Final Results

Future PLC 29 November 2006 29 November 2006 FUTURE PLC Preliminary results for the year ended 30 September 2006 Future plc (LSE: FUTR), the international special-interest media group, today announces its preliminary results for the year ended 30 September 2006. An analyst presentation will be held today at 10.00am at the offices of UBS, 1 Finsbury Avenue, London EC2M 2PP. Financial Summary: 2006 2005 Revenue £224.9m £212.3m EBITAE profit * £13.7m £20.4m Exceptional items £(9.2)m £(5.1)m Impairment of intangible assets £(45.0)m - Amortisation of intangible assets £(5.9)m £(1.8)m Reported (loss) / profit before tax £(49.0)m £12.5m Adjusted profit before tax * £11.1m £19.4m Adjusted earnings per share * 2.5p 4.4p Dividends relating to the year 1.0p 1.8p * EBITAE profit is presented to provide a better indication of the financial performance of the business and is stated before interest, tax, amortisation and impairment of intangible assets, and exceptional items (including any related tax effects). Profit on disposal of subsidiaries is also excluded. For convenience we refer to this as EBITAE. Similarly, adjusted profit before tax and earnings per share are stated before these items, but after interest and tax. The Group has taken an impairment charge of £45.0m (2005: Nil) against the carrying value of the intangible assets relating to the Group's UK, US and Italian subsidiaries to reflect more accurately the trading levels of these businesses. This is a non-cash charge. Other highlights: - Stevie Spring appointed CEO in July 2006 - New strategy in place - Restructuring and focused investment program well underway - Net bank debt reduced by 17% to £32.8m - Disposal of Italian subsidiary - Revised bank facility in place Stevie Spring, Future's Chief Executive said: ' It is clear with hindsight that during the past two years, Future over-invested in acquisitions and under-invested in organic development. The consequences of this strategy are clearly evident in today's disappointing results, with underlying profits down by a third and some significant exceptional charges and write offs. 'We have taken a number of steps to strengthen the business. These actions have created significant cost savings which we are fully re-investing in the business. We have also outlined today our six key areas of focus for 2007 and beyond. They encapsulate how we are going to deliver on our objective to improve our financial performance and rebuild shareholder confidence in the business. 'I am pleased at how the business is responding to the changes we're making, but anticipate that 2007 will be a year of transition as we evolve our business models to reflect changing consumer, advertiser and retailer behaviour, and ensure we have a more focused and responsive group. 'Our new financial year has begun satisfactorily, but we continue to take a cautious view of our markets and anticipate that trading conditions will remain challenging throughout 2007.' Enquiries: Future plc Stevie Spring, Chief Executive Tel: 020 7042 4007 John Bowman, Group Finance Director Tel: 020 7042 4031 Hogarth Partnership James Longfield/Georgina Briscoe Tel: 020 7357 9477 Future's financial performance Group revenue was £224.9m (2005: £212.3m) and EBITAE profit was £13.7m (2005: £20.4m). This disappointing financial performance was caused predominantly by lower sales and advertising revenue from magazines in the games sector. Anticipated compensatory profits from 2005 acquired magazines - notably ex-Highbury - have significantly underperformed against our expectations. Exceptional items totalling £9.2m (2005: £5.1m) arose during the year, the majority of which related to our acquisition programme. The largest elements relate to restructuring costs and property provisions following relocation. The Group has taken an impairment charge of £45.0m (2005: Nil) against the carrying value of the intangible assets relating to the Group's UK, US and Italian subsidiaries to reflect more accurately the trading levels of these businesses. This is a non-cash charge. After these one-off charges, amortisation of £5.9m (2005: £1.8m) and net financing costs of £2.6m (2005: £1.0m) the Group recorded a pre-tax loss of £49.0m (2005: pre-tax profit of £12.5m). Adjusted earnings per share were 2.5p (2005: 4.4p). Dividend Last year the interim dividend was 0.5p and the final 1.3p per share. The level of dividends this year flows from the Company's dividend policy, which is unchanged and which states that dividends should be covered at least twice by adjusted earnings per share. Having paid an interim dividend of 0.5p, the Board now recommends a final dividend of 0.5p per share, bringing this year's total to 1.0p per share. If approved at the Annual General Meeting to be held on 30 January 2007, the final dividend of 0.5p per share will be paid on 31 January 2007 to shareholders on the register on 29 December 2006. The ex-dividend date will be 27 December 2006. This reduced level of dividend will assist the financing of investment priorities in 2007. New leadership and new strategic direction Stevie Spring was appointed Chief Executive in July 2006. Under her leadership, Future has implemented a number of initiatives designed to tackle the immediate operational issues facing the business, as well as the mid-term strategic challenges. These actions, which are set out in the accompanying pages, have created significant cost savings which are being fully re-invested in strengthening the business. The Board has agreed six key areas of focus for the business for 2007 and beyond, as we evolve our business models to reflect changing consumer behaviour, and to ensure a more focused and responsive Group. These priorities encapsulate how we are going to deliver on our objective to improve our financial performance and rebuild shareholder confidence in the business. Current trading and outlook Although the new financial year has begun satisfactorily, we continue to take a cautious view of our markets and anticipate that trading conditions will remain challenging throughout 2007. 2007 will be a year of transition as the remedial and refocusing actions we have taken start to take effect. We aim to achieve modest growth in like-for-like revenues in the financial year to 30 September 2007, which we expect to have a second-half bias. Full-year margins will be similar to those for 2006, as we re-invest the cost savings achieved in reshaping and strengthening the Group. Chief Executive's Review (Extract from Annual Report) In the weeks before formally taking up my position as Chief Executive in July, I spent my time touring the business meeting Future's publishing teams, talking to editors, writers, designers, sales executives and publishers. What struck me most in these meetings was their enthusiasm for the business. Whether writing about gadgets, films, games, cars, bikes, guitars or any area in between, Future people are as passionate about their subjects as their readers. And therein lies Future's greatest strength. Since this initial introduction, we have spent the past five months getting to grips with the immediate operational issues facing the business, as well as the mid-term strategic challenges that we have to tackle. This process has confirmed the extent of the task ahead, but also the scale of the opportunity. We are operating in a fast-changing media landscape at a challenging time for consumer advertising - where inventory growth is outpacing advertiser demand. Add to this the 'gap year' affecting our games titles (enthusiast publishing's fortunes are inextricably linked to their host sector fortunes) and the failure of the previous acquisition strategy to deliver compensatory profits, and it was clear to me that urgent action was required. Tackling immediate challenges In 2004, Future announced an ambition to double the size of the business. In essence, this focused our people and our resources on growth for its own sake, not on profitable growth. An example of this is the net impact this year from the Highbury titles acquired in 2005. Excluding the exceptional integration costs incurred this year, the £4.7m of 2006 gross contribution from these titles was offset by increased overhead of £2.9m and £1.6m of interest charges on the purchase consideration of £30.5m. We have a strategic imperative now to strengthen, rationalise and redirect our core business; and invest for organic profitable growth. To fund that investment, we have had to make some tough decisions, but the savings achieved will fund development of new online portals; growing our subscription database; further research into our core readers; investment in a publisher development programme; new IT systems and increased resource in both partnership publishing and our sales teams. These are in addition to launching new magazines - notably the Official PlayStation Magazine for the PS3 and Windows Vista: The Official Magazine - and an upgrade of our most scalable growth brands, the core brands in our portfolio. Revised strategy 2007 will be a year of transition where we refocus and strengthen both our business and our business model. We have abandoned the previous 'doubling strategy', which sought scale by taking a high cover price, cover-mounted monthly newsstand magazine model into new areas - of both geography and