Future Network stock falls 24% on accounts error

Shares in Future Network, one of the UK's largest magazine publishers, yesterday lost a quarter of their value after the media group admitted an elementary accounting error may have caused it to overstate its sales by as much as £3.2m over three years.

Shares in Future Network, one of the UK's largest magazine publishers, yesterday lost a quarter of their value after the media group admitted an elementary accounting error may have caused it to overstate its sales by as much as £3.2m over three years.

Shares in the group plummeted from 585p to a year-low of 431p, but recovered to close at 447.5p, a fall of 23.5 per cent on the day; shrinking the group's value to £625.3m.

Future Network, which last year had turnover of £174m, revealed it had sent auditors from Deloitte & Touche to Paris on Friday to begin an investigation at its French arm, where the mistake was discovered. The senior management team also consulted non-executive directors, including Elisabeth Murdoch, who was appointed last month, before deciding to inform the market of the situation.

Greg Ingham, chief executive, said the error appeared limited to an overstatement of newsstand sales in France. The anomaly came to light late last week when managers of the group's French unit reported to UK bosses they had overstated sales of magazines by 35m French francs (£3.2m) over a 34-month period, from 1998 to date.

The inquiry's preliminary results show the mistake was likely to have stemmed from a specific erroneous accounting entry relating to payments received, which was then carried over from month to month.

Future insisted the mistake was due to incompetence rather than anything more sinister. But Mr Ingham said: "... there will inevitably be a detailed post-mortem."

The group was founded in 1985 with the computer title Amstrad Action. It went public last year and produces 125 magazines, with sales in France accounting for just over 10 per cent of revenues. Its most successful title has been PlayStation.

Mr Ingham said: "Our management team [in France] felt the August performance was very strong but the figures weren't showing it.... We further interrogated the numbers and found an error in the way the reconciliation worked."

It was unclear what proportion of the error in sales figures could be attributed to the current year, but he added: "It does look as though there will be some impact on this financial year."

Yesterday the company said the current cash balances of Future France SA were unaffected, and no cash outflows would result from the accounting error.

In the first half of this year, Future's losses widened to £14m as it expanded into new media, buying Imagine Media of the US in a £180m share deal.

Lorna Tilbian, an analyst at WestLB Panmure, said: "This doesn't appear to have affected circulation ... It's quite a big buying opportunity, to be honest. What Future has announced and the way the share price has responded are out of kilter."