countries, as follows:
Number of titles At 1 Launches Disposals/ At 31
published January closures December
--------------------------------------------------------------------------------
UK 51 7 (4) 54
US 5 - - 5
France 10 3 - 13
Italy 10 3 (3) 10
--------------------------------------------------------------------------------
Total 76 13 (7) 82
--------------------------------------------------------------------------------
The Group's magazine portfolio can be analysed by type as follows:
Number of titles Computer Computing Other Total
published games specialist
--------------------------------------------------------------------------------
UK 13 16 25 54
US 3 2 - 5
France 6 7 - 13
Italy 5 5 - 10
--------------------------------------------------------------------------------
Total 27 30 25 82
--------------------------------------------------------------------------------
During the year 13 titles were launched, following the significant launch in
November 2001 of the US Official Xbox Magazine. Management estimated at the
half-year stage that 2002 net losses arising from these 14 titles (as measured
by gross contribution) would not exceed #2m. Following stronger than expected
performance, the result for the year includes an aggregate positive gross
contribution to Group profit from these 14 titles.
Magazines launched during 2002
--------------------------------------------------------------------------------
Country Title
--------------------------------------------------------------------------------
UK Official Xbox Magazine
UK Xbox Gamer
UK Official Windows XP Magazine
UK Complete Guide Series
UK/Germany Das Offizielle Xbox Magazin
UK Official PlayStation 2 Tips
UK Digital Camera
France Official Xbox Magazine
France Official Nintendo Magazine
France Official Windows XP Magazine
Italy Official Xbox Magazine
Italy PlayNation 2
Italy Official Nintendo Magazine
In seeking further growth during 2003, the Group expects to commit no more than
#4m in respect of 2003 net losses (measured at the gross contribution level)
arising from new magazine launches. This represents a prudent level of
investment in the development of the Group's portfolio and can also readily be
funded from the Group's cash resources.
Key performance indicators used by management
---------------------------------------------
The Directors monitor the Group's progress by reference to circulation and
advertising revenue by territory, by type and by sector. For management accounts
purposes, each magazine has a profit and loss account, detailing magazine
revenues and (after deducting direct magazine-related costs) the resulting gross
contribution. Any magazine which produces a negative gross contribution is
considered carefully, to ensure that such a result is justified in business
terms: for example, that early losses following a magazine launch are running
within acceptable parameters. Overheads are reviewed as a block of expenditure
on a country by country basis. Gross contribution less overheads results in
adjusted operating profit, which the Directors regard as the single most
important performance measure in assessing the Group's profitability.
Accounting policies
-------------------
Most of the Group's accounting policies have remained unchanged from the
previous year. The only policy which changed related to deferred taxation.
Accordingly, no accounting policy changes had any impact on the measurement of
the Group's pre-tax profits for 2002. There are however several areas within the
2002 Group accounts which required the exercise of judgement by management,
notably the areas of bad debt provisions and provisions in respect of onerous
property leases.
Revenue recognition
-------------------
As in previous years, circulation and advertising revenue relating to a magazine
is recognised with effect from the date the issue goes on sale. For example, the
results for each year include revenue relating to magazines which went on sale
during December, but which did not come off sale until during January. Because
magazines are distributed to retail outlets on a sale or return basis, an
estimate is made of expected sales; this is later corrected to actual sales when
these are known. Appropriate adjustments were made to the results for 2002 (and
for each previous year) in order to update initial estimates to reflect the
latest available returns information.
Review of the Group profit and loss account
-------------------------------------------
Group turnover
--------------
Group turnover for the year was #165.3m, all of which came from continuing
operations. This compares with total turnover for 2001 of #174.1m, of which
#142.9m related to continuing operations. The increase in turnover from
continuing operations was 16%. All turnover was derived from the Group's
principal activity, of publishing specialist magazines serving the computer
games, computing and other specialist (entertainment) sectors.
A comparison of continuing turnover by territory is shown below:
--------------------------------------------------------------------------------
2002 2001 Change
% #m % #m %
--------------------------------------------------------------------------------
UK 58% 97.1 60% 86.7 Up 12%
US 24% 40.5 23% 32.6 Up 24%
Mainland Europe 18% 29.5 17% 25.0 Up 18%
Intra-group - (1.8) (1.4) -
--------------------------------------------------------------------------------
Group turnover 100% 165.3 100% 142.9 Up 16%
--------------------------------------------------------------------------------
Continuing turnover analysed by type is shown below:
--------------------------------------------------------------------------------
2002 2001 Change
% #m % #m %
--------------------------------------------------------------------------------
Circulation 68% 111.9 64% 91.9 Up 22%
Advertising 29% 48.6 32% 45.5 Up 7%
Other 3% 4.8 4% 5.5 Down 13%
--------------------------------------------------------------------------------
Group turnover 100% 165.3 100% 142.9 Up 16%
--------------------------------------------------------------------------------
Continuing turnover analysed by sector is shown below:
--------------------------------------------------------------------------------
2002 2001 Change
% #m % #m %
--------------------------------------------------------------------------------
Computer games 45% 76.3 38% 54.8 Up 39%
Computing 33% 54.4 37% 53.4 Up 2%
Entertainment 22% 36.4 25% 36.1 Up 1%
Intra-group - (1.8) (1.4) -
--------------------------------------------------------------------------------
Group turnover 100% 165.3 100% 142.9 Up 16%
--------------------------------------------------------------------------------
Continuing turnover by half year is shown below:
--------------------------------------------------------------------------------
2002 2001
% #m % #m
--------------------------------------------------------------------------------
First half 45% 74.0 45% 64.8
Second half 55% 91.3 55% 78.1
--------------------------------------------------------------------------------
Group turnover 100% 165.3 100% 142.9
--------------------------------------------------------------------------------
Analysis of Group pre-tax profit
The key elements making up pre-tax profit for 2002 are detailed below. The
profit before tax for 2002 was #10.7m and the corresponding figure for 2001 was
a pre-tax loss of #121.0m of which #120.6m represented amortisation and
impairment of intangible assets.
--------------------------------------------------------------------------------
#m
--------------------------------------------------------------------------------
Adjusted operating profit 18.2
Other operating income 2.2
Net interest receivable and similar items 0.3
Profit on disposal of fixed asset investments 0.3
--------------
Sub-total 21.0
Goodwill amortisation (10.3)
--------------------------------------------------------------------------------
Pre-tax profit 10.7
--------------------------------------------------------------------------------
Each of the above elements is explained below.
Analysis of Group adjusted operating profit by territory
--------------------------------------------------------------------------------
2002 2001
#m #m
--------------------------------------------------------------------------------
UK 16.7 13.3
US 4.6 0.4
Mainland Europe - (0.6)
Central costs (3.1) (3.1)
--------------------------------------------------------------------------------
Group adjusted operating profit 18.2 10.0
--------------------------------------------------------------------------------
During 2002 74% of the Group's adjusted operating profit arose in the second
half of the year, confirming the second half trend evident in 2001 when the
corresponding proportion in the second half was 78%.
