Operating profit pre exceptionals jumps 188% to £2.3m
Companies: Future plc
International media group Future Plc (LSE: FUTR) delivered an impressive improvement in cash generation in its FY Results this morning. Revenues were flat year-on-year at £59m with growth in the Media division of £3m offsetting the slide in Magazine revenues.
However, it appears the change in revenue mix away from Magazine is delivering better cash conversion and margin. The online e-commerce division grew revenues 187% over the year. The Group stripped out certain exceptionals in reporting an underlying operating profit of £2.3m, up from £0.8m in 2015.
"a major re-alignment of the cost base and tight management of the decline of the print business have resulted in further growth in operating profit"
It's always worth looking at exactly what is being stripped out when companies report "underlying" numbers. In this case, the differences are big but in our view justified.
There is a non-cash impairment of £13m taken out of goodwill in relation to the shrinking print business, a clear sign of paying too much for previous acquisitions, and £3.5m of exceptionals mainly related to restructuring and headcount reduction.
The acquisition of Imagine that completed this October appears set to deliver a big change in earnings in 2017. According to CEO Zillah Byng-Thorne:
"...a number of acquisitions - most notably Imagine Publishing in October 2016. Imagine transforms the scale of the business and brings significant operational synergies and cash generation opportunities."
There are enough non-cash items in the income statement to muddy the waters, so I want to focus on the cash flow statement. Future is now generating operating cash flow. It has delivered £2m from operating activities in 2016, compared to an outflow of (£8.6m) in 2015. That is a big improvement.
And considering its cash generation, the financial position looks sound with what looks like £0.5m of net cash.
Shares are up 5% in early trading this morning as the market has focussed on the improved cash generation rather than the exceptional items. Looking at valuation, consensus earnings for 2017 are 0.85p according to the FT, which puts the shares on a PE Ratio of c.10x.