special interest. In its place we are adopting a 'strengthening strategy', which will seek profit growth by leveraging our core competence: English language content produced by enthusiasts, for enthusiasts, across all platforms. Fortunately we are not starting from scratch. We have established brands, recognised products, strong market positions, deeply embedded publishing partnerships and an inherent expertise in creating important relationships with our readers that can transcend platform. Our strong market positions in games, technology, music and active sport are all built around a core audience of young (or young-at-heart) men. 90% of the magazines Future currently publishes target this core readership. They're connected, tribal, digitally literate and brand conscious and they are one of the most difficult to reach - and therefore valuable - target audiences for advertisers. We have a platform from which to build. But first we need to strengthen the foundations, to refocus on our strengths, and to leverage Future's leading market positions. We need to fix and focus so that we can move forward on the path to profitable growth. What we will be doing Our priority in 2007 is to strengthen our business. To direct our energies on achieving better returns from managing our portfolio of brands more aggressively. We will fix where we need to, and by demonstrating how well-placed we are to thrive in a digital world, we will put Future forward on the path to a return to profitable growth. Our six key areas of focus are outlined below. • Focus on basics: Readers recognise the quality and authority of our content. We are stepping up our programme of product improvement - editorial quality and design excellence - in our stronghold areas of games, other screen-based entertainment, auto, technology and music. Focusing on basics at Future also means continuous emphasis on improving operating and distribution efficiencies and advertising yields. • Focus on core: At this time of overwhelming choice, people want trusted editorial and opinion more than ever. Future has a strong reputation in this area, built by concentrating only on enthusiast publishing. We will focus on building our core brands cross-platform and into new business models rather than stretching the legacy premium print and covermount business model into new segments. • Focus on audience: Future's core readership is male, young and young-at-heart. We know these readers, their interests and their passions well, because we talk with them every day. We know how to deliver what they're looking for editorially. And we know how to cluster them commercially by psychographic profile, not just by the particular interest or activity. This allows us to aggregate our readers around larger demographic groups - creating a more attractive, accessible proposition for advertisers. Through 2007, we shall be looking to make ourselves conversant with every way of monetising our relationships with both advertisers and consumers, online and offline. • Focus on geography: Future's strength is as an English-language content producer in the UK and US. Our content is internationally transferable through export, licensing and syndication. Going forward we plan to increase these activities and develop, launch or acquire only English language media properties. • Focus on publishing partnerships: We will further develop this key Future strength. We already have a number of excellent long-standing publishing relationships with Microsoft, Sony and Nintendo. We will seek to strengthen existing partnerships and establish new ones to enable us to leverage further our high value content and publishing skills in print and online. • Focus on investment, particularly online: We will not allow the operational efficiency drive to be at the expense of appropriate investments in our future. We are investing more in customer research. We will continue to invest in launches, or digestible strategic acquisitions. We will continue to invest in our people. We will continue to invest in our systems. We will continue to invest in transitioning our readers and our commercial partners to interact with us in print, at events and in extended brand experiences - but increasingly online. We are planning £6.7m web investment - from which we're anticipating £4.2m in revenues in 2007. That investment in online new product development (NPD) represents over 50% of our total NPD plan next year. What we have been doing It's still early days but we have already started our transition. Having identified the urgent priorities, we have been implementing a programme of fixes including: •secured operational efficiencies: we continue to seek improvements in paper supply, production costs, magazine printing contracts and distribution to achieve a lower operating cost base in both the UK and the US. We have made £4.5m of operational savings on continuing business and implemented aggressive cost control measures; •closed or sold non-core or underperforming titles: in the UK we have closed or sold 22 monthly magazines as well as the puzzles portfolio of 16 titles; in the US we have shut our (ex-Highbury) Atlanta office and closed six titles. In total, they generated £15.3m of revenue and £0.7m loss. The net impact reduces headcount by 84 and revenue by 7% but will not reduce contribution; •disposal of Italian business: and we have taken the decision to focus on export, syndication and licensing of our content in foreign language markets. We do not intend to invest further in Mainland Europe; •debt reduction: we have implemented aggressive debt reduction and cash management policies and re-negotiated our bank facility to reflect current trading, the new strategy and the changed debt needs of the business going forward; •streamlined operational structure: this includes a restructure of our advertising teams as well as the removal of a layer from our publishing management. The former creates a more powerful presentation of Future in totality to media buyers, while the latter puts publishers directly in charge of their business units, improving operational accountability. We have also clustered our operations around centres of excellence to minimise duplication - a single product review can now feed cross-business and cross-platform; •invested in better IT systems: we are focused on improving our forecasting systems. This will give greater transparency in the business, insight as well as information, and therefore more responsive decision making. We are also developing parts of our editorial and financial systems for the US and introducing 24-hour website support to maximise the economies of scale a multi-market business should enjoy; •strengthened management: in the US we have appointed a new Finance Director and a new Head of Online Development. In the UK, we're recruiting a new Head of Online, a Chief Technology Officer and have already in post seven new publishers. All bring with them valuable experience online and offline; •expanded partnership publishing: building and exploiting commercial partnerships that deliver reliable earnings for Future, and important brand support for our clients, is something at which Future excels. In the past few months, we've won new contracts with Sky, BT, Disney, HMV and Comcast and we'll be concentrating further on this area for 2007. In 2006, our publishing partnerships delivered sales and contribution of £34.1m and £9.1m respectively; •investing online: we have developed new portals for technology, cycling, music and action sports which are or will be ready for launch during this financial year. We already have the third largest games information website in both the UK and US and we are increasing our online headcount by fifty. Looking forward to a better Future I am pleased at how the business is responding to the changes we're making. Because we remain absolutely reader focused, we're refocusing our people and resources to reflect and anticipate changing reader needs; to making sure that our content can flow across different consumer touchpoints; that our brands act as anchors for the enthusiasts they serve; that our portfolio is as dynamic as our potential customer base. With our vast experience of building deep relationships with readers, which in turn creates attractive opportunities for advertisers, we are well placed to drive the changing balance between the luxurious and special relationship people have with their monthly magazine and the interactive, informative immediacy of online. Above all, we have energetic, truly creative and talented people in every corner of our business who really know how to fuel people's passions. I'd like to thank them for their hard work, flexibility and commitment and I look forward to taking the journey with them to build Future's future. Financial review The 2006 results are the Group's first to be prepared under International Financial Reporting Standards (IFRS). As a result, there are additional narratives, changes in format and more disclosures than previously. In running the business, Future management focuses on earnings before interest, tax, amortisation and impairment, and exceptional items. Profit on disposal of subsidiaries is also excluded. For convenience we refer to this as EBITAE. This financial review is based primarily on a comparison of the