The proportion of the Group's profits, as measured by gross contribution, by
sector in 2002 was:
--------------------------------------------------------------------------------
2002 2001
Computing 38% 39%
Computer Games 38% 33%
Entertainment 24% 28%
--------------------------------------------------------------------------------
It is anticipated that for 2003 the proportion of the Group's revenues and
profits, as measured by gross contribution, arising from computer games will
move closer to 50%.
Adjusted operating profit by half year is as follows:
--------------------------------------------------------------------------------
2002 2001 Change
% #m % #m %
--------------------------------------------------------------------------------
First half 26% 4.7 22% 2.2 Up 114%
Second half 74% 13.5 78% 7.8 Up 73%
--------------------------------------------------------------------------------
Group adjusted 100% 18.2 100% 10.0 Up 82%
operating profit
--------------------------------------------------------------------------------
UK performance for year
--------------------------------------------------------------------------------
Margin 2002 Margin 2001 Increase
% Continuing % Continuing %
#m #m
--------------------------------------------------------------------------------
Turnover 97.1 86.7 12%
--------------------------------------------------------------------------------
Direct costs (55.8) (50.6) 10%
--------------------------------------------------------------------------------
Gross profit 43% 41.3 42% 36.1 14%
Distribution (5.3) (5.1) 4%
costs
--------------------------------------------------------------------------------
Gross 37% 36.0 36% 31.0 16%
contribution
--------------------------------------------------------------------------------
Overheads (19.3) (17.7) 9%
--------------------------------------------------------------------------------
Adjusted 17% 16.7 15% 13.3 26%
operating
profit
--------------------------------------------------------------------------------
Turnover for the year amounted to #97.1m from continuing activities, an increase
of 12% compared with 2001. Circulation revenue increased by 19% compared with
2001. Advertising revenue increased by 1% compared with 2001. The proportion of
turnover derived from circulation revenues rose to 73% (2001: 66%).
In terms of UK sales, the split of continuing revenue for 2002 and 2001 by
sector was:
--------------------------------------------------------------------------------
2002 2001
--------------------------------------------------------------------------------
Computer games 34% 29%
Computing 29% 29%
Entertainment 37% 42%
--------------------------------------------------------------------------------
During the year, in the UK Future launched the UK Official Xbox Magazine
("OXM"); Xbox Gamer, an unofficial games magazine; Official Windows XP Magazine,
a new magazine licensed from Microsoft; the "Complete Guide" computing series;
Official Playstation 2 Tips magazine; and, most recently, Digital Camera. In
addition to these, the UK business also contracted with a German company to
contract publish a German language Official Xbox Magazine.
Computer games magazines had a strong year, with circulation volumes up by 23%
for titles published during July-December 2002 compared with the corresponding
six months in 2001 (source: ABC circulation statistics published in February
2003).
The year benefited from the increasing sales of Official PlayStation 2 Magazine,
with a 57% increase year on year in the average monthly sales of this magazine
to 197,000 for the six months to December 2002. Overall, Future's UK market
share of computer games magazines rose from 55% for the six months to December
2001 to 61% for the six months to December 2002.
Continuing turnover for the computing and entertainment sectors both showed
modest year-on-year increases of 5% and 1% respectively. This was achieved by
circulation revenue growth offsetting advertising revenue decline.
In June, subscriptions processing was outsourced to Customer Interface Limited,
which has taken on 26 former staff. Subscription revenue in the year accounted
for 10% of UK turnover.
During the year, the UK business benefited from new contracts for paper,
printing and disc purchasing which contributed to the improvement in the UK
gross contribution margin as shown in the table above. It is hoped that the new
lower running costs will be maintained during 2003.
The split of continuing gross contribution by sector is shown below:
--------------------------------------------------------------------------------
2002 2001
% %
--------------------------------------------------------------------------------
Computer Games 32% 29%
Computing 32% 33%
Entertainment 36% 38%
--------------------------------------------------------------------------------
Overheads for the year increased by #1.6m including the effects of the
relocation in November of the UK accounts function to Bath from Somerton. This
resulted in one-off overhead costs totalling #0.6m for redundancy, recruitment
and training. This compares with an estimated provision of #0.7m which was
included in the first half results.
UK adjusted operating profit was #16.7 m, representing an adjusted operating
profit margin of 17% from continuing activities, compared with 15% in 2001.
These changes to subscription processing and the accounts function were
implemented as part of the Group's continuing drive to improve the quality and
efficiency of its operations, rather than to reduce cost.
Licensing
The Group licenses 78 local editions of its UK magazines in 27 countries, in
addition to those published in the UK, US, France and Italy. T3 is now the
Group's most licensed title, with local editions sold in 14 different overseas
countries. The results for the year include #1.8m in respect of licensing
revenue external to the Group (2001: #2.3m).
During the second half-year, the Group has launched the Future Games Network, an
alliance of owned and licensed computer games magazines. This is designed to
benefit from global advertising deals and editorial exclusives, as well as to
reinforce Future's position as worldwide games market leader. This represents
the latest initiative in pursuit of the expansion of the Group's international
activities, of which licensing remains a key strategic element.
US performance for year
--------------------------------------------------------------------------------
2002 2001 Change
Continuing Continuing %
#m #m
--------------------------------------------------------------------------------
Turnover 40.5 32.6 24%
Adjusted operating profit 4.6 0.4 1050%
--------------------------------------------------------------------------------
Margin 11% 1% -
--------------------------------------------------------------------------------
All five magazines performed well during the year, including the Official Xbox
Magazine ("OXM"), which was launched in November 2001.
Turnover for the year amounted to #40.5m from continuing activities, an increase
of 24% compared with 2001. Of total US turnover, 49% comes from circulation and
48% from advertising. Subscription revenue in the year accounted for 24% of US
circulation turnover (2001: 24%).
It is interesting to consider the different business model that is applicable in
the US. The nature of this can be seen from the turnover splits noted above.
Unlike UK magazines, most of which are sold at newstands, over 75% of Future's
magazine sales in the US are achieved by subscription.
Magazine publishers estimate in advance the total number of magazine sales for a
given period (known as the "rate base") and it is on the basis of such estimates
that advertising bookings are sold. The most recent circulation statistics
covering the six months to December 2002 show that all our titles sold at least
their rate-base numbers.
The US operation had a strong year in 2002, with revenues, profits and margins
all well beyond management expectations. This reflects ongoing growth in the
success of the US games magazines, together with a particularly strong fourth
quarter. In view of this success, the possibility of launching a new title in
the US is being actively considered for 2003. Any such launch is likely to
reduce profitability in the short term.
Mainland Europe performance for year
--------------------------------------------------------------------------------
2002 2001 Change
Continuing Continuing %
#m #m
--------------------------------------------------------------------------------
Turnover 29.5 25.0 18%
Adjusted operating profit - (0.6) -
--------------------------------------------------------------------------------
Margin - - -
--------------------------------------------------------------------------------
During the year, Future France launched three magazine titles: Official Xbox
Magazine, Official Nintendo magazine and Official Windows XP Magazine. Future
Media Italy also launched three magazine titles: Official Xbox Magazine,
Official Nintendo magazine and PlayNation, an unofficial publication, the
previous Official PlayStation 2 Magazine contract having come to an end.
Combined turnover from France and Italy for continuing activities amounted to
#29.5m, an increase of 18% on the #25.0m achieved for the same period last year.
