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Future PLC (FUTR)

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Friday 21 November, 2014

Future PLC

Final Results

RNS Number : 6301X
Future PLC
21 November 2014
 



21 November 2014

 

Future plc

 

Transformation programme largely complete

 

Future plc (LSE: FUTR, "Future", "the Group"), the international media group and leading digital publisher, today announces its preliminary results for the year ended 30 September 2014. 

 

Financial highlights


Continuing operations


2014

2013


£m

£m

Revenue

66.0

82.6

EBITDAE*

(7.0)

(0.6)

Operating loss pre exceptional items

(10.3)

(3.4)

Exceptional items**

(24.3)

2.6

Loss before tax

(35.4)

(2.2)

Adjusted loss per share***

(3.2)p

(1.4)p

Net cash / (debt)

7.5

(6.9)




 

Summary

·    Transformation programme largely complete

o £24.8m raised from non-core disposals

o rationalisation of property portfolio

o cost base materially reduced - annualised cost savings £15m

o balance sheet strengthened - net cash position of £7.5m at year-end

·    Group revenues £66.0m (2013: £82.6m)

o continued decline in print

o Digital and Diversified**** revenues 41% of total revenues

 

Outlook

·    Positive EBITDAE in Q4 2014 expected to continue

o new revenue streams showing momentum

o audience engagement continues to be strong

§ 57 million unique users per month

§ over 250,000 digital subscribers worldwide

o benefits of lower overhead base to be realised during 2015

·    Post year-end disposal of Bath office for £1.25m

 

Zillah Byng-Maddick, Future's Chief Executive, said:

 

"We have now largely completed the Transformation programme, which was initiated in June 2014, on time and according to plan. Our property portfolio has been rationalised, non-core businesses sold, our balance sheet strengthened and the cost base materially reduced.

 

"The business is now stabilised, although as we continue to grow our newer revenue streams and transition from a print-led business to a digitally diversified content business, there remain some elements of uncertainty around the pace of decline in the print market.

 

"Over the last three months, we have seen encouraging growth in higher margin e-commerce activities. We have market leading positions in all our portfolios and are building good momentum to take into 2015.

 

"Looking forward, we continue to see the encouraging trends seen in Q4 when the Group as a whole returned to a positive EBITDAE position.  We expect these trends to continue into Q1 2015."

 

Notes

* EBITDAE represents earnings before interest, tax, depreciation, amortisation, impairment of intangible assets and exceptional items.

** Exceptional items for 2014 include impairment of intangible assets of £16.8m.

***Adjusted loss per share exclude exceptional items, impairment of intangible assets and related tax effects.

**** Digital and Diversified revenues include digital activities, FutureFolio, Future Fusion and events.

 

Enquiries:

 

Future plc

020 7042 4400

Zillah Byng-Maddick, Chief Executive Officer


Richard Haley, Chief Financial Officer

 


Instinctif Partners

020 7457 2020

Adrian Duffield/Kay Larsen


 

Strategic overview

 

The Group initiated a root and branch review of the organisation in March 2014.  Future's market leading content continues to be valuable to a number of audiences, be they commercial customers or clients. However, the organisational complexity was impacting on the Group's ability to generate sustainable margins and the transition to a Digital and Diversified content business.

 

Future has undertaken, and now largely completed, a substantial Transformation programme.  The Group has been simplified, the balance sheet strengthened and non-core assets sold.  It is now focussing on areas where Future sees the highest potential being the growing consumer technology market, games, entertainment, music and photography. 

 

The five portfolios are; Technology, Games and Film, Music, Photography and Creative; and the Group continues to create new adjacent revenue streams.  41% of revenues now come from Digital and Diversified activities compared to 37% in 2013.

 

Future enters 2015 a leaner, simpler business with a strategy that focuses on core competencies of content that connects its customers and clients.

 

Content that connects

The strategy has content at its heart; creating content that connects with audiences, customers and consumers is at the centre of everything we do. This supports the two key customer experiences - "review led" content and "how to" content.

 

Future has changed the way it works by no longer operating as individual brands but instead as content teams, underpinned by experts, who create content for all mediums of the business. With editorial teams creating shared portfolio content for all platforms in the business as opposed to a brand-led structure.

 

The Group's portfolio enables it to be at the centre of an increasingly digital and technology-led world. The brands and content created help to connect consumers with these trends and ensure that Future meets their evolving needs.

 

Financial performance

Overall revenue from continuing operations was £66.0m (2013: £82.6m) and EBITDAE was a loss of £7.0m (2013: £0.6m loss), with the positive impact of the Transformation programme largely not reflected in the 2014 result.

 

During the second half of the year a number of key elements of the new strategy were completed, including the restructuring of the US and UK operations and property rationalisation, with over £15m of annualised overhead savings being realised. These activities will deliver significant margin benefits in 2015. 

 

As a result of disposals and the restructuring, Future has notably strengthened its balance sheet. The year-end net cash position was £7.5m and the Group also agreed an amended and restated credit facility with its lenders. The timing of restructuring payments and the working capital related to the disposals means that the majority of this cash balance will unwind during 2015. The Group expects the underlying business to be cash generative in 2015.

 

The second half performance of the continuing business was significantly better than the first half. With an encouraging fourth quarter, Future saw the continuing operations of the Group return to profit.

 

The Group enters the 2014-15 financial year with its business in a stronger and more stable position.

 

Restructuring

During the spring, a review of the business was undertaken and opportunities to transform the business were identified. These ranged from simplifying the portfolio to creating a new working model for content creation.

 

As part of the Transformation programme, a detailed review of the portfolios was undertaken.  This resulted in the disposals of the Sport and Craft businesses to Immediate Media during July 2014 for up to £23.8m and the Auto business to Kelsey in August 2014 for up to £2.3m. 