results for the year ended 30 September 2006 with those for the year ended 30 September 2005. Unless otherwise stated, growth percentages relate to a comparison of these two years. Analysis of income statement for year to 30 September The table below summarises the Group's EBITAE which was 33% below that for last year; and also shows the other key elements in the Group income statement. Year ended 30 September 2006 2005 £m £m ---------------------------------------------- ----------- ------------ UK 13.8 17.7 US 1.9 3.8 Mainland Europe 1.3 2.1 Central costs (3.3) (3.2) ---------------------------------------------- ----------- ------------ EBITAE 13.7 20.4 ---------------------------------------------- ----------- ------------ Exceptional items (9.2) (5.1) Amortisation (5.9) (1.8) Impairment of intangible fixed assets (45.0) - Net interest payable (2.6) (1.0) ---------------------------------------------- ----------- ------------ Pre-tax (loss)/profit for year (49.0) 12.5 ---------------------------------------------- ----------- ------------ Explanation of reduction in profit The reduction in EBITAE reflects the lower sales revenues from magazines in the games sector. In addition, anticipated profits from more recently acquired magazines - notably some ex-Highbury titles - have underperformed against our expectations. UK EBITAE profit reduced to £13.8m, representing a margin of 11% (2005: 15%) on revenue which increased 8% to £128.3m. This reduction in margin reflects lower margin from acquisitions, together with lower margins from certain technology and games titles during the year. US EBITAE profits reduced to £1.9m, representing a margin of 3% (2005: 7%) on revenue which increased by 8% to £60.1m. This reduction in margin reflects reducing margin from games titles during the year, concurrent with significant NPD spend. Mainland Europe profits reduced to £1.3m, representing a margin of 3% (2005: 5%) on revenue down 5% at £37.6m. This result reflects more challenging newsstand conditions in both France and Italy. Central costs increased slightly to £3.3m (2005: £3.2m). Exceptional items These amounted to £9.2m (2005: £5.1m) and mostly arose in relation to recent acquisitions. During the year, we completed the relocation of our employees in London to a single office in Marylebone, NW1. A charge of £4.0m relating mainly to the remaining lease commitments on previous offices has been made in the year. The Group has also incurred costs and made provisions relating to redundancy, restructuring and other contractual matters as part of the integration of acquired titles and management of the business. Leasehold properties The Group operates from a number of rented properties. Following the integration of acquired businesses in the UK, the Group is currently paying £1.0m per annum in respect of unoccupied property which the Group is actively seeking to sub-let. Property provisions held at 30 September 2006 amounted to £4.4m (2005: £2.2m). Intangible assets The annual charge for amortisation of intangible assets was £5.9m (2005: £1.8m), the increase reflecting the full-year impact of titles acquired during the previous financial year. Separately, the Group has taken an impairment charge of £45.0m (2005: Nil) against the carrying value of the intangible assets relating to the Group's UK, US and Italian subsidiaries to reflect more accurately the trading levels of these businesses. This is a non-cash charge. Taxation The Group's tax strategy is to minimise its liabilities to taxation, having regard to commercial circumstances, tax history, the risk of changing legislation and delays in agreeing matters in certain territories. The tax credit for the year amounted to £1.8m (2005: charge of £2.2m), comprising a current tax charge of £0.3m and a deferred tax credit of £2.1m. The standard rates of corporation tax are 30% (UK), 42% (US) and 33% (France). In France, the Group has accumulated tax losses, so that profits generated there should continue to be effectively tax free for at least a further year. The Group also benefits from the structuring of certain acquisitions and other planning steps. Earnings per share Basic loss per share was 14.5p (2005: earnings of 3.2p). After adjustments to exclude the impact of goodwill amortisation and impairment and exceptional items (including any related tax effects), profit after tax amounted to £8.1m (2005: £14.4m). With a weighted average of 325.7m shares in issue, adjusted earnings per share were down 43% on last year at 2.5p per share (2005: 4.4p). Impact of recent closure decisions During the year, a number of titles were closed or made available for sale. The result for the year includes the undernoted revenue and contribution in relation to these discontinued titles: 2006 2006 2005 2005 Revenue Contribution Revenue Contribution £m £m £m £m UK 9.6 (0.1) 7.6 0.4 US 5.7 (0.6) 1.6 (0.2) Total 15.3 (0.7) 9.2 0.2 The net impact of these closures is to reduce annual revenue by £15.3m from 2006 levels whilst not reducing contribution. Group revenues The tables below analyse Group revenues, which grew by 6% including the impact of acquisitions made during the previous financial year. Revenue by type % of 2006 2005 Change Group £m £m % ------------- ------- ----------- ------------- ----------- Circulation 63% 141.1 139.0 Up 2% Advertising 35% 78.6 68.1 Up 15% Other 2% 5.2 5.2 ------------- ------- ----------- ------------- ----------- Group revenue 100% 224.9 212.3 Up 6% ------------- ------- ----------- ------------- ----------- Revenue by country % of 2006 2005 Change Group £m £m % ------------- ------- ----------- ------------- ----------- UK 57% 128.3 118.4 Up 8% US 26% 60.1 55.5 Up 8% Mainland Europe 17% 37.6 39.7 Down 5% Intra-group - (1.1) (1.3) ------------- ------- ----------- ------------- ----------- Group revenue 100% 224.9 212.3 Up 6% ------------- ------- ----------- ------------- ----------- Proportion of Group UK US Mainland Europe Group ------------- -------- ----------- --------- ---------- Entertainment 16% 11% 10% 37% Technology 17% 4% 7% 28% Active 17% 7% - 24% Living 7% 4% - 11% ------------- -------- ----------- --------- ---------- Total 57% 26% 17% 100% ------------- -------- ----------- --------- ---------- Currency effect on reported profits The impact of currency movements was insignificant this year. Half-yearly performance The table below analyses the business results during the last two years into first-half and second-half performance. Half-year to Half-year to Total March September £m £m £m ----------------------------- --------- ----------- --------- Revenue Year to 30 September 2005 104.3 108.0 212.3 Year to 30 September 2006 114.7 110.2 224.9 EBITAE Year to 30 September 2005 12.8 7.6 20.4 Year to 30 September 2006 6.3 7.4 13.7 Balance sheet The main change in the shape of the Group balance sheet at 30 September 2006 compared with 2005 is the reduced level of intangible assets, following the impairment charge detailed above. Net assets at 30 September 2006 amounted to £63.6m (2005: £117.5m) of which £111.6m (2005: £160.2m) related to intangible fixed assets. There was an increase in tangible fixed assets following capital expenditure of £4.6m (2005: £1.6m); the increase reflects the fitting out of our new leased offices in London and San Francisco. As is common in media companies, Future has a low capital base and its value is better measured from its strong cash flows rather than by returns on capital employed. Cash flow and net debt Future is strongly cash-generative, and this gave rise to £24.0m of net cash inflow from operating activities this year (2005: £9.8m). Over the three years to 30 September 2006, an average of 106% of EBITAE profit has been converted into cash. During the year the Group paid out £5.9m in dividends, £4.2m on capital expenditure, £2.4m in respect of acquisitions and £0.7m in tax. Net debt at the end of the year was £32.8m (2005: £39.5m), 17% lower than at the previous year end. Purchase of shares by Employee Benefit Trust In June 2006, the Board authorised the purchase of £1.1m of shares in the Company by its Employee Benefit Trust in order to permit fulfilment of senior employee incentives. Bank facility Since the year end, the Group has agreed a revised Credit Agreement with its bank syndicate, reducing the size of the facility from £90m to £60m, limiting the net debt: EBITDA covenant to 2.5 times from 30 September 2007 and allowing 2006 exceptional costs. The new facility provides flexibility to the Group, as it implements its revised strategy. Under this Credit Agreement, the key covenants at 30 September 2006 are: Year-end Bank covenant Net debt/ EBITDA 2.1 times Less than 3 times EBITDA / interest 6.1 times More than 3.5 times The majority of Future's debt is in Sterling, with a smaller amount in US Dollars reflecting our financing decisions when acquiring assets in the US during the least three years. Consistent with policy published in previous years, the Group hedges between 25% and 50% of the gross bank debt above £10m. As at 30 September 2006 £15m of bank debt was hedged at an interest rate of 4.38% until October 2007. The Group's net debt is provided by a bank syndicate comprising four major banks, led by Barclays. The Board considers that the Group's net bank debt is acceptable and this factor, together with the