Approximately 74% of this derives from circulation sales and 26% derives from
advertising. Mainland Europe operations broke even at adjusted operating profit
level, compared with an adjusted operating loss of #0.6m in 2001. The 2002
result is stated after a number of restructuring costs during the year totalling
#0.7m, principally relating to the business in France. Intra-group licence fees
paid by Mainland Europe were #1.4m for the year (2001: #1.4m). After considering
these factors it can be seen that Mainland Europe has contributed to Group
profitability in 2002.
This has been a year of consolidation in our business on the Continent including
significant management change.
Operating profitability as measured by adjusted operating profit
By the end of 2002 all but a very few of the Group's magazines achieved a
positive gross contribution. Overheads in each country remained under control
throughout the year.
Adjusted operating profit achieved by the UK for 2002 was #16.7m and that
achieved by overseas subsidiaries was #4.6m, giving a combined total of #21.3m.
After deducting Group central costs of #3.1m (2001: #3.1m), adjusted operating
profit for the year was #18.2m (2001: #10.0m) on continuing turnover of #165.3m
(2001: #142.9m) representing an adjusted operating profit margin of 11% (2001:
7%) from continuing operations. The Group's aspiration is to aim for an adjusted
operating profit margin of 15% in the mid-term.
Other operating income
During the year the UK business received #2.2m from HM Customs & Excise in
respect of VAT overpaid in years prior to 2001. Most of this refund related to
amounts reclaimable following a review of the complex rules relating to VAT
applicable to magazines featuring cover-mounts.
The Group has reviewed the corresponding sales tax regulations applicable to
magazines published by its overseas subsidiaries and is satisfied that the
financial statements adequately reflect liabilities to sales taxes in those
countries.
Net interest receivable and similar items
Net interest receivable and similar items totalled #0.3m for the year. This
represents net bank interest payable of #0.1m and other similar charges
totalling #0.5m. This net cost was more than offset by #0.9m of foreign exchange
gains for the year. As the Group held significant net cash balances at 31
December 2002, no net interest charge is currently being incurred in 2003.
Foreign exchange gains arose principally in relation to the Group's exposure to
the US dollar, which weakened by approximately 10% against the pound during the
year. The majority of the resulting gain has been accounted for in reserves
movements for the year.
Profit on disposal of fixed asset investments
As reported last year, at 31 December 2001 the carrying value of all of the
Group's investments had been written down to zero. Following the disposal of the
majority of these investments, the Group received cash of #0.3m during the
period, giving rise to a gain on disposal of investments of #0.3m.
Pre-tax profit
The Group's pre-tax profit of #10.7m comprises pre-amortisation profits of
#21.0m less goodwill amortisation of #10.3m.
Tax
The tax charge for the year amounted to #4.5m on pre-amortisation profits of
#21.0m, giving an effective tax rate for the year of 21%. This is less than the
estimate of 32% provided when the Group announced its half-year results for two
reasons. Prior year credits arose in 2002 amounting to #0.8m and the second
recognition in 2002 of a portion of a deferred tax asset in the US, which in
prior years has not been recognised. In accordance with FRS19 and in light of
the level of profitability achieved by the US business, consideration has been
given to the likelihood of the asset reversing in the foreseeable future and an
appropriate element has been recognised in the balance sheet.
At 31 December 2002 there were significant tax losses being carried forward in
Mainland Europe.
Earnings per share
Basic earnings per share for the year amounted to 1.9p, in comparison with
losses per share in previous years. Adjusted basic earnings per share reflects
earnings before goodwill amortisation, other operating income and refinancing
costs. Adjusted basic earnings per share for the year amounted to 4.4p per
share.
Dividends
The Group has not paid any dividends since listing on the London Stock Exchange
on 25 June 1999. As explained in the Chairman's Statement, it is the Board's
intention to pave the way to enable the payment of dividends in due course by
proposing a reduction of the Company's share premium account in order to
eliminate the accumulated deficit on the Company's profit and loss account.
Cash flow and funding
Net cash position
The Group started the year with net debt of #7.8m. The year was significantly
cash generative for the Group and year-end net cash balances amounted to #16.8m.
The Group has maintained its bank facility, currently amounting to #28m, thereby
providing more than adequate headroom for the operational funding requirement of
current activities. The Group expects to be cash generative in 2003, although
the extent of this is likely to be less pronounced than in 2002 for a number of
reasons, including the increased tax payments due in 2003 and the absence of
certain non-recurring cash receipts.
Bank facility
The Company amended and restated its bank facility, at the time of the 2001
Rights Issue. The new bank facility at that time provided a #35m multi-currency
revolving credit facility, repayable over five years, at an annual borrowing
cost of 2.75% over LIBOR and EURIBOR. As at 11 March 2003 the borrowing facility
stood at #28m. The Group expects to review this facility during 2003.
Hedging policy on interest rates
In 1999 and 2000 the Group took steps to protect itself from unexpected interest
rate fluctuations. Part of that policy involved contracting certain interest
rate swaps, which matured in December 2002. These swap arrangements resulted in
cash losses of #0.8m and full provision for these losses were made at December
2001. No new hedging arrangements were entered into during 2002.
Hedging policy on foreign exchange rates
The Group is exposed to exchange rate fluctuations in the US dollar and the
Euro. The Board has developed policies in order to manage the exposures
effectively. These policies include consideration being given to currencies
negotiated in cross-BORDER="0" contracts and the use of spot and forward
contracts as appropriate. No other instrument may be used without the approval
of the Board. At 31 December 2002 there were no outstanding contracts with bank
or other third parties in respect of foreign exchange hedging arrangements.
Capital expenditure
Capital expenditure amounted to #0.7m in 2002, compared with #0.5m in 2001. For
2003 capital expenditure is not expected to exceed #2.0m.
Review of the Group's balance sheet
Intangible fixed assets
Intangible fixed assets at the year-end amounted to #108.6m, compared with
#117.9m at the previous year-end. Most of the movement for the year is explained
by the amortisation charge of #10.3m. Included in this charge for the year is
#1.3m which is the effect of reducing the remaining period of the goodwill
relating to magazines acquired in Italy in 1999 from 14 years to six years.
Tangible fixed assets
The carrying value of the Group's tangible fixed assets at the year-end reduced
from #4.4m to #3.2m. This reduction reflects modest capital expenditure of
#0.7m, a depreciation charge of #1.4m, and disposals with a net book value of
#0.5m
Working capital
The Group had stocks of paper and other raw materials at the year-end, and
work-in-progress in relation to magazines scheduled for publication in 2003. The
total of these amounts was #3.6m, compared with #3.5m at December 2001.
Group debtors at 31 December 2002 amounted to #33.3m (2001: #42.7m) and included
trade debtors of #24.5m (2001: #24.4m).
Net cash
The most significant change in the Group's balance sheet was the generation of
cash as detailed in the Group cash flow statement. As at 31 December 2002 the
Group's net cash position was #16.8m represented by cash at bank and short-term
deposits totalling #18.6m, and a shareholder loan of #1.8m.
Provisions
The Group balance sheet contains provisions totalling #3.1m (2001: #4.6m) of
which #2.9m (2001: #4.0m) relates to property in the UK and US.