 

Outside the UK, Future has offices in both the US and Australia. The US business continued to face challenges and this led to us fast-tracking the transition to a digital model, appropriate to the US market.

 

Print support functions of Future's international print brands have been assumed by the UK content team. Over one third of US staff have left the business, including a number of the management team.  The new management has renewed its focus on delivering sustained margin improvement, which has begun to be seen in the last quarter.

 

The activities outlined above, plus a rationalisation of the property portfolio including the disposal of the Monmouth Street site in Bath for £1.25m post year-end, new back office processes and a commitment to reduce complexity in the organisation, have resulted in Group headcount being reduced from 980 to 577 at the end of September 2014.

 

Digital and Diversified revenues

The Group's connection with its audiences continues to be industry leading.

 

Future holds the number one or two market positions in all the verticals in which it operates.

57 million unique users a month access Future's digital sites and 10 of the websites each attract more than 1 million unique users.

 

TechRadar, the news and reviews site, which is Future's top brand, grew its unique users by 27% to 26 million during the year, with 41% of the users accessing the site from their mobile devices.

 

Future has seen strong growth in audience reach for its total portfolio in Q4 with particularly strong growth of 36% from the Technology portfolio, which holds the market leading position in the UK, and the Games portfolio, which maintains its number two position in the UK market.

 

Off the back of strong growth in audience reach in Digital Design (up 12%) and Photography (up 21%), Creativebloq and Digitalcameraworld have reached number two positions in their UK markets. 

 

Globally the continuing business now has over 250,000 digital subscriptions worldwide. Future continues to look to maximise its market share and has recently launched bundled print and digital products, helping to introduce the existing print customers to digital versions. Future is the number one publisher of digital magazines in the UK, accounting for 16% of all digital magazine sales.

 

The Group has continued to make progress in increasing the relative share of its Digital and Diversified revenues − including revenues from digital circulation, digital advertising, e-commerce, the software business FutureFolio, the custom publishing business Future Fusion, and events − which together accounted for 41% of revenue in 2014 compared to 37% in 2013.

 

Future also continues to see substantial opportunities internationally with 74 strategic partnerships and 238 licensed editions in 89 countries. There is an increased interest in licensing FutureFolio and the more traditional licensing offering makes it easier than ever for international partners to harness the best-in-class content.

 

Managing talent

Future has undergone a significant change during the year, and people are at the centre of any change. The Group remains committed to hiring passionate and talented individuals who are industry leaders in their field of specialism, whether they are creating award winning content, managing SEO across the Group's content, generating new product opportunities from digital insight or ensuring that Future's advertising campaigns exceed customers' needs.

 

A new organisational structure was put in place during the summer designed to increase the speed of decision making and encourage individual accountability and entrepreneurship. The new structure is centred on functional areas of expertise, including the creation of a new Product and Technology team and Consumer Commercial revenue team.

 

The structure reflects the best of Future whilst bringing in external experts to allow the team to focus on digital, retail, technology and data. The last member of the new executive management team joined the business on 1 October 2014, which puts the Group in a stronger position going into 2015.

 

Current trading and outlook

 

Whilst 2014 has been a disappointing year, it has been a critical year in putting in place the right team, simplifying the business, focussing on a core portfolio centred on consumer technology trends and reducing the cost base to ensure more stability.

 

Future ended the year in a net cash position, with a rationalised property portfolio and reduced headcount. 

 

The business has largely completed the transformational activities.  As a result the Board expects to see an improvement in underlying margins in 2015 as the impact of operating as a leaner, simpler organisation is realised.

 

Future does not expect the underlying trends in print circulation and print advertising to change materially, and have factored these revenue declines into ongoing projections. As this is increasingly a lower proportion of total revenue mix, the net impact is reduced.  Additionally, the work completed on reshaping the organisation's costs is expected to allow margin expansion even with a projected continued decline in print revenues.

 

The new focus on establishing diversified, repeatable and automated digital revenue adjacent to the existing revenue streams has seen some early indications of success during Q4 2014.

 

Looking forward, Future continues to see the encouraging trends seen in Q4 when the Group as whole returned to a positive EBITDAE position.  The Board expects these trends to continue into Q1 2015.

 

Trading in the current financial year is in line with the Board's expectations across all parts of the business.

 

Financial review

 

Financial summary

 

Continuing operations

2014

£m

2013

£m

Revenue

66.0

82.6

EBITDAE

(7.0)

(0.6)

Depreciation charge

(1.0)

(0.9)

Amortisation of intangible assets

(2.3)

(1.9)

EBITE

(10.3)

(3.4)

Exceptional items

(7.5)

2.6

Impairment

(16.8)

-

Operating loss

(34.6)

(0.8)

Net finance costs

(0.8)

(1.4)

Loss before tax

(35.4)

(2.2)

 

 

 

Loss per share (p)

(10.5)

(0.7)

Adjusted loss per share (p)

(3.2)

(1.4)

Dividends relating to the period (pence per share)

-

0.2

 

The financial review is based primarily on a comparison of continuing results for the year ended 30 September 2014 with those for the year ended 30 September 2013. Unless otherwise stated, change percentages relate to a comparison of these two periods.

 

Revenue

Group revenue was £66.0m (2013: £82.6m) reflecting the rapid decline in print revenues.   Print advertising, although down, performed ahead of the decline in copy sales.   UK revenue was £53.1m (2013: £63.3m) and in the US £13.7m (2013: £20.0m). 

