2018 Annual Report Future plc Annual Report and Accounts 2018 1 Future plc Contents Strategic report 1 Contents 2 Group overview 3 Chairman’s statement 5 Future Playbook (1) Our purpose (2) Our strategy (3) How we behave (4) What we do 14 Loyal communities – our verticals 25 Chief Executive’s review 28 Risks and uncertainties 31 Corporate responsibility Financial review 35 Financial review Corporate governance 40 Board of Directors 41 Directors’ report 47 Corporate governance report 51 Directors’ remuneration report 65 Independent auditors’ report Financial statements 71 Financial statements 107 Notice of Annual General Meeting 112 Investor information ‘Baroness’ singer & guitarist John Baizley at the 2018 Golden Gods Awards. Annual Report and Accounts 2018 2 Group overview report Strategic Future plc is an international media group, listed on the London Stock Exchange (symbol: FUTR). These highlights refer to the Group’s annual results for the year ended 30 September 2018. Corporate KPIs Revenue Adjusted EBITDA1 Adjusted £124.6m £20.7m operating profit (2017: £84.4m) (2017: £11.0m) £18.5m (2017: £8.9m) Adjusted EBITDA Adjusted free Leverage3 margin cashflow2 0.86x 17% £17.4m (2017: 0.91x) (2017: 13%) (2017: £15.3m) Adjusted EPS4 Reported operating Global audience5 26.2p profit 193.4m (2017: 19.7p) £5.3m (2017: 85.6m) (2017: £0.8m) Media division KPIs Online users Event eCommerce 142.4m attendees transactions (2017: 49.0m) 155k 3.2m (2017: 76k) (2017: 2.0m) Notes 1. Adjusted EBITDA represents earnings before Magazines division KPIs share-based payments and associated social security costs, interest, tax, depreciation, amortisation, impairment of intangible assets, non-trading foreign exchange gains and exceptional items. 2. Adjusted free cash flow is defined as adjusted Total circulation Subscribers operating cash inflow less capital expenditure. Adjusted operating cash inflow represents 1.3m 935k operating cash inflow adjusted to exclude cashflows relating to exceptional items. (2017: 1.0m) (2017: 461k) 3. Total net debt divided by EBITDA. 4. As per note 1 above and restated for rights issue. 5. Includes online users, event attendees, magazine copy sales, subscribers and social media reach. 3 Future plc Future has had an outstanding year. The financial results speak volumes for the successful execution of the Group’s focused strategy in leveraging its specialist media platform and diversifying its revenue streams, both geographically and across its product offering. Chairman’s statement Richard Huntingford Dear Shareholders, In my first year as Chairman of the Company it gives me great Chairman pleasure to report that Future has had an excellent year. Building on the stated strategy to be a global specialist media platform, the Group has expanded its global reach through a combination of organic growth, acquisitions and strategic partnerships. A relentless focus on producing compelling, engaging and trusted content has created loyal communities and market-leading positions for our key brands, from which we have been able to build diversified monetisation models with significant and growing revenue streams. Our previous investment in a scalable, robust and efficient technology stack to provide content management systems, advertising optimisation systems and eCommerce platforms has delivered very significant financial returns during the year as the Group reaped the benefits of the successful integration of previous acquisitions. The transformative acquisition of Purch at the end of the financial year, which significantly deepens our presence in the US market, gives us an excellent opportunity to drive further revenue and profit growth over the coming years. Board composition Following Peter Allen’s decision to step down from the Board, I was delighted to be nominated as his replacement from 1 February 2018. Over his six years as Chairman, Peter led the Future Board through an extraordinary period of change, both within the business and externally in the media and publishing markets, and it is testament to that leadership and guidance that Future finds itself in such a strong position today. On behalf of the Board and shareholders, I thank him for his very significant contribution to the Company. There have been a number of other changes to the Board and its Committees during the year. In February 2018, we were delighted to welcome Alan Newman to the Board as a Non-Executive Director and Chair of the Audit Committee. Alan brings with him significant media and PLC experience through his media and technology sector roles at Ernst & Young and KPMG and his recent nine-year tenure as Chief Financial Officer of YouGov plc. At the same time, Hugo Drayton, who has served on the Board and been a member of the Remuneration Committee since December 2014, was appointed Chairman of the Remuneration Committee. Hugo also acts as the Senior Independent Director. Annual Report and Accounts 2018 4 Strategic report Strategic At the end of the financial year, James