Leasehold property
The consolidated balance sheet contains provisions totalling #2.9m (December
2001: #4.0m) representing provisions against onerous lease commitments in
respect of property in the US and UK and certain UK dilapidation obligations.
The property provision reduced during the year mainly as a result of rental
payments made in respect of vacant properties. During the year the Group paid a
total of #4.1m in relation to leasehold property, of which #2.7m was in respect
of occupied property and #1.4m in respect of unoccupied property. Had this
provision not been created at 31 December 2001, then Group profits in 2002 would
have been lower by #1.4m.
By the end of 2003 the Board expects all UK property to be fully occupied
The US business continues to have surplus property available and the net annual
lease cost of this property will reduce going forward but currently amounts to
#0.7m per annum.
Summary
-------
Our focus on operating profitability during this last year has resulted in the
Group producing increased profits from our portfolio of magazines. The business
has demonstrated that it was strongly cash generative for the year, enabling all
bank debt to be paid off. Our balance sheet is now stronger than at any time
since flotation in June 1999.
Operationally and financially, the Group has been focused on the business of
publishing successful magazines, including a number of new launches during the
year, whilst carefully assessing both business risk and potential opportunities.
John Bowman
Group Finance Director
11 March 2003
Group profit and loss account
for the year ended 31 December 2002
2002 2001
Total Total
Note #m #m
-------------------------------------------------------------------------------
Turnover
Continuing 1 165.3 142.9
operations
Discontinued 1 - 31.2
operations
-------------------------------------------------------------------------------
1 165.3 174.1
-------------------------------------------------------------------------------
Operating profit/
(loss)
Continuing
operations
------ -------
Operating profit before 18.2 10.0
amortisation and impairment of
intangible assets, other
operating income and refinancing
costs
Amortisation and impairment of 2,9 (10.3) (117.3)
intangible assets
Other operating income 2 2.2 -
Refinancing costs - (3.8)
------ -------
10.1 (111.1)
Discontinued
operations
------ -------
Operating loss before - (15.7)
amortisation and impairment of
intangible assets
Amortisation and impairment of 2 - (3.3)
intangible assets
------ -------
- (19.0)
-------------------------------------------------------------------------------
Operating profit/ 2 10.1 (130.1)
(loss)
Share of operating - 0.7
profit from
associate
-------------------------------------------------------------------------------
Total operating 10.1 (129.4)
profit/(loss)
including share of
associate
-------------------------------------------------------------------------------
Net exceptional gain 3 - 15.4
arising on sale or
termination of
businesses
Profit/(loss) on 0.3 (0.3)
disposal of fixed
asset investment
Write down of fixed - (0.2)
asset investment
-------------------------------------------------------------------------------
Profit/(loss) on 10.4 (114.5)
ordinary activities
before interest
Net interest 6 0.3 (6.5)
receivable/
(payable) and
similar items
-------------------------------------------------------------------------------
Profit/(loss) on 1 10.7 (121.0)
ordinary activities
before tax
Tax on profit/(loss) 7 (4.5) (2.3)
on ordinary
activities
-------------------------------------------------------------------------------
Profit/(loss) on 6.2 (123.3)
ordinary activities
after tax
-------------------------------------------------------------------------------
Retained profit/ 20 6.2 (123.3)
(loss) for the
financial year
-------------------------------------------------------------------------------
Earnings per 1 p Ordinary share
2002 2001
pence pence
-------------------------------------------------------------------------------
Basic earnings/(loss) per share 8 1.9 (69.6)
Adjusted basic earnings/(loss) per share 8 4.4 0.7
Diluted earnings/(loss) per share 8 1.9 (69.6)
Adjusted diluted earnings/(loss) per 8 4.4 0.7
share
-------------------------------------------------------------------------------
Group statement of total recognised gains and losses
for the year ended 31 December 2002
2002 2001
Note #m #m
-------------------------------------------------------------------------------
Retained profit/(loss) for the year 6.2 (123.3)
Net exchange adjustments offset in reserves 20 0.4 (0.1)
Tax on exchange adjustments offset in reserves 20 (0.6) -
Reversion of rights pertaining to investments from - 0.3
departing employees
Realised loss arising from the provision of - (0.1)
advertising in exchange for warrants to acquire
unlisted investments
-------------------------------------------------------------------------------
Total recognised profit/(loss) relating to the year 6.0 (123.2)
-------------------------------------------------------------------------------
Group reconciliation of movements in shareholders' funds
for the year ended 31 December 2002
2002 2001
Note #m #m
-------------------------------------------------------------------------------
Retained profit/(loss) for the year 6.2 (123.3)
Premium on shares issued during the year 19 - 0.6
Proceeds from issue of shares as part of the Rights - 1.8
issue
Premium on shares issued as part of the Rights 19 - 32.9
Issue
Costs of the Rights Issue written off against share 19 - (1.7)
premium
Net exchange adjustments offset in reserves 20 0.4 (0.1)
Tax on exchange adjustments offset in reserves 20 (0.6) -
Realised loss arising from the provision of - (0.1)
advertising in exchange for warrants to acquire
unlisted investments
Reversion of rights pertaining to investments from - 0.3
departing employees
-------------------------------------------------------------------------------
Net movement in shareholders' funds 6.0 (89.6)
Opening shareholders' funds 106.0 195.6
-------------------------------------------------------------------------------
Shareholders' funds as at 31 December 112.0 106.0
-------------------------------------------------------------------------------
Group balance sheet
as at 31 December 2002
2002 2001
Note #m #m
-------------------------------------------------------------------------------
Fixed assets
Intangible assets 9 108.6 117.9
Tangible assets 10 3.2 4.4
-------------------------------------------------------------------------------
111.8 122.3
Current assets
Stocks 12 3.6 3.5
Debtors 13 33.3 42.7
Investments 11 6.2 3.5
Cash at bank and in hand 12.4 9.5
-------------------------------------------------------------------------------
55.5 59.2
Creditors: amounts falling due within one year 14 (49.7) (49.1)
-------------------------------------------------------------------------------
Net current assets 5.8 10.1
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Total assets less current liabilities 117.6 132.4
-------------------------------------------------------------------------------
Creditors: amounts falling due after more than 15 (2.5) (21.8)
one year
Provisions for liabilities and charges 17 (3.1) (4.6)
-------------------------------------------------------------------------------
Net assets 112.0 106.0
-------------------------------------------------------------------------------
Capital and reserves
Called-up share capital 18 3.2 3.2
Share premium account 19 169.6 169.6
Merger reserve 21 109.0 109.0
Other reserves 21 21.8 21.8
Profit and loss account 20 (191.6) (197.6)
-------------------------------------------------------------------------------
Equity shareholders' funds 112.0 106.0
-------------------------------------------------------------------------------
Group cash flow Statement
for the year ended 31 December 2002
2002 2001
Note #m #m
-------------------------------------------------------------------------------
Net cash inflow/(outflow) from operating A 27.0 (6.5)
activities
-------------------------------------------------------------------------------
Dividends from associates - 0.7
-------------------------------------------------------------------------------
Returns on investments and servicing of finance
Interest received 0.3 0.4
Interest paid (1.3) (7.9)
-------------------------------------------------------------------------------
Net cash outflow from returns on investments and (1.0) (7.5)
servicing of finance
-------------------------------------------------------------------------------
Tax
Tax paid (3.2) (10.6)
Tax received 1.8 3.7
-------------------------------------------------------------------------------
Net tax paid (1.4) (6.9)
-------------------------------------------------------------------------------