 

Digital and Diversified revenues now represent 41% of Group revenues, up from 37% last year, driven by strong growth in events and e-commerce, two areas of strategic importance.  Digital subscriptions grew by 3%.  Overall Digital and Diversified was down, primarily as a result of a notable decline in content marketing, particularly in the US where there were a number of one-off campaigns in 2013. 

 


2014

£m

2013

£m

Digital and Diversified

27.3

30.4

Print

38.7

52.2

Total revenue

66.0

82.6

 

In the UK Digital and Diversified revenues decreased by 3%, despite the strong growth in events. Over 30,000 consumers and professionals attended the inaugural Photography Show at Birmingham's NEC, generating £1.4m in revenue. This has partially offset the continued decrease in print revenue which the Group continues to experience.

 

Digital advertising in the UK now represents 63% (2013: 58%) of our UK advertising revenue.

 

In the US, although Digital and Diversified revenues were down, digital advertising and e-commerce revenues grew year-on-year.  Circulation revenue overall fell by 41%. Advertising revenues were down 5%, primarily driven by the decline in print advertising of 25%. The decline in print advertising is slower than the decline in print core content, demonstrating the Group's ability to drive higher margin with its specialised content. 

 

Digital advertising in the US now represents 73% (2013: 66%) of our US advertising revenues.  This growth reflects the strategy to fast-track the transition to a digital model, appropriate to the US market.

 

EBITDAE

The Group's EBITDAE loss was £7.0m (2013: £0.6m loss).  The UK EBITDAE loss was £5.3m (2013: £0.4m profit) and the US made an EBITDAE loss of £1.7m (2013: £1.0m loss).

 

The EBITDAE decline has been heavily affected by the impact of removing the revenue and contribution of the divested businesses ahead of the cost reduction programme. Most of the overheads initially remained with the continuing operations.  The reduction in overheads did not begin to impact the Group's performance until Q4.

 

The Group's headcount was reduced from 980 to 577 employees and the property portfolio was significantly reduced, resulting in a considerably lower like-for-like overhead base.  The benefits of this substantially lower overhead base will start to be seen in the current financial year.

 

Disposals

The Group sold the non-core Sport, Craft and Auto titles. The total proceeds received were over £24.8m including net cash proceeds of £21.3m received to date. The profit from discontinued operations was £1.0m.

 

These titles have been treated as discontinued operations as disclosed in note 8.

 

Impairment

During the year there was a non-cash impairment of historical print-related goodwill of £16.8m, reflecting the impact of the structural decline of print and our planned strategic transition to a digital model.

 

Exceptional items

Exceptional costs amounted to £7.5m (2013: £2.6m profit).

 

Restructuring costs of £5.3m have been recognised in relation to the significant reduction in headcount and the rationalisation of the property portfolio.  A vacant property provision of £1.3m has been recognised as a result of vacating a property in Bath.  A bad debt charge of £0.9m has been recognised as a result of a major US distributor filing for Chapter 11 bankruptcy protection.

 

Net finance costs

Net finance costs were £0.8m (2013: £1.4m) reflecting a decrease in the net debt position over the year following the sale of the Sport, Craft and Auto titles.

 

Taxation

The tax credit for the year amounted to £0.5m (2013: £0.1m charge), comprising a current tax credit of £0.3m (2013: £0.2m credit) and a deferred tax credit of £0.2m (2013: £0.3m charge). The current year credit arises in the UK where the standard rate of corporation tax is 22%.

 

Overall the effective rate for the Group when applied to the loss before tax was 1%. The Group continues to focus on compliance with tax authorities in all territories in which it operates.

 

 Loss per share

 

Loss per share

2014

2013

Basic loss per share (p)

(10.5)

(0.7)

Adjusted loss per share (p)

(3.2)

(1.4)

 

Adjusted loss per share is based on the loss after taxation which is then adjusted to exclude exceptional items, impairment and related tax effects. The continuing adjusted loss after tax amounted to £10.6m (2013: £4.7m) and the weighted average number of shares in issue was 332m (2013: 332m).

 

Dividend

The Board's policy is that dividends should be covered at least twice by adjusted earnings per share. The Board is not recommending a final dividend for the year.

 

Cash flow and net debt

Net cash at 30 September 2014 was £7.5m (2013: net debt £6.9m), an increase of £14.4m in the year.

 

There was a cash inflow from operations before exceptional items of £4.3m (2013: £6.7m). Net cash inflows from the sale of non-core titles amounted to £21.3m (2013: £9.2m).

 

During the year cash outflows totalled £11.1m (2013: £8.9m). Foreign exchange and other movements accounted for the balance of cash flows.

 

Credit facility and covenants

The Group successfully refinanced during the year, with facilities of up to £9.8m at 30 September 2014. This amended facility expires on 31 December 2015.

 

The Group was in compliance with all the covenants under the new facility at 30 September 2014.

 

Further details are set out in note 12.

 

Going concern

After due consideration the Directors have concluded that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. 

 

In reaching their decision the Directors have considered the uncertainty about the rate of decline in print and the ability to grow Digital and Diversified revenues and therefore the risk that trading performance will be below expectation leading to a covenant breach. 

 

Further details are set out in the accounting policies note below.

 

For these reasons the Directors continue to adopt the going concern basis in preparing the consolidated financial statements.