new bank facility, should provide flexibility for the foreseeable future. UK performance for year ended 30 September 2006 2006 2006 2006 2006 2005 2005 2005 Revenue Contribution Margin % of Revenue Contribution Margin £m £m % revenue £m £m % ------------------ -------- -------- ------- ------- ------- -------- -------- Entertainment 37.3 10.8 29% 29% 40.2 13.8 34% Technology 37.4 12.0 32% 29% 34.2 10.7 31% Active 38.0 8.8 23% 30% 31.6 8.5 27% Living 15.6 0.9 6% 12% 12.4 0.6 5% ------------------ -------- -------- ------- ------- ------- -------- -------- 128.3 32.5 25% 100% 118.4 33.6 28% Overheads (18.7) (15.9) ------------------ -------- -------- ------- ------- ------- -------- -------- EBITAE 13.8 11% 17.7 15% Exceptional items (6.2) (4.5) Amortisation and impairment (27.3) (0.9) ------------------ -------- -------- ------- ------- ------- -------- -------- Operating (loss)/profit (19.7) 12.3 ------------------ -------- -------- ------- ------- ------- -------- -------- UK revenue rose by £9.9m or 8% driven by the full-year impact of titles acquired in financial year 2005. This full-year impact amounted to £14.6m but was partly offset by a fall in revenue of the existing portfolio of titles which amounted to £4.7m, predominantly in the games magazine sector. EBITAE was £13.8m, representing an EBITAE margin of 11% (2005: 15%). EBITAE contributed by titles acquired last financial year was £2.3m. However, this was more than offset by a £4.7m fall in contribution from the existing portfolio of titles. Following a number of acquisitions last year, the UK overhead base increased in 2006, notably in respect of property costs. During the first half-year, we completed the integration and relocation of our employees in London to a single office in Marylebone, NW1. US performance for year ended 30 September 2006 2006 2006 2006 2006 2005 2005 2005 Revenue Contribution Margin % of Revenue Contribution Margin $m $m % revenue $m $m % ------------------ -------- -------- ------- ------- ------- -------- -------- Entertainment 46.0 7.6 17% 42% 50.8 12.9 25% Technology 18.3 5.2 28% 17% 22.6 4.2 19% Active 29.9 3.9 13% 28% 25.8 3.2 12% Living 14.0 1.2 9% 13% 3.2 0.1 3% ------------------ -------- -------- ------- ------- ------- -------- -------- 108.2 17.9 17% 100% 102.4 20.4 20% Overheads (14.5) (13.3) ------------------ -------- -------- ------- ------- ------- -------- -------- EBITAE 3.4 3% 7.1 7% Exceptional items (1.1) (1.1) Amortisation and impairment (20.6) (0.3) ------------------ -------- -------- ------- ------- ------- -------- -------- Operating (loss)/profit (18.3) 5.7 ------------------ -------- -------- ------- ------- ------- -------- -------- US revenue rose 6% driven by the full-year impact of titles acquired during last financial year. This full-year impact amounted to $11.3m but was partly offset by a fall in revenue from existing games titles which amounted to $7.5m. EBITAE was $3.4m, representing an EBITAE profit margin of 3% (2005: 7%). EBITAE contributed by titles acquired last financial year was $2.3m. However, this was more than offset by the additional impact of NPD investment in magazine launches in action sports and scrapbooking, and in the games website www.gamesradar.com. Mainland Europe performance for year ended 30 September 2006 2006 2006 2006 2006 2005 2005 2005 Revenue Contribution Margin % of Revenue Contribution Margin €m €m % revenue €m €m % ------------------ -------- -------- ------- ------- ------- -------- -------- Entertainment 32.0 7.0 22% 58% 33.0 8.6 26% Technology 21.7 3.9 18% 39% 24.4 3.6 15% Active 0.5 - - 1% 0.4 0.1 25% Living 0.8 - - 2% - - ------------------ -------- -------- ------- ------- ------- -------- -------- 55.0 10.9 20% 100% 57.8 12.3 21% Overheads (9.0) (9.2) ------------------ -------- -------- ------- ------- ------- -------- -------- EBITAE 1.9 3% 3.1 5% Exceptional costs (2.8) - Amortisation and impairment (17.7) - ------------------ -------- -------- ------- ------- ------- -------- -------- Operating (loss)/profit (18.6) 3.1 ------------------ -------- -------- ------- ------- ------- -------- -------- Mainland Europe revenue was slightly below that for last year, and EBITAE profit was €1.9m, representing an EBITAE margin of 3% (2005: 5%). This result is stated after the cost of intra-group licence fees of €1.2m (2005: €1.4m). In France, the title Micro Actuel, launched in March 2005, incurred reduced losses of €0.1m (2005: €0.6m). Group performance for year ended 30 September 2006 2006 2006 2006 2006 2005 2005 2005 Revenue Contribution Margin % of Revenue Contribution Margin £m £m % revenue £m £m % ------------------ -------- -------- ------- ------- ------- -------- -------- Entertainment 84.7 19.8 23% 37% 90.4 26.8 30% Technology 62.4 17.6 28% 28% 63.2 15.2 24% Active 55.0 11.0 20% 24% 45.8 10.5 23% Living 23.9 1.5 6% 11% 14.2 0.7 5% ------------------ -------- -------- ------- ------- ------- -------- -------- 226.0 49.9 22% 100% 213.6 53.2 25% ------------------ -------- -------- ------- ------- ------- -------- -------- Less: intra-group (1.1) (1.3) ------------------ -------- -------- ------- ------- ------- -------- -------- 224.9 212.3 Overheads (36.2) (32.8) ------------------ -------- -------- ------- ------- ------- -------- -------- EBITAE 13.7 6% 20.4 10% Exceptional items (9.2) (5.1) Amortisation and impairment (50.9) (1.8) ------------------ -------- -------- ------- ------- ------- -------- -------- Operating (loss)/profit (46.4) 13.5 6% ------------------ -------- -------- ------- ------- ------- -------- -------- Event after the balance sheet date Today the Group announces that it has agreed to dispose of its wholly owned Italian subsidiary, Future Media Italy SpA (Future Italy), for proceeds of €1.1m. Due to its insignificance relative to the Group, Future Italy has not been classified as an asset held for sale, nor have its results been classified as discontinued operations in these financial statements. Consolidated income statement for the year ended 30 September 2006 2006 2005 Continuing operations Note £m £m ------------------------------ ------- --------- --------- Revenue 1,2 224.9 212.3 ------------------------------ ------- --------- --------- Operating profit before exceptional items, impairment and 13.7 20.4 amortisation of intangible assets Exceptional items 5 (9.2) (5.1) Impairment of intangible assets 3,12 (45.0) - Amortisation of intangible assets 3,12 (5.9) (1.8) ------------------------------ ------- --------- --------- Operating (loss)/profit 1,3 (46.4) 13.5 Financial income 7 0.5 0.5 Financial costs 7 (3.1) (1.5) ------------------------------ ------- --------- --------- Net financing costs 7 (2.6) (1.0) ------------------------------ ------- --------- --------- (Loss)/profit on ordinary activities before tax 4 (49.0) 12.5 Tax on (loss)/profit on ordinary activities 8 1.8 (2.2) ------------------------------ ------- --------- --------- (Loss)/profit for the year (47.2) 10.3 ------------------------------ ------- --------- --------- Earnings per 1p Ordinary share Note 2006 2005 pence pence ------------------------------- ------- -------- -------- Basic (loss)/earnings per share 10 (14.5) 3.2 Diluted (loss)/earnings per share 10 (14.5) 3.2 ------------------------------- ------- -------- -------- Consolidated statement of changes in equity for the year ended 30 September 2006 Share Share Merger Treasury Retained Total capital premium reserve reserve earnings equity Note £m £m £m £m £m £m ---------------------------------- ---- ------- ------- ------- ------- ------- ------- Balance at 1 October 2004 3.2 23.7 109.0 - (23.6) 112.3 ---------------------------------- ---- ------- ------- ------- ------- ------- ------- Profit for the year - - - - 10.3 10.3 Currency translation differences - - - - 0.2 0.2 ---------------------------------- ---- ------- ------- ------- ------- ------- ------- Total recognised income for the year - - - - 10.5 10.5 Final dividend relating to 2004 9 - - - - (4.9) (4.9) Interim dividend relating to 2005 9 - - - - (1.6) (1.6) Share option schemes - Value of employees' services 6 - - - - 0.4 0.4 New share capital subscribed 0.1 0.7 - - - 0.8 ---------------------------------- ---- ------- ------- ------- ------- ------- ------- Balance at 30 September 2005 3.3 24.4 109.0 - (19.2) 117.5 ---------------------------------- ---- ------- ------- ------- ------- ------- ------- Loss for the year - - - - (47.2) (47.2) Currency translation differences - - - - (0.4) (0.4) ---------------------------------- ---- ------- ------- ------- ------- ------- ------- Total recognised loss for the year - - - - (47.6) (47.6) Final dividend relating to 2005 9 - - - - (4.2) (4.2) Interim dividend relating to 2006 9 - - - - (1.7) (1.7) Share option schemes - Value of employees' services 6 - - - - 0.7 0.7 - Deferred tax on options 8 - - - - (0.1) (0.1) Treasury shares acquired - - - (1.1) - (1.1) New share capital subscribed - 0.1 - - - 0.1 ---------------------------------- ---- ------- ------- ------- ------- ------- ------- Balance at 30 September 2006 3.3 24.5 109.0 (1.1) (72.1) 63.6 ---------------------------------- ---- ------- ------- ------- ------- ------- ------- Consolidated balance sheet as at 30 September 2006 2006 2005 Note £m £m ------------------------------- ------- -------- --------- Assets Non-current