On 13 November 2000, The Future Network plc announced estimated revenues for the year to 31 December 2000 of around GBP260m, Underlying profits* of just under GBP40m, and an EBITA figure in the region of GBP7m. Latest internal figures for November sales indicate that the expected seasonal uplift in sales in the final months of the year has not occurred, which will result in those estimates not being achieved, particularly if such trading conditions are repeated throughout December.
Based on the latest management figures, sales for the year ended 31 December 2000 are now expected to be 3% lower at GBP253m, Underlying profits* are now expected to be reduced to GBP34m and EBITA to GBP-1m.
As the costs of the business for the fourth quarter, predominantly production and promotion costs, are committed before revenues are known, any shortfall in sales will substantially also affect EBITA. With much of Future’s European business operating on a sale or return basis, the actual results for a particular period only become clear some time after the relevant period is closed. This has made it more difficult to identify the lack of the traditional seasonal uplift, which has affected the Company’s business in each of its core territories.
With results for magazines that went on sale in December still to come in, the actual results for the Company will not be known internally until early February. The revenue and profit figures estimated by the Company in this announcement are therefore subject to a level of possible error which is estimated at plus or minus GBP2m.
The shortfall against earlier estimates has been caused primarily by lower than expected magazine newsstand sales, especially in the games market, compounded by some games related advertising being cancelled or postponed because of lower hardware availability of the Sony PlayStation 2.
In addition to the above trading position, the Company will be reviewing the carrying value of goodwill held on the balance sheet as at 31 December 2000, in accordance with FRS11 Impairment of Fixed Assets and Goodwill. Reduced expectations for the computer games titles acquired in Germany, together with a write down of the carrying value of various internet investments, are expected to give rise to additional charges below the EBITA level of approximately GBP10m.
In the light of changed trading conditions, the Company is accelerating an ongoing detailed review of its business and of its investment plans for 2001. The Company now intends to cut investment levels in 2001 to below GBP20m. Previously, the Company had budgeted for investment expenditure of approximately GBP30m.
Future’s Chief Executive, Greg Ingham, commented: We are naturally disappointed at having to make a further cut in expectations for the year ended 31 December 2000. Estimating the expected results for the vital fourth quarter of 2000 is proving to be an extremely difficult task with trading conditions not reflecting their traditional seasonal uplift. As so much of our business is seasonally weighted to the fourth quarter, even relatively minor changes in newsstand sales can have a significant impact on the results of operations.
* Underlying profits, consistently defined by the Company to exclude losses from internet business and from magazines less than two years from their launch date.