 

Consolidated income statement

for the year ended 30 September 2014

 



2014

2013


Note

£m

£m

Continuing operations




Revenue

1

66.0

82.6





Operating loss before exceptional items and impairment of intangible assets

1

(10.3)

(3.4)

Exceptional items

3

(7.5)

2.6

Impairment of intangible assets


(16.8)

-





Operating loss

2

(34.6)

(0.8)

Finance income

4

0.2

0.8

Finance costs

4

(1.0)

(2.2)

Net finance costs

4

(0.8)

(1.4)

Loss before tax

1

(35.4)

(2.2)

Tax on loss

5

0.5

(0.1)

Loss for the year from continuing operations


(34.9)

(2.3)

Discontinued operations




Profit for the year from discontinued operations

8

1.0

6.6

(Loss)/profit for the year attributable to owners of the parent


(33.9)

4.3

 

Earnings per 1p Ordinary share



2014

2013


Note

pence

pence

Basic (loss)/earnings per share - Total Group

7

(10.2)

1.3

Diluted (loss)/earnings per share - Total Group

7

(10.2)

1.3

Basic loss per share - Continuing operations

7

(10.5)

(0.7)

Diluted loss per share - Continuing operations

7

(10.5)

(0.7)

 

Consolidated statement of comprehensive income

for the year ended 30 September 2014

 



2014

2013


Note

£m

£m

(Loss)/profit for the year


(33.9)

4.3

Items that may be reclassified to the consolidated income statement




Continuing operations




Currency translation differences


(0.1)

-

Net fair value (losses)/gains on cash flow hedges


(0.2)

0.2

Other comprehensive loss for the year from continuing operations

 


(0.3)

0.2





Total comprehensive loss for the year attributable to continuing operations


(35.2)

(2.1)

Total comprehensive income for the year attributable to discontinued operations


1.0

6.6

Total comprehensive (loss)/income for the year attributable to owners of the parent


(34.2)

4.5

 

Consolidated statement of changes in equity

for the year ended 30 September 2014

 


 

 

Issued

share capital

Share premium account

 

Merger reserve

 

Treasury reserve

Cash flow hedge reserve 

Accumulated losses

 

Total equity


Note

£m

£m

£m

£m

£m

£m

£m

Balance at 1 October 2012


3.3

24.8

109.0

(0.3)

(74.2)

62.6 

Profit for the year


-

-

-

4.3

4.3

Cash flow hedges


-

-

-

0.2

-

0.2

Other comprehensive income for the year


-

-

-

0.2

-

0.2

Total comprehensive income for the year


-

-

-

0.2

4.3

4.5

Share schemes









- Value of employees' services


-

-

-

-

0.3

0.3

Balance at 30 September 2013


3.3

24.8

109.0

(0.3)

0.2

(69.6)

67.4

Loss for the year


-

-

-

-

-

(33.9)

(33.9)

Currency translation differences


-

-

-

-

-

(0.1)

(0.1)

Cash flow hedges


-

-

-

-

(0.2)

-

(0.2)

Other comprehensive loss for the year


-

-

-

-

(0.2)

(0.1)

(0.3)

Total comprehensive loss for the year


-

-

-

-

(0.2)

(34.0)

(34.2)

Final dividend relating to 2013

6

-

-

-

-

-

(0.7)

(0.7)

Share schemes









- Value of employees' services


-

-

-

-

-

0.1

0.1

Balance at 30 September 2014


3.3

24.8

109.0

(0.3)

-

(104.2)

32.6

 

Consolidated balance sheet

as at 30 September 2014

 



2014

2013


Note

£m

£m

Assets




Non-current assets




Property, plant and equipment


1.0

2.5

Intangible assets - goodwill

9

40.9

86.3

Intangible assets - other

9

3.5

3.5

Deferred tax


0.5

0.4

Total non-current assets


45.9

92.7

Current assets




Inventories


0.6

1.9

Financial assets - derivatives


-

0.4

Corporation tax recoverable


1.2

-

Trade and other receivables


12.8

21.4

Cash and cash equivalents

10

7.5

4.6

Non-current assets classified as held for sale

11

0.8

-

Total current assets


22.9

28.3

Total assets


68.8

121.0

Equity and liabilities




Equity




Issued share capital


3.3

3.3

Share premium account


24.8

24.8

Merger reserve


109.0

109.0

Treasury reserve


(0.3)

(0.3)

Cash flow hedge reserve


-

0.2

Accumulated losses


(104.2)

(69.6)

Total equity


32.6

67.4

Non-current liabilities




Corporation tax payable


4.4

5.2

Deferred tax


0.7

1.2

Provisions

13

2.8

1.5

Other non-current liabilities


1.2

1.5

Total non-current liabilities


9.1

9.4

Current liabilities




Financial liabilities - interest-bearing loans and borrowings

12

-

11.5

Financial liabilities - derivatives


-

0.2

Trade and other payables


25.9

31.6

Corporation tax payable


1.2

0.9

Total current liabilities


27.1

44.2

Total liabilities


36.2

53.6

Total equity and liabilities


68.8

121.0





 

Consolidated cash flow statement

for the year ended 30 September 2014

 


2014

2013


£m

£m

Cash flows from operating activities



Cash (used in)/generated from operations

(0.3)

4.3

Interest paid

(1.0)

(1.2)

Tax paid

(1.5)

(1.8)

Net cash (used in)/generated from operating activities

(2.8)

1.3

Cash flows from investing activities



Purchase of property, plant and equipment

(0.4)

(0.6)

Purchase of computer software and website development

(2.2)

(2.3)

Purchase of share in associate

(0.2)

-

Disposal of magazine titles and trademarks

22.3

10.3

Costs of business disposals

(1.0)

(1.1)

Net cash generated from investing activities

18.5

6.3

Cash flows from financing activities



Draw down of bank loans

3.8

26.0

Repayment of bank loans

(15.6)

(36.7)

Bank arrangement fees

(0.5)

(0.6)

Repayment of finance leases

-

(0.1)

Equity dividends paid

(0.7)

-

Net cash used in financing activities

(13.0)