Capital expenditure and financial investment
Purchase of tangible fixed assets (0.7) (0.4)
Sale of tangible fixed assets 0.6 0.1
Sale of fixed asset investments 0.3 0.6
-------------------------------------------------------------------------------
Net cash inflow from capital expenditure and 0.2 0.3
financial investment
-------------------------------------------------------------------------------
Acquisitions and disposals
Purchase of subsidiary undertakings - (4.0)
Net cash acquired with subsidiary undertakings - 1.2
Cash proceeds on disposal of magazines - 45.5
Cash proceeds from disposal of subsidiary - 6.0
undertakings
Net cash disposed of with subsidiary - (1.4)
undertakings
Purchase of subscription lists (0.1) (0.1)
Payment of deferred consideration (0.7) (0.8)
Receipt of deferred consideration - 0.6
-------------------------------------------------------------------------------
Net cash (outflow)/inflow for acquisitions and (0.8) 47.0
disposals
-------------------------------------------------------------------------------
Management of liquid resources
(Increase)/decrease in short term deposits with (2.7) 0.7
bank
-------------------------------------------------------------------------------
Net cash (outflow)/inflow in management of liquid (2.7) 0.7
resources
-------------------------------------------------------------------------------
Net cash inflow before financing 21.3 27.8
-------------------------------------------------------------------------------
Financing
Proceeds from issue of ordinary share capital - 35.2
Expenses of share issue - (1.7)
Draw down of bank loans - 19.4
Movement on discounted bills (0.2) (0.6)
Movement in shareholder loan 0.1 (0.2)
Repayment of bank loans (18.9) (78.3)
-------------------------------------------------------------------------------
Net cash outflow from financing (19.0) (26.2)
-------------------------------------------------------------------------------
Increase in cash in the year 2.3 1.6
-------------------------------------------------------------------------------
Notes to the Group cash flow statement
for the year ended 31 December 2002
A. Cash flow from operating activities
The reconciliation of operating profit/(loss) to net cash inflow/(outflow) from
operating activities is as follows:
Group Group
2002 2001
#m #m
-------------------------------------------------------------------------------
Operating profit/(loss) 10.1 (130.1)
Cash flows on sale or termination of operations - (12.3)
Depreciation charge 1.4 2.8
Goodwill amortisation and impairment 10.3 120.6
Movement in provisions (1.5) 3.5
(Increase)/decrease in stocks (0.3) 4.7
Decrease in debtors 8.3 20.0
Decrease in creditors (1.3) (15.7)
-------------------------------------------------------------------------------
Net cash inflow/(outflow) from operating activities 27.0 (6.5)
-------------------------------------------------------------------------------
B. Analysis of net cash/(debt)
At 1 January Cash inflow Exchange Other non cash At 31
movements changes
2002 #m #m #m December 2002
#m #m
-------------------------------------------------------------------------------------
Cash at 9.5 2.3 0.6 - 12.4
bank and in
hand
Debt due (20.7) 18.9 0.1 (0.1) (1.8)
after one
year
Debt due (0.1) 0.1 - - -
within one
year
Liquid 3.5 2.7 6.2
resources
-------------------------------------------------------------------------------------
(7.8) 24.0 0.7 (0.1) 16.8
-------------------------------------------------------------------------------------
Other non cash changes are the amortisation of bank finance costs.
C. Reconciliation of movement in net cash/(debt)
2002 2001
#m #m
-------------------------------------------------------------------------------
Net debt at 1 January (7.8) (68.9)
Increase/(decrease) in cash 2.3 1.6
Movement in deposits 2.7 (0.7)
Movement in borrowings 19.0 59.0
Amortisation of debt issue costs (0.1) (0.1)
Exchange movements 0.7 1.3
-------------------------------------------------------------------------------
Net cash/(debt) at 31 December 16.8 (7.8)
-------------------------------------------------------------------------------
Basis of preparation of accounts
The preliminary statement of annual results for the year ended 31 December 2002
is unaudited and does not comprise statutory accounts within the meaning of
section 240 of the Companies Act 1985.
Accounting policies
The Group's accounting policies are consistent with those detailed in the
Group's Annual Report for the year ended 31 December 2001, except for FRS19
Deferred Tax as set out below.
The Group has adopted FRS19 'Deferred Tax' in the financial statements. The
adoption of this statement represents a change in accounting policy. In adopting
this standard there is no requirement to restate prior year figures as any
adjustments would not be material to the prior year financial statements.
Notes to the financial statements
1. Segmental reporting
The Group is involved in one class of business, the publication of magazines.
The geographical analyses of turnover, profit/(loss) before tax, and net assets
by origin, and turnover by destination were as follows:
a) Turnover by category
Turnover by category Total Continuing Discontinued Total
2002 operations operations 2001
#m 2001 2001 #m
#m #m
-------------------------------------------------------------------------------
Circulation 111.9 91.9 13.2 105.1
Advertising 48.6 45.5 16.3 61.8
Other 4.8 5.5 1.7 7.2
-------------------------------------------------------------------------------
Total 165.3 142.9 31.2 174.1
-------------------------------------------------------------------------------
All turnover in 2002 relates to continuing operations.
b) Turnover by origin
Total Continuing Discontinued Total
2002 operations operations 2001
#m 2001 2001 #m
#m #m
-------------------------------------------------------------------------------
United Kingdom 97.1 86.7 3.2 89.9
United States 40.5 32.6 16.8 49.4
Mainland Europe 29.5 25.0 11.6 36.6
Turnover between segments (1.8) (1.4) (0.4) (1.8)
-------------------------------------------------------------------------------
Total 165.3 142.9 31.2 174.1
-------------------------------------------------------------------------------
c) Turnover by destination
Total Total
2002 2001
#m #m
-------------------------------------------------------------------------------
United Kingdom 82.6 81.8
United States 40.5 48.2
Mainland Europe 35.1 39.9
Rest of world 8.9 6.0
Turnover between segments (1.8) (1.8)
-------------------------------------------------------------------------------
Total 165.3 174.1
-------------------------------------------------------------------------------
d) Profit/(loss) on ordinary activities before tax by origin
Total 2001 2001 Total
profit/(loss) before tax
2002 Continuing operations Discontinued 2001
#m #m operations #m
#m
------------------------------------------------------------------------------------------------
United Kingdom 14.2 3.9 (2.9) 1.0
United States 2.3 (91.0) 6.6 (84.4)
Mainland Europe (3.4) (19.8) (6.9) (26.7)
Central costs (2.4) (7.1) (3.8) (10.9)
------------------------------------------------------------------------------------------------
Total 10.7 (114.0) (7.0) (121.0)
------------------------------------------------------------------------------------------------
e) Net assets by origin
Total Total
2002 2001
#m #m
--------------------------------------------------------------------------------
United Kingdom 91.0 82.2
United States 11.7 33.6
Mainland Europe 11.1 9.1
Interest bearing liabilities (1.8) (18.9)
--------------------------------------------------------------------------------
Total 112.0 106.0
--------------------------------------------------------------------------------
2. Operating profit/(loss)
2002 2001
--------------------------------------------------------------------------------
Total Continuing Discontinued Total
#m #m #m #m
Turnover 165.3 142.9 31.2 174.1
Cost of sales (103.2) (90.3) (38.1) (128.4)
--------------------------------------------------------------------------------
Gross profit/(loss) 62.1 52.6 (6.9) 45.7
Distribution expenses (10.4) (11.4) (0.5) (11.9)
---------------------------------------------------
Administration expenses (33.5) (31.2) (8.3) (39.5)
Refinancing costs - (3.8) - (3.8)
Amortisation and impairment (10.3) (117.3) (3.3) (120.6)
of intangible assets
Other operating income (see 2.2 - - -
below)
---------------------------------------------------
Total administration (41.6) (152.3) (11.6) (163.9)
expenses
--------------------------------------------------------------------------------
Group operating profit/ 10.1 (111.1) (19.0) (130.1)
(loss)
--------------------------------------------------------------------------------
All results in 2002 are from continuing operations.