assets Property, plant and equipment 11 6.2 3.7 Intangible assets - goodwill 12 104.7 147.3 Intangible assets - other 12 6.9 12.9 Deferred tax 13 3.5 1.9 ------------------------------- ------- -------- --------- Total non-current assets 121.3 165.8 ------------------------------- ------- -------- --------- Current assets Inventories 14 4.9 6.2 Corporation tax recoverable 2.6 2.3 Trade and other receivables 15 36.8 46.2 Cash and cash equivalents 16 20.0 10.7 ------------------------------- ------- -------- --------- Total current assets 64.3 65.4 ------------------------------- ------- -------- --------- Total assets 185.6 231.2 ------------------------------- ------- -------- --------- Equity and liabilities Equity Issued share capital 3.3 3.3 Share premium account 24.5 24.4 Merger reserve 20 109.0 109.0 Treasury reserve 20 (1.1) - Retained earnings (72.1) (19.2) ------------------------------- ------- -------- --------- Total equity 63.6 117.5 ------------------------------- ------- -------- --------- Non-current liabilities Financial liabilities - interest-bearing loans and borrowings 18 25.8 29.8 Deferred tax 13 1.9 2.3 Provisions 19 5.6 2.2 Other non-current liabilities 2.6 2.2 ------------------------------- ------- -------- --------- Total non-current liabilities 35.9 36.5 ------------------------------- ------- -------- --------- Current liabilities Financial liabilities - interest-bearing loans and borrowings 18 27.0 20.4 Trade and other payables 17 58.9 56.5 Corporation tax payable 0.2 0.3 ------------------------------- ------- -------- --------- Total current liabilities 86.1 77.2 ------------------------------- ------- -------- --------- Total liabilities 122.0 113.7 ------------------------------- ------- -------- --------- Total equity and liabilities 185.6 231.2 ------------------------------- ------- -------- --------- Consolidated cash flow statement for the year ended 30 September 2006 2006 2005 £m £m ------------------------- ------- ------- Cash flows from operating activities Cash generated from operations 24.0 9.8 Interest received 0.5 0.5 Tax received 0.2 1.4 Interest paid (3.2) (0.8) Tax paid (0.9) (5.5) ------------------------- ------- ------- Net cash generated from operating activities 20.6 5.4 ------------------------- ------- ------- Cash flows from investing activities Purchase of property, plant and equipment (4.2) (1.8) Purchase of magazine titles (2.4) (15.3) Purchase of computer software and website development (0.9) - Purchase of subsidiary undertakings - (33.6) Net cash acquired with subsidiary undertakings - 0.8 Disposal of subsidiary undertakings - 2.1 Payment of deferred consideration - (0.1) Net movement in amounts owed to/by subsidiaries - - ------------------------- ------- ------- Net cash used in investing activities (7.5) (47.9) ------------------------- ------- ------- Cash flows from financing activities Proceeds from issue of Ordinary share capital 0.1 0.8 Purchase of own shares by Employee Benefit Trust (1.1) - Draw down of bank loans 7.3 53.6 Issue costs of new bank loan - (0.4) Repayment of bank loans (4.0) (8.7) Equity dividends paid (5.9) (6.5) ------------------------- ------- ------- Net cash (used in)/generated from financing activities (3.6) 38.8 ------------------------- ------- ------- Net increase/(decrease) in cash and cash equivalents 9.5 (3.7) Cash and cash equivalents at beginning of year 10.7 14.5 Exchange adjustments (0.2) (0.1) ------------------------- ------- ------- Cash and cash equivalents at end of year 20.0 10.7 ------------------------- ------- ------- Notes to the cash flow statement for the year ended 30 September 2006 A. Cash flows from operating activities The reconciliation of operating (loss)/profit to cash flows from operating activities is as follows: 2006 2005 £m £m ------------------------------ ------- ------- Operating (loss)/profit for the year (46.4) 13.5 Adjustments for: Depreciation charge 2.0 1.2 Profit on disposal of subsidiaries - (2.1) Amortisation of intangible assets 5.9 1.8 Impairment of intangible assets 45.0 - ------------------------------ ------- ------- Share option schemes - value of employees' services 0.7 0.4 ------------------------------ ------- ------- Operating profit before changes in working capital and 7.2 14.8 provisions Movement in provisions 3.4 1.0 Decrease/(increase) in inventories 1.2 (1.0) Decrease/(increase) in trade and other receivables 8.2 (7.9) Increase in trade and other payables 4.0 2.9 ------------------------------ ------- ------- Cash generated from operations 24.0 9.8 ------------------------------ ------- ------- B. Analysis of net debt At 1 October Cash flows Non-cash Exchange At 30 September changes movements 2005 £m £m £m 2006 £m £m ------------------ --------- --------- --------- --------- ---------- Cash and cash equivalents 10.7 9.5 - (0.2) 20.0 Debt due within one year (20.4) (3.3) (4.0) 0.7 (27.0) Debt due after more than one year (29.8) - 4.0 - (25.8) ------------------ --------- --------- --------- --------- ---------- Net debt (39.5) 6.2 - 0.5 (32.8) ------------------ --------- --------- --------- --------- ---------- C. Reconciliation of movement in net (debt)/cash 2006 2005 £m £m ----------------------------- ------- ------- Net (debt)/cash at start of year (39.5) 9.8 Increase/(decrease) in cash and cash equivalents 9.5 (3.7) Overdraft acquired with subsidiaries - (0.4) Movement in borrowings (3.3) (44.9) Exchange movements 0.5 (0.3) ----------------------------- ------- ------- Net debt at end of year (32.8) (39.5) ----------------------------- ------- ------- Basis of preparation This preliminary statement of annual results for the year ended 30 September 2006 is unaudited and does not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985. The accounts were prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and International Financial Reporting Interpretations Committee's (IFRIC) interpretations as adopted by the European Union (EU) applicable at 30 September 2006, and those parts of the Companies Act applicable to companies reporting under IFRS. The Group's date of transition was 1 October 2004 and this is the Group's first set of accounts prepared in accordance with IFRS. The areas most significantly affected following the adoption of IFRS are set out in the document - Restatement from UK GAAP to International Financial Reporting Standards for the year ended 30 September 2005 (The Restatement document). The Restatement document was published on 6 April 2006 and is available on our website ( www.futureplc.com/future/investors), along with full details of the Group's accounting policies. The comparative information for the year ended 30 September 2005 has been restated from the Group's previously published accounts for 2005 prepared under UK GAAP, to comply with IFRS. Notes to the financial statements 1. Segmental reporting A geographical segment is based on the economic environment in which an entity operates. The Group's operations are split geographically between the UK, US and Mainland Europe. The geographical analysis is stated on the basis of origin of operations. (a) Primary reporting format - Geographical segment Analysis by primary segment is shown below: (i) Revenue by segment 2006 2005 £m £m ----------------------------------- --------- --------- United Kingdom 128.3 118.4 United States 60.1 55.5 Mainland Europe 37.6 39.7 Revenue between segments (1.1) (1.3) ----------------------------------- --------- --------- Total 224.9 212.3 ----------------------------------- --------- --------- Inter segment pricing is determined on an arms length basis. (ii) Revenue by destination The Group's primary segments are based on the geographical location of segment assets, which can differ from the geographical market in which the customer is located. An analysis by destination is shown below: 2006 2005 £m £m ----------------------------------- --------- --------- United Kingdom 104.4 99.4 United States 63.5 57.0 Mainland Europe 48.3 47.1 Rest of the world 9.8 10.1 Revenue between segments (1.1) (1.3) ----------------------------------- --------- --------- Total 224.9 212.3 ----------------------------------- --------- --------- (iii) Operating (loss)/profit by segment 2006 2005 £m £m ----------------------------------- --------- --------- United Kingdom (19.7) 11.7 United States (10.2) 3.0 Mainland Europe (12.7) 2.5 Central costs (3.8) (3.7) ----------------------------------- --------- --------- Operating(loss)/profit (46.4) 13.5 ----------------------------------- --------- --------- (iv) Assets and liabilities by segment Segment Assets Segment Segment Net Liabilities Assets 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m --------------------- ------- ------- ------- ------- ------- ------- United Kingdom 135.9 159.9 (80.4) (72.8) 55.5 87.1 United States 36.2 44.6 (26.0) (25.6) 10.2 19.0 Mainland Europe 13.5 26.7 (15.6) (15.3) (2.1) 11.4 --------------------- ------- ------- ------- ------- ------- ------- Total 185.6 231.2 (122.0) (113.7) 63.6 117.5 --------------------- ------- ------- ------- ------- ------- ------- (v) Other segment information Additions to Depreciation Impairment Exceptional non-current and charges items assets Amortisation 2006 2005 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m £m £m ----------------- ------ ------ ------ ------ ------ ------ ------ ------ United Kingdom 3.2 44.0 5.7 2.3 22.8 - 6.7 4.5 United States 4.7 7.5 1.9 0.5 10.2 - 0.6 0.6 Mainland Europe 0.1 2.8 0.3 0.2 12.0 - 1.9 - ----------------- ------ ------ ------ ------ ------ ------ ------ ------ Total 8.0 54.3 7.9 3.0 45.0 - 9.2 5.1 ----------------- ------ ------ ------ ------ ------ ------ ------ ------ There were no other significant non-cash expenses, other than those disclosed above, during the year. (b) Secondary reporting format - Business segment After geographical location, the Group is managed into four principal business segments. Each business segment comprises groups of individual magazines, websites, and shows, combined according to the market sector in which they operate. The Group considers that the assets within each segment are exposed to the same risks. (i) Revenue by segment 2006 2005 £m £m ----------------------------------- --------- --------- Entertainment 84.7 90.4 Technology 62.4 63.2 Active 55.0 45.8 Living 23.9 14.2 Revenue between segments (1.1) (1.3) ----------------------------------- --------- --------- Total 224.9 212.3 ----------------------------------- --------- --------- (ii) Gross Profit by segment 2006 2005 £m £m ----------------------------------- --------- --------- Entertainment 19.8 26.8 Technology 17.6 15.2 Active 11.0 10.5 Living 1.5 0.7 Add back: distribution expenses 15.0 14.4 ----------------------------------- --------- --------- Total 64.9 67.6 ----------------------------------- --------- --------- Information regarding total costs incurred during the year to acquire, and total carrying amount of, segment assets would require arbitrary allocation and is therefore not provided. 2. Revenue An additional analysis of the Group's revenue is shown below: 2006 2005 £m £m ----------------------------------- --------- --------- Circulation 141.1 139.0 Advertising 78.6 68.1 Other 5.2 5.2 ----------------------------------- --------- --------- Total 224.9 212.3 ----------------------------------- --------- --------- 3. Operating (loss)/profit 2006 2005 £m £m ----------------------------------- --------- --------- Revenue 224.9 212.3 Cost of sales (160.0) (144.7) ----------------------------------- --------- --------- Gross profit 64.9 67.6 Distribution expenses (15.0) (14.4) Administration expenses (including exceptional items) (45.4) (37.9) Impairment of intangible assets (45.0) - Amortisation of intangible assets (5.9) (1.8) ----------------------------------- --------- --------- Operating (loss)/profit (46.4) 13.5 ----------------------------------- --------- --------- 4. (Loss)/profit on ordinary activities before tax 2006 2005 £m £m ----------------------------------- --------- --------- (Loss)/profit on ordinary activities before tax is stated after charging: Employee costs (note 6) 60.2 50.6 Depreciation of owned assets (note 11) 2.0 1.2 Impairment of intangible assets (note 12) 45.0 - Amortisation of intangible assets (note 12) 5.9 1.8 Hire of machinery and equipment 0.3 0.3 Other operating lease rentals 5.3 4.5 Exceptional items (note 5) 9.2 5.1 ----------------------------------- --------- --------- 5. Exceptional items 2006 2005 £m £m ----------------------------------- --------- --------- Property costs 4.0 2.4 Restructuring and redundancy costs 3.8 2.6 Other costs 1.4 - Aborted bid costs - 2.2 Profit on disposal of subsidiaries - (2.1) ----------------------------------- --------- --------- Total 9.2 5.1 ----------------------------------- --------- --------- The property costs consist mainly of a vacant property provision made against office space in Baker Street, London which was vacated in January 2006 and other surplus office space arising from the September 2006 restructuring. The restructuring and redundancy costs relate to the costs incurred as a result of the continued integration, and subsequent restructuring, of businesses and titles acquired during the year ended 30 September 2005. The other costs relate to amounts paid and provisions made in respect of other contractual matters. The aborted bid costs in 2005 relate to the external professional fees and other costs of the aborted bid for the entire issued share capital of Highbury House Communications plc during the first half of 2005. 6. Employees 2006 2005 £m £m ----------------------------------- --------- --------- Wages and salaries 50.4 42.5 Social security costs 7.9 6.9 Other pension costs 1.2 0.8 ----------------------------------- --------- --------- Share option schemes - Value of employees' services 0.7 0.4 ----------------------------------- --------- --------- Total 60.2 50.6 ----------------------------------- --------- --------- Average monthly number of people (including executive Directors) --------- --------- ----------------------------------- Production 1,219 1,083 Administration 342 331 ----------------------------------- --------- --------- Total 1,561 1,414 ----------------------------------- --------- --------- At 30 September 2006, the actual number of people employed by the Group was 1,577 (2005: 1,590). In respect of our primary segments 1,092 were employed in the UK, 225 in the US and 260 in Mainland Europe. IFRS 2 (Share-based payments) requires an expense for equity instruments granted to be recognised over the appropriate vesting period, measured at their fair value at the date of grant. The Group has used the Black Scholes model to value instruments with non market-based performance criteria such as earnings per share. For instruments with market-based performance criteria, notably total shareholder return, the Group has used a Monte Carlo model to determine the fair value. The expense for the year of £0.7m (2005: £0.4m) has been credited to reserves. 7. Financial income and costs --------------------------------- --------- --------- 2006 2005 £m £m --------------------------------- --------- --------- Interest receivable 0.5 0.5 --------------------------------- --------- --------- Total financial income 0.5 0.5 --------------------------------- --------- --------- --------------------------------- --------- --------- Interest payable on interest-bearing loans and borrowings (3.1) (1.1) Write-off of debt issue costs - (0.4) --------------------------------- --------- --------- Total financial costs (3.1) (1.5) --------------------------------- --------- --------- Net financial costs (2.6) (1.0) --------------------------------- --------- --------- 8. Tax on (loss)/profit on ordinary activities The tax (credited)/charged in the consolidated income statement for continuing operations is analysed below: --------------------------------- --------- --------- 2006 2005 £m £m --------------------------------- --------- --------- UK Corporation tax Current tax at 30% (2005: 30%) on the (loss)/profit for (0.6) 1.5 the year Adjustments in respect of previous years (0.4) (0.2) --------------------------------- --------- --------- (1.0) 1.3 --------------------------------- --------- --------- Foreign tax Current tax on the (loss)/profit for the year 0.6 1.1 Adjustments in respect of previous years 0.7 (0.4) --------------------------------- --------- --------- 1.3 0.7 --------------------------------- --------- --------- Deferred tax origination and reversal of timing differences Current period (credit)/charge (2.1) 0.2 --------------------------------- --------- --------- Total tax (credit)/charge (1.8) 2.2 --------------------------------- --------- --------- Tax on items charged to equity is analysed below: --------------------------------- --------- --------- 2006 2005 £m £m --------------------------------- --------- --------- Deferred tax - on share scheme notional gains charged to reserves 0.1 - ---------------------------------- --------- --------- The Group is awaiting the outcome of a claim in respect of losses incurred in EU based subsidiaries which, if successful, would give rise to a tax credit and repayment of an amount in the region of £1.5m. Due to the legal complexity and uncertainty of success the claim has not been reflected in these financial statements. The tax assessed in each period differs from the standard rate of corporation tax in the UK for the relevant period. The differences are explained below: ----------------------------------- --------- --------- 2006 2005 £m £m ----------------------------------- --------- --------- (Loss)/profit on ordinary activities before tax (49.0) 12.5 ----------------------------------- --------- --------- (Loss)/profit on ordinary activities before tax at the standard (14.7) 3.7 UK tax rate of 30% Different tax rates applicable overseas - 0.6 Intangibles: Differences relating to amortisation (1.5) (2.3) Intangibles: Differences relating to impairment 13.5 - Profit and loss: Losses generated and unutilised 0.8 0.6 Profit and loss: Utilisation of brought forward losses (0.2) (0.7) Profit and loss: Other allowable/disallowable items - 1.5 Profit and loss: Profits relieved by capital losses - (0.6) Impact of prior year adjustments 0.3 (0.6) ----------------------------------- --------- --------- Total tax (credit)/charge (1.8) 2.2 ----------------------------------- --------- --------- 9. Dividends Equity dividends 2006 2005 --------------------------------- --------- --------- Number of shares in issue at end of year (million) 326.5 326.3 Dividends paid in year (pence per share) 1.8 2.0 --------------------------------- --------- --------- Dividends paid in year (£m) 5.9 6.5 --------------------------------- --------- --------- In accordance with IFRS interim dividends are recognised in the period in which they are paid and final dividends are recognised in the period in which they are approved. A dividend in respect of the year ended 30 September 2006 of 0.5 pence per share, amounting to a total dividend of £1.6m, is to be proposed at the Annual General Meeting on 30 January 2007. These financial statements do not reflect this dividend. The dividends totalling £5.9m paid during the year ended 30 September 2006 relate to the interim dividend for the six month period to 31 March 2006 of 0.5 pence per share (£1.7m) and the final dividend declared for the year ended 30 September 2005 of 1.3 pence per share (£4.2m). The dividends totalling £6.5m paid during the year ended 30 September 2005 relate to the interim dividend for the six month period to 31 March 2005 of 0.5 pence per share (£1.6m) and the final dividend declared for the nine months ended 30 September 2004 of 1.5 pence per share (£4.9m). 