(11.4)

Net increase/(decrease) in cash and cash equivalents

2.7

(3.8)

Cash and cash equivalents at beginning of year

4.6

8.5

Exchange adjustments

0.2

(0.1)

Cash and cash equivalents at end of year

7.5

4.6

Amount attributable to continuing operations

7.5

4.6

 

Notes to the Consolidated cash flow statement

for the year ended 30 September 2014

 

A. Cash (used in)/generated from operations

The reconciliation of (loss)/profit for the year to cash flows (used in)/generated from operations is set out below:

 


2014

2013


£m

£m

(Loss)/profit for the year:

Continuing operations

(34.9)

(2.3)

Discontinued operations

1.0

6.6

(Loss)/profit for the year - Total Group

(33.9)

4.3

Adjustments for:



Depreciation charge

1.0

0.9

Amortisation of intangible assets

2.3

2.0

Impairment of intangible assets

26.0

-

Profit on disposal of magazine titles and trademarks

(3.5)

(2.7)

Share schemes



- Value of employees' services

0.1

0.3

Net finance costs

0.8

1.4

Tax (credit)/charge

(0.8)

1.5

(Loss)/profit before changes in working capital and provisions

(8.0)

7.7

Movement in provisions

1.3

(2.7)

Decrease in inventories

1.0

0.1

Decrease/(increase) in trade and other receivables

9.6

(1.6)

(Decrease)/increase in trade and other payables

(4.2)

0.8

Cash (used in)/generated from operations

(0.3)

4.3

 

B. Analysis of net (debt)/cash

 


1 October 2013

Cash flows

Other non-cash changes

Exchange movements

30 September 2014


£m

£m

£m

£m

£m

Cash and cash equivalents

4.6

2.7

-

0.2

7.5

Debt due within one year

(11.5)

11.8

(0.4)

0.1

-

Net (debt)/cash

(6.9)

14.5

(0.4)

0.3

7.5

 

 C. Reconciliation of movement in net (debt)/cash

 


2014

2013


£m

£m

Net debt at start of year

(6.9)

(14.1)

Increase/(decrease) in cash and cash equivalents

2.7

(3.8)

Movement in borrowings

11.8

10.8

Other non-cash changes

(0.4)

0.1

Exchange movements

0.3

0.1

Net cash/(debt) at end of year

7.5

(6.9)

 

Accounting policies

 

Basis of preparation

This preliminary statement of annual results for the year ended 30 September 2014 is unaudited and does not constitute statutory accounts. The information in this statement is based on the statutory accounts for the year ended 30 September 2014. The statutory accounts have not yet been delivered to the Registrar of Companies nor have the auditors yet reported on these.

 

The statutory accounts are prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee's (IFRIC) interpretations as adopted by the European Union, applicable as at 30 September 2014, and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

The accounting policies adopted, methods of computation and presentation are consistent with those set out in the Group's statutory accounts for the year ended 30 September 2013.

 

Going concern

The financial statements have been prepared on a going concern basis which the Directors believe to be appropriate for the following reasons.

 

As at 30 September 2014 the Group was in a net cash position of £7.5m (cash £7.5m and bank debt £nil).

 

The Group meets its day-to-day working capital requirements through cash management and an amended and restated 18 month bank facility that was signed in June 2014.  The facility includes certain financial covenant tests which are measured quarterly.

 

The Group was fully in compliance with the financial covenants at 30 September 2014.

 

The Directors have prepared detailed projections of expected future cash flows for the period to the end of the facility. These forecasts show that the Group is expected to remain within these covenants at each test date until the end of the facility term (31 December 2015). However, there is minimal headroom on two of the covenants (interest cover and cash flow cover) at certain covenant measurement points. The Directors are confident about the forecast performance of the Group and do not expect the underlying trends in print circulation and print advertising to change materially.  However, they consider that there is some uncertainty about the rate of decline in print and the ability to grow Digital and Diversified revenues and there is therefore a risk that trading performance will be below expectation leading to a covenant breach.

 

In reaching their decision that the financial statements should be prepared on the going concern basis, the Directors have considered the following factors:

 

•      The liquidity headroom which is expected to be available at all times, even under sensitised projections;

•      The accuracy of key assumptions and the achievement of key cash flows;

•      The continuation and adequacy of bank facilities; and

•      The risk of covenant breaches, and in the event of a covenant breach the expectation that revised covenants would be agreed with the lenders.

 

There are a number of upside mitigating actions that the Group could implement comfortably and a number of upside events that may occur but are outside of the Group's control which may avoid the need to seek amendments to the covenants.

 

If the Group were unable to agree amendments to the covenants such that undertakings to the Group's lenders were breached, then the lenders would have the right to demand immediate repayment of all amounts due to them. This eventuality would, if it arose, cast doubt on the future funding of the Group and hence represents a material uncertainty that casts significant doubt upon the Group's ability to continue as a going concern.

 

After due consideration the Directors have concluded that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason they continue to adopt the going concern basis in preparing the consolidated financial statements.

 

The report of the auditors to be included in the Annual Report and Financial Statements for the year ended 30 September 2014 is expected to include an Emphasis of Matter paragraph in relation to matters set out above.

 

Basis of consolidation

The consolidated financial statements incorporate the financial statements of Future plc (the Company) and its subsidiary undertakings (together the Group). Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.  Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.

 

The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, and includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred.  Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill.

 

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but are considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

Notes to the financial statements

 

1.   Segmental reporting

The Group is organised and arranged primarily by reportable segment.  The executive Directors consider the performance of the business from a geographical perspective, namely the UK and the US.  The Australian business is considered to be part of the UK segment and is not reported separately due to its size. 