2002 2001
#m #m
--------------------------------------------------------------------------------
Profit/(loss) on ordinary activities before tax is stated
after charging/(crediting):
Staff costs 36.0 53.9
Depreciation of owned assets 1.4 2.8
Amortisation of intangible assets 10.3 23.0
Impairment of intangible assets - 96.4
Amortisation of associated undertakings goodwill - 1.2
Hire of machinery and equipment 0.2 0.6
Other operating lease rentals 2.5 5.3
Other operating income (see below) (2.2) -
Net exchange gain on foreign currency borrowings less (0.9) (1.0)
deposits
--------------------------------------------------------------------------------
Other operating income represents a refund received from HM Customs and Excise
in the UK in respect of VAT overpaid in years prior to 2001.
3. Net exceptional gain arising on sale or termination of businesses
2002 2001
#m #m
--------------------------------------------------------------------------------
Losses on sale or termination of businesses - (12.3)
Profit on disposal of Magazine titles - 30.2
Losses on disposal of subsidiaries - (2.5)
--------------------------------------------------------------------------------
Net exceptional gain - 15.4
--------------------------------------------------------------------------------
4. Fees paid to auditors
2002 2001
#m #m
--------------------------------------------------------------------------------
Statutory audit 0.2 0.2
Reporting accountants work in respect of shareholder - 1.2
circulars
Taxation and other services 0.5 0.4
--------------------------------------------------------------------------------
Total 0.7 1.8
--------------------------------------------------------------------------------
The audit fee for the Company included within the Group fee was #47,500 (2001:
#52,000).
5. Employees and Directors
Staff costs 2002 2001
#m #m
--------------------------------------------------------------------------------
Wages and salaries 30.9 47.8
Social security costs 4.5 5.5
Other pension costs 0.6 0.6
--------------------------------------------------------------------------------
36.0 53.9
Redundancy costs included in loss on sale or termination - 6.3
of businesses
--------------------------------------------------------------------------------
Total 36.0 60.2
--------------------------------------------------------------------------------
Average monthly number of people (including executive
Directors)
--------------------------------------------------------------------------------
Production 649 1,022
Administration 315 381
--------------------------------------------------------------------------------
Total 964 1,403
--------------------------------------------------------------------------------
At 31 December 2002 the actual number of people employed by the Group was 934
(2001: 1,002).
6. Net interest (receivable)/payable and similar items
2002 2001
#m #m
--------------------------------------------------------------------------------
Interest payable on bank loans and overdrafts 0.4 7.1
Amortisation of issue costs of bank loan 0.1 0.1
Interest payable on other loans 0.1 0.4
Amortisation of discount relating to property provisions 0.2 0.2
Amortisation of discount arising on fair valuing of 0.1 0.1
deferred consideration
--------------------------------------------------------------------------------
Total interest payable and similar charges 0.9 7.9
Interest receivable (0.3) (0.4)
Exchange gains (0.9) (1.0)
--------------------------------------------------------------------------------
Total interest receivable and similar items (1.2) (1.4)
--------------------------------------------------------------------------------
Net interest (receivable)/payable and similar items (0.3) 6.5
--------------------------------------------------------------------------------
7. Tax on profit/(loss) on ordinary activities
(a) Analysis of tax charge in the year
--------------------------------------------------------------------------------
2002 2001
#m #m
--------------------------------------------------------------------------------
UK corporation tax at 30% (2001: 30%) on profits for the 4.8 0.1
year
Adjustments in respect of previous years - (0.6)
--------- ---------
4.8 (0.5)
Overseas taxes 1.1 4.5
Adjustments in respect of previous years (0.8) (0.3)
--------- ---------
Total current tax 5.1 3.7
Deferred tax origination and reversal of timing
differences
- Current year credit (0.8) (0.7)
- Prior year charge/(credit) 0.2 (0.7)
--------------------------------------------------------------------------------
Tax on profit on ordinary activities 4.5 2.3
--------------------------------------------------------------------------------
(b) Factors affecting the tax charge for the year
The tax assessed in each year differs from the standard rate of corporation tax
in the UK for the relevant year. The differences are explained below:
--------------------------------------------------------------------------------
Group Group
2002 2001
#m #m
--------------------------------------------------------------------------------
Profit/(loss) on ordinary activities before taxation 10.7 (121.0)
Profit/(loss) on ordinary activities at the standard UK tax 3.2 (36.3)
rate of 30%
Different tax rate applicable overseas 0.7 1.1
Expenses not deductible for tax purposes 0.6 0.4
Goodwill amortisation and impairment not deductible for tax 2.4 39.6
purposes
Timing differences relating to goodwill amortisation - (0.3)
deductible
Utilisation of losses - (3.0)
Overseas losses generated 0.5 3.0
Depreciation charges in excess of capital allowances - 0.3
Capital allowances in excess of depreciation (0.4) -
Other timing differences (1.1) (0.1)
Impact of adjustment to prior year current tax (0.8) (1.0)
--------------------------------------------------------------------------------
Current tax charge for the year 5.1 3.7
--------------------------------------------------------------------------------
(c) Factors that may affect future tax charges
The main factors that will impact future tax charges for the Group are:
i) The relative profitability and the differential in tax rates between
the UK and the US, the two main territories in which the Group
currently pays tax; and
ii) the profitability of Mainland Europe where there are significant
unrecognised losses.
8. Earnings per share
Basic earnings per share are calculated using the weighted average number of
Ordinary shares outstanding during the year. This was adjusted in 2001 to take
into account the effect of the shares issued as a result of the Rights Issue in
November 2001, which were issued at a discount to the market price. Diluted
earnings per share have been calculated by taking into account the dilutive
effect of shares that would be issued on conversion into ordinary shares of
options held under employee share schemes.