Hanbury, who had served Our people on the Board since October 2016 as the Non-Executive Director representative of Disruptive Capital, retired from the Board A key focus of Future’s Board and Executive leadership team following Disruptive’s disposal of its shareholding. I would like to is our people. Future’s employees are its key asset and we thank James for his valuable contribution to Board debate and his actively try to find ways to ensure that they are supported and commitment to the Company during his tenure. remunerated accordingly. During the year Future introduced the living wage within the UK business to ensure that no employee is Most recently, we were delighted to welcome Rob Hattrell to the paid less than this threshold. The Group remains fully committed Board as a Non-Executive Director on 1 October 2018. Rob, who to addressing gender pay differences and increasing diversity. is the Vice President of eBay UK and previously held senior roles Details are available in the corporate responsibility section of at Tesco and Accenture, brings with him a wealth of relevant this report. eCommerce and commercial experience and will add another valuable dimension to the Board. A core principle at Future is that everyone gets to share in the business’s success and, as a result of our strong performance Without doubt, our Board roles are made somewhat easier by this year, we were delighted that all staff received the maximum two factors: a steadfast focus on a clear strategy that delivers bonus in the year. results, and the diligence, energy, and enthusiasm of a dynamic Executive leadership team supported by a talented employee On behalf of the Board and shareholders, I would like to thank base. I believe that we now have a strong, high-quality Board all our employees, old and new, for their hard work and diligence that can provide the right blend of challenge and support to the during a year that has seen so much change. The professionalism, executive management as they continue to execute the growth commitment and passion for the Future cause across all areas strategy that we believe will deliver significant long-term value to of our business, has been extraordinary and fills me with great shareholders over the coming years. confidence for the next phase of our exciting growth journey. With best wishes, Business performance The results speak volumes about the success of the Group’s strategy: £124.6m revenue up 48% on prior year; £20.7m adjusted EBITDA up 88% on prior year; and adjusted operating cashflow up 16% on prior year. As mentioned above, it is the scalability Richard Huntingford of Future’s global media platform that enables both this rapid Chairman organic and inorganic growth. 12 December 2018 The Group made four acquisitions during the year: NewBay Media, a US-based information and events business, in April 2018; four consumer titles including What Hi-Fi? and Practical Caravan from Haymarket in May 2018; Australian gaming and technology brands including PC Powerplay in August 2018; and the Purch consumer business in September 2018. Each of these acquisitions is strongly aligned to Future’s strategy, whether it be through geographic expansion into the US through NewBay and Purch, further consolidation of Future’s market- leading consumer technology coverage through What Hi-Fi? and Purch’s consumer brands, or through revenue diversification with NewBay’s B2B brands. Capital structure and dividends The latest acquisition, Purch, would not have been possible without the considerable support of our shareholders in funding the acquisition through a rights issue. We were delighted that so many of our existing shareholders took up their rights, whilst also welcoming a number of new institutions to our shareholder register. We intend to pursue a listing on the premium listing segment of the Official List, subject to meeting all the The transformative requirements of the UKLA, in the foreseeable future. acquisition of Purch The strong business performance this year was highly cash generative and as such, at the year end, the Group had net debt gives us an excellent of £17.8m. As previously mentioned, the Board is delighted to announce the recommencement of a dividend this year and has opportunity to drive proposed a final dividend of 0.5p per share payable on 15 February 2019 to all shareholders on the register at close of business on further growth in 18 January 2019. We aim to pursue a progressive dividend policy whilst optimising value for shareholders by balancing returns revenue and profit to shareholders with investment in the business to support future growth. over the coming years. 5 Future plc Future Playbook At Future part of our success is a result of the alignment within the organisation of our purpose and strategy. To support this we have created the Future Playbook to capture the “rules” of the game at work, which is then shared with every new member of staff to ensure we are all aligned and focused on delivering the same goals.