 

(a) Reportable segment

(i)  Segment revenue

 


2014

2013


£m

£m

UK

53.1

63.3

US

13.7

20.0

Revenue between segments

(0.8)

(0.7)

Total continuing operations

66.0

82.6

 

Transactions between segments are carried out at arm's length.

 

(ii) Segment EBITE

 


2014

2013


£m

£m

UK

(7.8)

(1.4)

US

(2.5)

(2.0)

Total segment EBITE from continuing operations

(10.3)

(3.4)

 

EBITE is used by the executive Directors to assess the performance of each segment. EBITE represents earnings before interest, tax, exceptional items and impairment of intangible assets.

 

A reconciliation of total segment EBITE on continuing operations to loss before tax on continuing operations is provided as follows:

 


2014

2013


£m

£m

Total segment EBITE from continuing operations

(10.3)

(3.4)

Exceptional items

(7.5)

2.6

Impairment of intangible assets

(16.8)

-

Net finance costs

(0.8)

(1.4)

Loss before tax from continuing operations

(35.4)

(2.2)

 

(b) Business segment

Following the disposal of its Sport, Craft and Auto titles the Group has amended its internal reporting and is now organised into three key business segments. Each business segment comprises groups of individual magazines, websites and events, 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 business segment

 


2014

2013


£m

£m

Technology

20.7

23.6

Games, Film and Music

29.7

43.1

Creative

16.4

16.6

Revenue between segments

(0.8)

(0.7)

Total continuing operations

66.0

82.6

 

(ii) Gross profit by business segment

 


2014

2013


£m

£m

Technology

3.2

5.5

Games, Film and Music

4.9

9.0

Creative

2.7

4.0

Add back: distribution expenses

4.6

5.6

Total continuing operations

15.4

24.1

 

2.  Operating loss from continuing operations

 


2014

2013


£m

£m

Revenue

66.0

82.6

Cost of sales

(50.6)

(58.5)

Gross profit

15.4

24.1

Distribution expenses

(4.6)

(5.6)

Administration expenses

(21.1)

(21.9)

Exceptional items

(7.5)

2.6

Impairment of intangible assets

(16.8)

-

Operating loss from continuing operations

(34.6)

(0.8)

 

3.  Exceptional items from continuing operations

 

Vacant property provision movements

1.3

(1.2)

Restructuring and redundancy costs

5.3

1.3

Provision for bad debts

0.9

-

Profit on disposal of magazine titles and trademarks

-

(2.7)

Total charge/(credit)

7.5

(2.6)

 

The vacant property provision made during the year relates to surplus office space in the UK. In 2013, the vacant property provision movement related to the release of a provision following the sublease of a vacant floor of a property in the US.

 

The restructuring and redundancy costs relate mainly to staff termination agreements following the restructuring of the UK and US businesses in line with the Group's strategy.

 

The provision for bad debts relates to amounts owed to the Group which are no longer considered recoverable following the filing for bankruptcy of Source Home Entertainment LLC and its group companies, one of the Group's distributors in the US.

 

The profit on disposal in 2013 relates to the sale of the UK Rock titles.

 

4. Finance income and costs

 


2014

2013


£m

£m

Interest receivable

-

0.6

Fair value gain on interest rate derivative not in a hedge relationship

0.2

0.2

Total finance income

0.2

0.8

Interest payable on interest-bearing loans and borrowings

(0.6)

(1.0)

Amortisation of bank loan arrangement fees

(0.5)

(0.4)

Other finance costs

(0.3)

(0.7)

Exchange gains/(losses)

0.4

(0.1)

Total finance costs

(1.0)

(2.2)

Net finance costs from continuing operations

(0.8)

(1.4)

 

5. Tax on loss

 

The tax (credited)/charged in the consolidated income statement for continuing operations is analysed below:

 


£m

£m

UK corporation tax



Current tax at 22% (2013: 23.5%) on the loss for the year

-

-

Adjustments in respect of previous years

(0.3)

(0.2)

Current tax

(0.3)

(0.2)

Deferred tax origination and reversal of temporary differences



Current year credit

(0.1)

-

Adjustments in respect of previous years

(0.1)

0.3

Deferred tax

(0.2)

0.3

Total tax (credit)/charge on continuing operations

(0.5)

0.1

 

In 2013 the Group reached agreement with HMRC relating to the tax treatment of certain one-off transactions which took place in 2003. Part of that agreement will result in the Group paying tax of £6.2m plus interest (comprising instalments of £85,000 per month over five years from July 2013 and a final instalment of £2.0m). The tax payable was fully provided for in prior years' accounts.

 

The liability in the balance sheet of £5.2m at 30 September 2014 has been split based on this agreement between current liabilities and non-current liabilities.

 

6. Dividends

 

Equity dividends

2014

2013

Number of shares in issue at end of year (million)

333.8

333.4

Dividends paid in year (pence per share)

0.2

-

Dividends paid in year (£m)

0.7

-

 

The dividends totalling £0.7m paid during the year ended 30 September 2014 relate to the final dividend for the year ended 30 September 2013 of 0.2 pence per share.

 

7. Earnings per share

 

Basic earnings per share are calculated using the weighted average number of Ordinary shares in issue 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 awards held under employee share schemes.

 

Adjusted earnings per share removes the effect of exceptional items, impairment of intangible assets and any related tax effects from the calculation.