The adjusted earnings/(loss) per share, removes the effect of the amortisation
of goodwill and intangible assets, other operating income and refinancing costs
from the calculation as follows:
Adjustments to profit/(loss) on ordinary activities after tax
--------------------------------------------------------------------------------
2002 2001
#m #m
--------------------------------------------------------------------------------
Profit/(loss) on ordinary activities after tax 6.2 (123.3)
Add: amortisation and impairment of intangible assets 10.3 120.6
Less: other operating income (2.2) -
Add: refinancing costs - 3.8
--------------------------------------------------------------------------------
Adjusted profit on ordinary activities after tax 14.3 1.1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2002 2001
--------------------------------------------------------------------------------
Weighted average number of shares outstanding
during the period:
- basic 320,674,470 177,146,898
- dilutive effect of share options 1,818,424 4,542,560
- diluted 322,492,894 181,689,458
Basic earnings/(loss) per share (in pence) 1.9 (69.6)
Adjusted basic earnings per share (in pence) 4.4 0.7
Diluted earnings/(loss) per share (in pence)* 1.9 (69.6)
Adjusted diluted earnings per share (in pence) 4.4 0.7
--------------------------------------------------------------------------------
The adjustments to profit have the following effects on EPS:
--------------------------------------------------------------------------------
2002 2001
--------------------------------------------------------------------------------
Basic earnings/(loss) per share (in pence) 1.9 (69.6)
Amortisation and impairment of intangible assets 3.2 68.1
Other operating income (0.7) -
Refinancing costs - 2.2
Adjusted basic earnings per share (in pence) 4.4 0.7
Diluted earnings/(loss) per share (in pence) 1.9 (69.6)
Amortisation and impairment of intangible assets 3.2 68.1
Other operating income (0.7) -
Refinancing costs - 2.2
--------------------------------------------------------------------------------
Adjusted diluted earnings per share (in pence) 4.4 0.7
--------------------------------------------------------------------------------
*The share options do not have a dilutive effect where there is a loss.
9. Intangible fixed assets
Group Goodwill
#m
--------------------------------------------------------------------------------
Cost
At 1 January 2002 298.4
Exchange adjustments 0.9
--------------------------------------------------------------------------------
At 31 December 2002 299.3
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Amortisation
At 1 January 2002 (180.5)
Exchange differences 0.1
Charge for the year (10.3)
--------------------------------------------------------------------------------
At 31 December 2002 (190.7)
--------------------------------------------------------------------------------
Net book amount at 31 December 2002 108.6
--------------------------------------------------------------------------------
Net book amount at 31 December 2001 117.9
--------------------------------------------------------------------------------
The goodwill arising on acquisitions is being amortised on a straight line basis
over the estimated useful economic lives of the acquired businesses, being in
the range one to twenty years. These periods are the periods over which the
Directors estimate that the values of the underlying businesses acquired are
expected to exceed the values of the underlying assets.
During the year the Directors reviewed the estimated useful economic life of the
goodwill relating to the magazines acquired in Italy in 1999 and reduced the
remaining useful life from fourteen years to six years. The impact of the change
was to increase the amortisation charge for the year by #1.3m.
10. Tangible fixed assets
Group Land and Plant and Equipment, Total
buildings machinery fixtures and fittings
#m #m #m #m
--------------------------------------------------------------------------------
Cost
At 1 January 2.3 5.0 2.8 10.1
2002
Exchange - - (0.1) (0.1)
adjustments
Additions - 0.5 0.2 0.7
Disposals (0.4) (0.4) (0.5) (1.3)
--------------------------------------------------------------------------------
At 31 December 1.9 5.1 2.4 9.4
2002
--------------------------------------------------------------------------------
Depreciation
At 1 January 2002 (0.5) (3.2) (2.0) (5.7)
Exchange adjustments 0.1 (0.1) 0.1 0.1
Charge for the year (0.1) (1.0) (0.3) (1.4)
Disposals - 0.4 0.4 0.8
--------------------------------------------------------------------------------
At 31 December 2002 (0.5) (3.9) (1.8) (6.2)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net book value at 31 December 1.4 1.2 0.6 3.2
2002
--------------------------------------------------------------------------------
Net book value at 31 December 1.8 1.8 0.8 4.4
2001
--------------------------------------------------------------------------------
Analysis of net book value of land and buildings
Group Group
2002 2001
#m #m
--------------------------------------------------------------------------------
Freehold - 0.4
Leasehold:
Over 50 years unexpired 1.4 1.4
--------------------------------------------------------------------------------
Total 1.4 1.8
--------------------------------------------------------------------------------
11. Investments
a) Current asset investments
Group Group
2002 2001
#m #m
--------------------------------------------------------------------------------
Short-term bank deposits 6.2 3.5
--------------------------------------------------------------------------------
Total 6.2 3.5
--------------------------------------------------------------------------------
12. Stocks
Group Group
2002 2001
#m #m
--------------------------------------------------------------------------------
Raw materials 1.1 1.3
Work in progress 1.9 1.9
Finished goods 0.6 0.3
--------------------------------------------------------------------------------
3.6 3.5
--------------------------------------------------------------------------------
13. Debtors
Group Group
2002 2001
#m #m
--------------------------------------------------------------------------------
Amounts falling due within one year:
Trade debtors 24.5 24.4
Amounts owed by Group undertakings - -
Corporation tax recoverable 2.6 3.5
Other debtors 2.4 9.0
Prepayments and accrued income 3.0 4.6
--------------------------------------------------------------------------------
32.5 41.5
Amounts falling due after one year:
Other debtors (see note 17) 0.8 1.2
--------------------------------------------------------------------------------
33.3 42.7
--------------------------------------------------------------------------------
14. Creditors: amounts falling due within one year
Group Group
2002 2001
#m #m
--------------------------------------------------------------------------------
Bank and other borrowings - 0.1
Trade creditors 14.3 16.6
Amounts owed to Group undertakings - -
Corporation tax 4.0 0.6
Other creditors including taxation and social 6.0 7.6
security
Accruals and deferred income 24.8 23.6
Deferred consideration for acquisitions 0.6 0.6
--------------------------------------------------------------------------------
49.7 49.1
--------------------------------------------------------------------------------
15. Creditors: amounts falling due after more than one year
Group Group
2002 2001
#m #m
--------------------------------------------------------------------------------
Bank and other borrowings - 18.8
Shareholder loan 1.8 1.9
Deferred consideration for acquisitions 0.7 1.1
--------------------------------------------------------------------------------
2.5 21.8
--------------------------------------------------------------------------------
16. Bank and other borrowings
i) Due within one year
Group Group
2002 2001
#m #m
--------------------------------------------------------------------------------
Bank loans
Unsecured - 0.1
--------------------------------------------------------------------------------
Total - 0.1
--------------------------------------------------------------------------------
ii) Due after more than one year
Group Group
2002 2001
#m #m
--------------------------------------------------------------------------------
Bank loans: Secured - 18.8
Shareholder loan: Unsecured 1.8 1.9
--------------------------------------------------------------------------------
Total 1.8 20.7
--------------------------------------------------------------------------------
The bank loans are secured by a fixed charge over The Future Network plc, Future
Holdings 2002 Limited, Future Media Italy SpA, Future Network USA, Inc and
Future Publishing Limited's land and buildings, intellectual property and
goodwill and a floating charge over the remainder of their assets.