10. Earnings per share Basic earnings per share are calculated using the weighted average number of Ordinary shares outstanding during the year. 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 per share removes the effect of the amortisation and impairment of intangible assets, exceptional items (including profit on disposal of subsidiaries) and any related tax effects from the calculation as follows: Adjustments to (loss)/profit on ordinary activities after tax ---------------------------------- --------- --------- 2006 2005 £m £m ---------------------------------- --------- --------- (Loss)/profit on ordinary activities after tax (47.2) 10.3 Add: amortisation of intangible assets 5.9 1.8 Add: impairment of intangible assets 45.0 - Add: exceptional items 9.2 5.1 Tax effect of the above adjustments (4.8) (2.8) ---------------------------------- --------- --------- Adjusted profit on ordinary activities after tax 8.1 14.4 ---------------------------------- --------- --------- 2006 2005 ---------------------------------- --------- --------- Weighted average number of shares outstanding during the year: - basic 325,697,195 325,468,072 - dilutive effect of share options 1,435,955 937,654 - diluted 327,133,150 326,405,726 Basic (loss)/earnings per share (in pence) (14.5) 3.2 Adjusted basic earnings per share (in pence) 2.5 4.4 Diluted (loss)/earnings per share (in pence) (14.5) 3.2 Adjusted diluted earnings per share (in pence) 2.5 4.4 ---------------------------------- --------- --------- The share options do not have a dilutive effect where there is a loss. The adjustments have the following effect: ---------------------------------- --------- --------- 2006 2005 pence pence ---------------------------------- --------- --------- Basic (loss)/earnings per share (14.5) 3.2 Amortisation of intangible assets 1.8 0.5 Impairment of intangible assets 13.8 - Exceptional items 2.8 1.6 Tax effect of the above adjustments (1.4) (0.9) ---------------------------------- --------- --------- Adjusted basic earnings per share 2.5 4.4 ---------------------------------- --------- --------- Diluted (loss)/earnings per share (14.5) 3.2 Amortisation of intangible assets 1.8 0.5 Impairment of intangible assets 13.8 - Exceptional items 2.8 1.6 Tax effect of the above adjustments (1.4) (0.9) ---------------------------------- --------- --------- Adjusted diluted earnings per share 2.5 4.4 ---------------------------------- --------- --------- 11. Property, plant and equipment -------------------------- -------- -------- --------- -------- Land and Plant and Equipment, Total buildings machinery fixtures and fittings £m £m £m £m -------------------------- -------- -------- --------- -------- Cost At 1 October 2004 2.4 5.2 1.3 8.9 Additions - 1.3 0.3 1.6 Exchange adjustments - 0.1 - 0.1 -------------------------- -------- -------- --------- -------- At 30 September 2005 2.4 6.6 1.6 10.6 Additions 1.6 2.0 1.0 4.6 Disposals - (4.1) (0.4) (4.5) Exchange adjustments (0.1) (0.1) - (0.2) -------------------------- -------- -------- --------- -------- At 30 September 2006 3.9 4.4 2.2 10.5 -------------------------- -------- -------- --------- -------- -------------------------- -------- -------- --------- -------- Depreciation At 1 October 2004 (0.8) (3.9) (1.0) (5.7) Charge for the year (0.1) (0.9) (0.2) (1.2) Exchange adjustments - (0.1) 0.1 - -------------------------- -------- -------- --------- -------- At 30 September 2005 (0.9) (4.9) (1.1) (6.9) Charge for the year (0.3) (1.4) (0.3) (2.0) Disposals - 4.1 0.4 4.5 Exchange adjustments 0.1 - - 0.1 -------------------------- -------- -------- --------- -------- At 30 September 2006 (1.1) (2.2) (1.0) (4.3) -------------------------- -------- -------- --------- -------- Net book value at 30 September 2006 2.8 2.2 1.2 6.2 -------------------------- -------- -------- --------- -------- Net book value at 30 September 2005 1.5 1.7 0.5 3.7 -------------------------- -------- -------- --------- -------- Asset lives and residual values are reviewed annually. Land and buildings at net book value comprise: ---------------------------------- --------- --------- 2006 2005 £m £m ---------------------------------- --------- --------- Leasehold: Over 50 years unexpired 1.0 1.2 Under 50 years unexpired 1.8 0.3 ---------------------------------- --------- --------- Total 2.8 1.5 ---------------------------------- --------- --------- 12. Intangible assets ------------------------- -------- -------- -------- -------- Goodwill Magazine Other Total related £m £m £m £m ------------------------- -------- -------- -------- -------- Cost At 1 October 2004 324.8 - 1.6 326.4 Additions through business combinations 38.1 14.2 - 52.3 Other additions - - 0.2 0.2 Adjustments to fair value on prior year acquisitions 0.2 - - 0.2 Exchange adjustments 0.6 - - 0.6 ------------------------- -------- -------- -------- -------- At 30 September 2005 363.7 14.2 1.8 379.7 Additions through business combinations 1.4 1.0 - 2.4 Other additions - - 0.9 0.9 Adjustments to fair value on prior year acquisitions 0.1 - - 0.1 Disposals - - (0.2) (0.2) Exchange adjustments (1.6) (0.1) - (1.7) ------------------------- -------- -------- -------- -------- At 30 September 2006 363.6 15.1 2.5 381.2 ------------------------- -------- -------- -------- -------- ------------------------- -------- -------- -------- -------- Amortisation At 1 October 2004 (216.4) - (1.3) (217.7) Charge for the year - (1.5) (0.3) (1.8) ------------------------- -------- -------- -------- -------- At 30 September 2005 (216.4) (1.5) (1.6) (219.5) Charge for the year - (5.7) (0.2) (5.9) Impairment charges (43.1) (1.9) - (45.0) Disposals - - 0.1 0.1 Exchange adjustments 0.6 0.1 - 0.7 ------------------------- -------- -------- -------- -------- At 30 September 2006 (258.9) (9.0) (1.7) (269.6) ------------------------- -------- -------- -------- -------- Net book value at 30 September 2006 104.7 6.1 0.8 111.6 ------------------------- -------- -------- -------- -------- Net book value at 30 September 2005 147.3 12.7 0.2 160.2 ------------------------- -------- -------- -------- -------- The Group elected to apply IFRS 3 (Business Combinations) from the transition date of 1 October 2004. Acquisitions undertaken subsequent to that date have been restated in accordance with this standard. Magazine related assets have been recognised and relate mainly to trademarks, advertising relationships and customer lists. These assets are amortised over their estimated economic lives, typically ranging between one and five years. Any residual amount arising as a result of the purchase consideration being in excess of the value of identified magazine related assets is recorded as goodwill. Goodwill is not amortised under IFRS, but is subject to impairment testing either annually or on the occurrence of some triggering event. Goodwill is recorded and tested for impairment on a territory by territory basis. Other intangibles relate to capitalised software costs and website development costs. Impairment tests for goodwill and other intangibles The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be impaired. Other intangible assets with a definite life are tested for impairment only where there is an indication that an impairment may have occurred. The Group does not have any other intangible assets with indefinite lives. For the purpose of impairment testing, goodwill is allocated to the Group's cash generating units (CGU's) on a geographical basis: ---------------------------------- --------- --------- 2006 2005 £m £m ---------------------------------- --------- --------- UK 86.8 108.3 US 17.0 26.8 France 0.9 0.9 Italy - 11.3 ---------------------------------- --------- --------- Total 104.7 147.3 ---------------------------------- --------- --------- The recoverable amount of a CGU is based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five year period. Cash flows beyond five years are assumed to be constant. An appropriate discount rate of 13.4%, representing the Group's current pre-tax cost of capital, has been applied to these projections. During the year, the Group performed an impairment test on the goodwill and other intangible assets of its UK, US and Italian subsidiaries as a result of adverse trading performance particularly in respect of some of the acquired Highbury businesses in the UK. Consequently, an impairment charge of £22.8m has been recognised in our UK segment, £10.2m has been recognised in our US segment and £12.0m has been recognised in our Mainland Europe segment. 