 

Total Group

2014

2013

Adjustments to (loss)/profit after tax:



(Loss)/profit after tax (£m)

(33.9)

4.3

Exceptional items (£m)

4.0

(2.5)

Impairment of intangible assets (£m)

26.0

-

Tax effect of the above adjustments (£m)

(0.3)

0.2

Adjusted (loss)/profit after tax (£m)

(4.2)

2.0

 

Weighted average number of shares in issue during the year:



- Basic

332,208,630

331,812,054

- Dilutive effect of share options

2,814,149

6,298,779

- Diluted

335,022,779

338,110,833

Basic (loss)/earnings per share (in pence)

(10.2)

1.3

Adjusted basic (loss)/earnings per share (in pence)

(1.3)

0.6

Diluted (loss)/earnings per share (in pence)

(10.2)

1.3

Adjusted diluted (loss)/earnings per share (in pence)

(1.3)

0.6




The adjustments to (loss)/profit have the following effect:



Basic and diluted (loss)/earnings per share (pence)

(10.2)

1.3

Exceptional items (pence)

1.2

(0.8)

Impairment of intangible assets (pence)

7.8

-

Tax effect of the above adjustments (pence)

(0.1)

0.1

Adjusted basic and diluted (loss)/earnings per share (pence)

(1.3)

0.6

 

Continuing operations

2014

2013

Adjustments to loss after tax:



Loss after tax (£m)

(34.9)

(2.3)

Exceptional items (£m)

7.5

(2.6)

Impairment of intangible assets (£m)

16.8

-

Tax effect of the above adjustments (£m)

-

0.2

Adjusted loss after tax (£m)

(10.6)

(4.7)

 

Weighted average number of shares in issue during the year:



- Basic

332,208,630

331,812,054

- Dilutive effect of share options

2,814,149

6,298,779

- Diluted

335,022,779

338,110,833

Basic loss per share (in pence)

(10.5)

(0.7)

Adjusted basic loss per share (in pence)

(3.2)

(1.4)

Diluted loss per share (in pence)

(10.5)

(0.7)

Adjusted diluted loss per share (in pence)

(3.2)

(1.4)




The adjustments to loss have the following effect:



Basic and diluted loss per share (pence)

(10.5)

(0.7)

Exceptional items (pence)

2.3

(0.8)

Impairment of intangible assets (pence)

5.0

-

Tax effect of the above adjustments (pence)

-

0.1

Adjusted basic and diluted loss per share (pence)

(3.2)

(1.4)

 

Discontinued operations

2014

2013

Adjustments to profit after tax:



Profit after tax (£m)

1.0

6.6

Exceptional items (£m)

(3.5)

0.1

Impairment of intangible assets (£m)

9.2

-

Tax effect of the above adjustments (£m)

(0.3)

-

Adjusted profit after tax (£m)

6.4

6.7

 

Weighted average number of shares in issue during the year:



- Basic

332,208,630

331,812,054

- Dilutive effect of share options

2,814,149

6,298,779

- Diluted

335,022,779

338,110,833

Basic earnings per share (in pence)

0.3

2.0

Adjusted basic earnings per share (in pence)

1.9

2.0

Diluted earnings per share (in pence)

0.3

2.0

Adjusted diluted earnings per share (in pence)

1.9

2.0




The adjustments to profit have the following effect:



Basic and diluted earnings per share (pence)

0.3

2.0

Exceptional items (pence)

(1.1)

-

Impairment of intangible assets (pence)

2.8

-

Tax effect of the above adjustments (pence)

(0.1)

-

Adjusted basic and diluted earnings per share (pence)

1.9

2.0

 

8. Discontinued operations

 

(i) Disposal of Sport and Craft titles

On 21 July 2014, the Group completed the disposal of a portfolio comprising its Sport titles and Craft titles and as such the results of this portfolio have been included within discontinued operations. The portfolio was sold for cash proceeds of £20.0m and magazine deferred revenue retained by the Group of £2.0m.

 

 

(ii) Disposal of Auto titles and Triathlon Plus

On 18 August 2014, the Group disposed of a portfolio comprising its Auto titles and Triathlon Plus and as such the results of this portfolio have been included within discontinued operations. The portfolio was sold for total initial consideration of £2.1m, comprising cash proceeds of £1.8m and magazine deferred revenue retained by the Group of £0.3m. In addition, deferred consideration of up to £0.8m is payable by 30 September 2015 based on revenue performance.

 

 

(iii) Disposal of Fast Bikes

On 21 August 2014, the Group disposed of Fast Bikes magazine and associated website and as such the results of this title have been included within discontinued operations. The title was sold for cash proceeds of £0.5m, resulting in a profit on disposal of £0.5m.

 

During the year the discontinued operations increased the Group's operating cash flows by £6.5m, paid £0.2m in respect of investing activities and paid £nil in respect of financing activities.

 

The profit for the year from these discontinued operations is analysed below. Only those costs directly attributable to the disposed titles have been classified within discontinued operations and no apportionment of central overheads has been made.

 


2014

£m

2013

£m

Revenue

22.9

29.7

Cost of sales

(14.8)

(19.3)

Gross profit

8.1

10.4

Distribution expenses

(1.5)

(2.1)

Administration expenses

(0.2)

(0.2)

Operating profit before exceptional items and impairment of intangible assets

6.4

8.1

 

Exceptional items

-

(0.1)

 

Impairment of intangible assets

(9.2)

-

 




Operating (loss)/profit

(2.8)

8.0

Net finance costs

-

-

(Loss)/profit from discontinued operations before tax

(2.8)

8.0

Tax on (loss)/profit from discontinued operations

-

(1.4)

(Loss)/profit after tax from discontinued operations

(2.8)

6.6

Gain on sale of operations

3.5

-

Tax on sale of operations

0.3

-

Gain on sale of operations after tax

3.8

-

Profit from discontinued operations

1.0

6.6

 

The gain on sale of operations for the disposed titles is set out below:

 