The Company incurred total issue and facility costs in 1999 of #1,216,000 in
respect of the post flotation bank loans of which facility costs of #687,000
were written off immediately to the profit and loss account in 1999. The
remainder of the costs are being charged to the profit and loss account over the
term of the facilities at a constant rate on the carrying amount. The amounts
are stated net of unamortised issue costs of #nil. (2001: #0.1m).
The unsecured borrowings in 2001 were discounted bills, short term bank
overdrafts held by the Group and the shareholder loan.
17. Provisions for liabilities and charges
Group
Vacant
property and
dilapidations Restructuring Total
#m #m #m
--------------------------------------------------------------------------------
At 1 January 2002 4.0 0.6 4.6
Exchange adjustment (0.1) - (0.1)
Charge in the year 0.2 0.2 0.4
Utilised in year (1.4) (0.6) (2.0)
Amortisation of discount 0.2 - 0.2
--------------------------------------------------------------------------------
At 31 December 2002 2.9 0.2 3.1
--------------------------------------------------------------------------------
Deferred tax
At 31 December 2002 a deferred tax asset has been recognised within other
debtors as follows:
Group Group
2002 2001
#m #m
--------------------------------------------------------------------------------
Amounts falling due within one year 0.8 -
Amounts falling due within more than one year 0.8 1.0
--------------------------------------------------------------------------------
The recognised amount relates to timing differences at 31 December 2002 which
are considered more likely than not to reverse in the foreseeable future and are
split as follows:
Group Group
2002 2001
#m #m
--------------------------------------------------------------------------------
Capital allowances 0.7 0.3
Other short term timing differences 0.9 0.7
--------------------------------------------------------------------------------
Total 1.6 1.0
--------------------------------------------------------------------------------
The movement on deferred taxation in the year is as follows:
Group Group
2002 2001
#m #m
--------------------------------------------------------------------------------
As at 1 January 1.0 (0.4)
Current year credit 0.8 0.7
Prior year (charge)/credit (0.2) 0.7
--------------------------------------------------------------------------------
At 31 December 1.6 1.0
--------------------------------------------------------------------------------
The unrecognised amounts of deferred taxation assets are as follows:
Group Group
2002 2001
#m #m
--------------------------------------------------------------------------------
Capital allowances 0.5 0.4
Other 8.7 11.9
--------------------------------------------------------------------------------
Total 9.2 12.3
--------------------------------------------------------------------------------
Other deferred tax assets not recognised include #6.4m (2001 : #7.5m) in respect
of overseas tax losses carried forward. The balance is in respect of other short
term timing differences which are considered unlikely to be utilised in the
foreseeable future.
Vacant property and dilapidations
Following the reorganisations and significant downsizing which took place in
2001, the Group has obligations under short leasehold agreements on a number of
vacant properties. The provision made represents the following:
i) the best estimate of the discounted future net cash flows arising from
the net shortfall on each of the leases held.
ii) The best estimate of dilapidation obligations on termination of
specific leasehold agreements.
At 31 December 2002 the total amount of the provision was #2.9m (2001: #4.0m).
The leases against which the provisions have been made will terminate by
December 2017. The provisions have been discounted at a rate in line with the
Group's cost of capital.
Restructuring
The restructuring provision at 31 December 2001 related to costs still to be
incurred in respect of redundancies and other closure costs at the Group's
French subsidiary. A restructuring plan was announced in December 2001 and the
redundancies occurred between January and March 2002. The restructuring
provisions as 31 December 2002 relate to ongoing restructuring at the Group's
Italian subsidiary.
18. Called up share capital
--------------------------------------------------------------------------------
Authorised share capital 2002 2001
#m #m
--------------------------------------------------------------------------------
At 1 January (Ordinary shares of 1p each) 6.0 2.5
Increase in the year - 3.5
--------------------------------------------------------------------------------
At 31 December 6.0 6.0
--------------------------------------------------------------------------------
Allotted, issued and fully paid
Ordinary shares of 1p each No. of 2002
Shares #m
--------------------------------------------------------------------------------
At 1 January 318,992,442 3.2
Share Options Exercised 2,118,165 -
--------------------------------------------------------------------------------
At 31 December 321,110,607 3.2
--------------------------------------------------------------------------------
19. Share premium account
Group 2002 2001
#m #m
--------------------------------------------------------------------------------
At 1 January 169.6 137.8
Premium on shares issued during the year - 0.6
Premium on shares issued during Rights Issue - 32.9
Write off of costs associated with the Rights Issue - (1.7)
--------------------------------------------------------------------------------
At 31 December 169.6 169.6
--------------------------------------------------------------------------------
20. Profit and loss account
Group
#m
--------------------------------------------------------------------------------
At 1 January 2002 - deficit (197.6)
Net exchange adjustments offset in reserves 0.4
Tax on exchange adjustments offset in reserves (0.6)
Profit for the financial year 6.2
--------------------------------------------------------------------------------
At 31 December 2002 - deficit (191.6)
--------------------------------------------------------------------------------
21. Other reserves
Group Group Group Company
Merger reserve Other reserves Total Other reserves
#m #m #m #m
----------------------------------------------------------------------------------
At 1 January 2002 109.0 21.8 130.8 21.8
----------------------------------------------------------------------------------
At 31 December 2002 109.0 21.8 130.8 21.8
----------------------------------------------------------------------------------
22. Pensions
The Group operates a defined contribution scheme for employees resident in the
United Kingdom.
In the US the Group operates a Section 401(K) profit sharing defined
contribution plan in respect of pensions, which covers substantially all Future
Network USA employees. The section 401(K) plan allows employees to invest in 8
funds run by T. Rowe Price, but the employees, not the employer, have complete
control over what they invest in, although they have no control over the stocks
owned by the funds.
During the year #0.6m (2001 : #0.6m) contributions were made by the Group to
these plans.
23. Commitments and contingent liabilities
a) Operating lease commitments
At 31 December 2002 the Group had annual commitments under non cancellable
operating leases as set out below:
Land and Other 2002 Land and Other 2001
Buildings Total Buildings Total
#m #m #m #m #m #m
--------------------------------------------------------------------------------
Annual commitments
under
non-cancellable
operating leases
expiring:
Within one year 0.1 0.2 0.3 0.1 0.2 0.3
Within two to five 2.6 0.3 2.9 2.6 0.3 2.9
years
After five years 1.6 - 1.6 1.4 - 1.4
--------------------------------------------------------------------------------
4.3 0.5 4.8 4.1 0.5 4.6
--------------------------------------------------------------------------------
b) Contingent liabilities
At 31 December 2002, the Company had contingent liabilities outstanding in
respect of counter-indemnities #1.3m (2001: #1.9m ) and guarantees given by it
to the Group's bankers in respect of amounts outstanding from its subsidiaries
under the Group bank facility arrangements.
A number of trading subsidiaries are defendants in various legal actions. In the
opinion of the Directors, after taking appropriate legal advice, the outcome
that such actions would give rise to a significant loss is considered remote.
c) Capital commitments
There were no material capital commitments as at 31 December 2002.
Directors:
Roger Parry, Non-executive Chairman
Greg Ingham, Chief Executive Officer
John Bowman, Group Finance Director
Colin Morrison, Chief Operating Officer and UK Managing Director
Michael Penington, Non-executive Director
Patrick Taylor, Non-executive Director
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR URSUROVROAUR