Final Results

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

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