13. Deferred tax assets and liabilities The following are the major deferred tax assets and liabilities recognised by the Group, and the movements thereon, during the current and prior periods. ------------------ -------- ------- --------- -------- -------- ------ Intangible Share-based Depreciation vs Tax losses Provisions and Total assets payments tax allowances other timing differences £m £m £m £m £m £m ------------------ -------- ------- --------- -------- -------- ------ At 1 October 2004 0.6 0.2 0.7 0.8 (0.5) 1.8 Acquisitions (2.0) - - - - (2.0) (Charged)/credited to profit and loss account - - (0.2) (0.1) 0.1 (0.2) ------------------ -------- ------- --------- -------- -------- ------ At 30 September 2005 (1.4) 0.2 0.5 0.7 (0.4) (0.4) ------------------ -------- ------- --------- -------- -------- ------ (Charged)/credited to profit and loss account 0.5 - 0.3 (0.3) 1.6 2.1 Charged to equity - (0.1) - - - (0.1) ------------------ -------- ------- --------- -------- -------- ------ At 30 September 2006 (0.9) 0.1 0.8 0.4 1.2 1.6 ------------------ -------- ------- --------- -------- -------- ------ Certain deferred tax assets and liabilities have been offset against each other where they relate to the same jurisdiction. The following is the analysis of deferred tax balances after offset for balance sheet purposes: --------------------------------- ---------- ---------- 2006 2005 £m £m --------------------------------- ---------- ---------- Deferred tax assets 3.5 1.9 Deferred tax liabilities (1.9) (2.3) --------------------------------- ---------- ---------- Net deferred tax asset / (liability) 1.6 (0.4) --------------------------------- ---------- ---------- The deferred tax asset of £3.5m (2005: £1.9m) is disclosed as a non-current asset of which the assets due within one year total £1.3m (2005: £1.0m). The deferred tax liability of £1.9m (2005:£2.3m) is disclosed as a non-current liability of which the liabilities due within one year total £0.3m (2005: £0.7m). The Group has unprovided deferred tax assets on tax losses totalling £6.3m (2005: £6.5m), of which £4.2m (2005: £3.2m) are held in Italy. The losses in Italy relate to trading losses and have various expiry dates, with the exception of losses incurred during the first few years of the business which can be carried forward indefinitely. The Group also has unprovided deferred tax assets on other timing differences totalling £4.4m (2005: £2.3m) that are considered unlikely to be utilised in the foreseeable future due to uncertainty over the utilisation of losses and other deductions in certain tax jurisdictions. Deferred tax assets have been recognised in respect of tax losses and other temporary differences where it is probable that these assets will be recovered. No deferred tax is recognised on the un-remitted earnings of overseas subsidiaries as any remitted earnings would not give rise to a tax liability in the foreseeable future. 14. Inventories ---------------------------------- --------- --------- 2006 2005 £m £m ---------------------------------- --------- --------- Raw materials 1.6 2.4 Work in progress 2.3 2.6 Finished Goods 1.0 1.2 ---------------------------------- --------- --------- Total 4.9 6.2 ---------------------------------- --------- --------- Inventory is stated after impairment of £0.1m (2005: £0.1m). The cost of raw material inventories recognised as an expense and included within cost of sales amounted to £24.2m (2005: £21.0m). 15. Trade and other receivables ---------------------------- -------- -------- 2006 2005 £m £m ---------------------------- -------- -------- Amounts falling due within one year: Trade receivables 31.2 37.9 Other receivables 1.4 2.1 Prepayments and accrued income 4.0 6.1 ---------------------------- -------- -------- 36.6 46.1 Amounts falling due after more than one year: Other receivables 0.2 0.1 ---------------------------- -------- -------- Total 36.8 46.2 ---------------------------- -------- -------- Trade receivables are shown net of a reserve for doubtful debts amounting to £3.0m (2005: £3.4m). 16. Cash and cash equivalents ---------------------------- -------- -------- 2006 2005 £m £m ---------------------------- -------- -------- Cash at hand and in bank 17.9 10.7 Short term bank deposits 2.1 - ---------------------------- -------- -------- Cash and cash equivalents 20.0 10.7 ---------------------------- -------- -------- The effective interest rate on short term deposits was 4.1% (2005: 4.1%). These deposits have an average maturity period of 1 day (2005: 1 day). 17. Trade and other payables ---------------------------- -------- -------- 2006 2005 £m £m ---------------------------- -------- -------- Amounts falling due within one year: Trade payables 19.0 20.2 Taxation and social security 3.0 3.3 Other payables 6.7 7.1 Accruals and deferred income 30.2 25.9 ---------------------------- -------- -------- Total 58.9 56.5 ---------------------------- -------- -------- 18. Financial liabilities - Interest-bearing loans and borrowings Non-current liabilities -------------------------- -------- ------- -------- Interest rate 2006 2005 % £m £m -------------------------- -------- ------- -------- Amounts falling due after more than one year: Sterling term loan - unsecured 5.8% 25.8 29.8 -------------------------- -------- ------- -------- Total 25.8 29.8 -------------------------- -------- ------- -------- The Group has hedged £15m of the outstanding debt under its committed facility, expiring October 2007. The swap has a fixed interest rate of 4.38%. Current liabilities -------------------------- -------- -------- -------- Interest rate 2006 2005 % £m £m -------------------------- -------- -------- -------- Amounts falling due within one year: Sterling term loan - unsecured 5.8% 4.0 - Sterling revolving loan - unsecured 5.8% 12.8 11.8 US Dollar revolving loan - unsecured 6.2% 10.2 8.6 -------------------------- -------- -------- -------- Total 27.0 20.4 -------------------------- -------- -------- -------- The borrowings and interest are guaranteed by Future plc, Future Publishing Limited and Future US, Inc. 19. Provisions --------------------------- ---------- ---------- ---------- Property and Redundancy Total dilapidations provisions £m £m £m --------------------------- ---------- ---------- ---------- At 1 October 2005 2.2 - 2.2 Charge in the year 3.7 1.2 4.9 Utilised in the year (1.5) - (1.5) --------------------------- ---------- ---------- ---------- At 30 September 2006 4.4 1.2 5.6 --------------------------- ---------- ---------- ---------- Following the significant acquisition activity that took place during 2005, the Group has obligations under short leasehold agreements on a number of vacant properties. The provision made represents the following: - The Directors' best estimate of the discounted future net cash flows arising from the net shortfall on each of the leases held. - The Directors' best estimate of dilapidation obligations on termination of specific leasehold agreements. At 30 September 2006 the total amount of provision was £4.4m (2005: £2.2m). The leases against which the provisions have been made will terminate by September 2012. The provisions have been discounted at a rate in line with the Group's cost of capital which is 9.5%. Redundancy provisions relate to the acquisition, integration and subsequent restructuring carried out in the year. 20. Other reserves Treasury reserve The treasury reserve forms part of the retained earnings and represents the cost of shares in Future plc purchased in the market and held by The Future Network plc Employee Benefit Trust ('EBT') to satisfy awards made by the trustees. ----------------------------------- ---------- ---------- 2006 2005 £m £m ----------------------------------- ---------- ---------- Balance at 1 October - - Acquired in the year 1.1 - ----------------------------------- ---------- ---------- At 30 September 1.1 - ----------------------------------- ---------- ---------- During the year, Future plc paid £1.1m to Abacus Corporate Trustees Limited as trustees of The Future Network plc Employee Benefit Trust, which was used to purchase Future plc shares in the market to satisfy awards made by the trustees. The shares purchased represented 0.8% of the Company's issued share capital. The treasury reserve is non-distributable. Merger reserve The merger reserve of £109.0m (2005: £109.0m) arose following the 1999 Group re-organisation and is non-distributable. 21. Events after the balance sheet date Today the Group announces that it has agreed to dispose of its wholly owned Italian subsidiary, Future Media Italy SpA (Future Italy), for proceeds of €1.1m. Due to its insignificance relative to the Group, Future Italy has not been classified as an asset held for sale, nor have its results been classified as discontinued operations in these financial statements. This information is provided by RNS The company news service from the London Stock Exchange

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