2014

£m

Consideration:


Cash

22.3

Deferred consideration

0.2

Subscription liabilities

2.3

Total consideration

24.8

Costs of disposal

(1.5)


23.3



Net assets at disposal:


Intangible assets

19.3

Investment in associate

0.2

Inventories

0.3


19.8



Gain on sale of operations

3.5

 

9. Intangible assets

 


Goodwill

Magazine  and website

Other

Total


£m

£m

£m

£m

Cost





At 1 October 2012

311.1

15.2

12.1

338.4

Additions

0.2

0.5

2.2

2.9

Disposals

(6.2)

-

(0.1)

(6.3)

Exchange adjustments

-

(0.1)

-

(0.1)

At 30 September 2013

305.1

15.6

14.2

334.9

Additions

-

-

2.3

2.3

Disposals

(19.3)

(0.3)

(1.2)

(20.8)

Exchange adjustments

(0.2)

(0.1)

-

(0.3)

At 30 September 2014

285.6

15.2

15.3

316.1






Accumulated amortisation





At 1 October 2012

(218.8)

(15.1)

(9.2)

(243.1)

Charge for the year

-

(0.1)

(1.9)

(2.0)

At 30 September 2013

(218.8)

(15.2)

(11.1)

(245.1)

Charge for the year

-

(0.3)

(2.0)

(2.3)

Impairment charge

(26.0)

-

-

(26.0)

Disposals

-

0.3

1.2

1.5

Exchange adjustments

0.1

0.1

-

0.2

At 30 September 2014

(244.7)

(15.1)

(11.9)

(271.7)






Net book value at 30 September 2014

40.9

0.1

3.4

44.4

Net book value at 30 September 2013

86.3

0.4

3.1

89.8

Net book value at 1 October 2012

92.3

0.1

2.9

95.3

 

Impairment tests for goodwill and other intangibles

At 31 March 2014, the Directors considered there to be an indication of impairment in respect of the carrying amount of goodwill of the UK and US segments. The Directors considered the trading patterns, challenging economic climate and trading environment in which the Group's restructuring activities were taking place to be indicators of impairment, and therefore tested for impairment at 31 March 2014.

 

The impairment test resulted in an impairment charge of £22.6m being taken against the carrying value of the UK segment and £3.4m being taken against the carrying value of the US segment at 31 March 2014 (comprising £16.8m in respect of continuing operations and £9.2m in respect of discontinued operations).

 

The breakdown of the goodwill balance at 30 September 2014 comprises:

 


2014

£m

2013

£m

UK

40.9

82.8

US

-

3.5

Total

40.9

86.3

 

In September 2014 the Group performed its annual impairment test on goodwill. These tests concluded that no impairment was required. The estimated recoverable amount for the UK business exceeded its carrying value by £13.9m.

 

Although goodwill is not considered to be impaired at 30 September 2014 a reasonably possible change in the discount rate or forecast cash flows could give rise to an impairment.

 

10. Cash and cash equivalents

 


2014

2013


£m

£m

Cash at bank and in hand

7.5

4.6

Cash and cash equivalents

7.5

4.6

 

11. Non-current assets held for sale

 

As a result of the Group's decision to sell one of its properties in the UK, the property's net book value of £0.8m has been presented as held for sale in the balance sheet at 30 September 2014. The Group has not recognised any impairment losses on reclassification of the property as held for sale.

 

The Group completed the sale of the property on 10 November 2014.

 

12. Financial liabilities - interest-bearing loans and borrowings

 

Current liabilities

 


Interest rate

 at 30 September

Interest rate

 at 30 September

 2014

 2013


2014

2013

£m

£m

Sterling revolving loan

-

2.9%

-

6.6

US Dollar revolving loan

-

2.6%

-

4.9

Total



-

11.5

 

The interest-bearing loans and borrowings are repayable as follows:

 


2014

2013


£m

£m

Within one year

-

11.5

Total

-

11.5

 

The Group's credit facility was amended and restated in June 2014. The total facility available to the Group at 30 September 2014 amounts to £9.8m and this can be drawn in sterling, US Dollars or Euros. The Group has granted security to the banks and the availability of the facility, which expires in December 2015, is subject to certain covenants.

 

Fees relating to the amendment and restatement amounted to £0.5m and these are being amortised over the term of the facility. The bank borrowings and interest are guaranteed by Future plc, Future Holdings 2002 Limited, Future Publishing Limited and Future US, Inc.

 

Interest payable under the current credit facility is calculated as the cost of three-month LIBOR (currently approximately 0.56%) plus an interest margin of between 4.25% and 5.00%, dependent on the type of drawdown.

 

The Group has covenants in respect of net debt/bank EBITDA, bank EBITDA/interest, cash flow/debt service, capital expenditure and exceptional costs, all of which were met at 30 September 2014. For covenant purposes, net debt is exclusive of non-current tax and other payables and bank EBITDA is not materially different to statutory EBITDA.

 

13. Provisions

 


Property


£m

At 1 October 2013

1.5

Charged in the year

1.5

Utilised in the year

(0.2)

At 30 September 2014

2.8

 

The provision for property relates to dilapidations and obligations under short leasehold agreements on vacant property.  The vacant property provision is expected to be utilised over the next five years. The dilapidations provision is expected to be utilised on the expiry of property leases.

 

14. Related party transactions

 

The Group had no material transactions with related parties in 2014 or 2013 which might reasonably be expected to influence decisions made by users of this preliminary statement.

 

15. Post balance sheet event

 

On 10 November 2014, the Group completed the sale of one of its UK properties for £1.25m. This property has been presented as a non-current asset held for sale at 30 September 2014, as disclosed in note 11.


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