Final Results
18 April 2002
SMG plc
Preliminary Results
For the 12 months ended 31 December 2001
Headlines
* All divisions profitable with strong margins, despite advertising downturn
* Cost reduction initiatives have delivered £5m of annualised savings
* ITV licences renewed, although at significantly increased cost
* Debt renegotiation successfully concluded
* Proposed final dividend of 1.5 pence per share
* Well positioned to deliver strong growth from any upturn in advertising
Key Financials
* Turnover £280.8m (2000: £300.5m)
* EBITDA* £65.7m (2000: £78.8m)
* Total operating profit** £57.2m (2000: £70.3m)
* Profit before tax** £36.0m (2000: £59.0m)
* Earnings per share** 8.4 pence (2000: 15.0 pence)
* Dividend per share 3.0 pence (2000: 6.8 pence)
* Earnings before interest, tax, depreciation, amortisation and excluding
exceptionals and online losses
**Excluding exceptionals, online losses and goodwill amortisation
Andrew Flanagan, Chief Executive of SMG plc, said:
'After one of the toughest years on record, the Group remains fundamentally
strong with high margin, well branded businesses. We acted quickly and
effectively to alleviate the impact of the advertising downturn on profit and
margins and we're well placed for the upturn in advertising revenues when it
comes.
Meanwhile the Group is financially secure, and we continue to pursue our
strategic aims. Although the timing of an upturn in advertising remains
unclear, we have confidence in our strategy and we are monitoring the prospects
for regulatory relaxation closely.'
For further information contact:
Andrew Flanagan Chief Executive 020 7882 1199
George Watt Finance Director on day of the release,
and
Callum Spreng Corporate Affairs 0141 300 3300 thereafter
Director
James Hogan/Ben Brewerton Brunswick 020 7404 5959
There will be a presentation for City analysts at 9.30am today at
ABN Amro, 250 Bishopsgate, London EC2.
CHAIRMAN'S STATEMENT
2001 was undoubtedly the most challenging of years for SMG, as a combination of
external factors impacted both revenues and costs. However, the underlying
performance of our businesses was strong and each remains profitable with good
margins, despite the severity of the global advertising downturn and the harsh
terms for the renewal of our television licences.
We responded to the emergence of these challenges swiftly with early cost
reduction measures, including a 6% reduction in the Group's headcount,
resulting in annualised savings of over £5.0m . As a result, SMG remains
fundamentally strong, built around high margin, well-branded businesses with
sound prospects.
Turnover for the year was £280.8m (2000: £300.5m), primarily reflecting the
effects of the advertising downturn. We achieved total operating profits for
2001 (excluding exceptional items, online losses and goodwill amortisation) of
£57.2m (2000: £70.3m). Mainly as a result of our investment in SRH, interest
costs increased by 66%, resulting in a pre-tax profit for 2001 (excluding
exceptional items, online losses and goodwill amortisation) of £36.0m (2000: £
59.0m).
With the impact on the Group's earnings of the advertising downturn, and in
line with our previously stated policy of increasing dividend cover, we have
reduced our final dividend to 1.5 pence (2000: 4.5 pence). When added to the
interim dividend, this provides a full year dividend of 3.0 pence (2000: 6.8
pence) which gives dividend cover of 2.8 times. At this level, we believe it to
be more sustainable and appropriate when compared to other UK media companies.
We can also confirm today the successful renegotiation of the terms for the
Group's borrowing. As detailed elsewhere in this announcement, this will secure
the Group's borrowing requirements until June 2003.
TELEVISION
The repercussions of the global advertising downturn on ITV as a whole had an
inevitable effect on our Television Division. The impact on profits was
compounded by the harsh increase in licence costs imposed on Scottish and
Grampian TV as a result of their renewal until 2011. However, we outperformed
ITV, increased market share and implemented early cost-saving measures to help
protect margins.
Total Television turnover fell by 11% in 2001 to £141.6m (2000: £159.4m) and,
due to the high operational gearing of this business and licence costs,
operating profits reduced to £25.4m (2000: £37.1m), down 32%.
However, against this unprecedented level of advertising weakness, our
television stations put in a creditable performance.
Airtime sales reduced by only 8%, outperforming ITV as a whole, which
experienced a 14% decline year on year, resulting in our share of Net
Advertising Revenue (NAR) increasing to 6.22% from 5.88% in 2000. This
reflected the strong performance of our regional airtime sales across 2001,
recording a 10% increase in revenues, and the evaporation of much of the
dot.com spend that had been such a feature of 2000, particularly in the South
East of England.
Despite the growth in multi-channel viewing, our audience share held up well at
35% in peak time, in line with the ITV network and some nine percentage points
ahead of our nearest rival in Scotland, BBC1.
The non-negotiable financial terms for the renewal of our licences for Scottish
and Grampian TV were harsh and increased our costs by some £5.0m in 2001.
However, these are valuable franchises and with licence renewal comes the
certainty and stability of a further 10 years of broadcasting. With our
stations now being broadcast on digital satellite, the accompanying licence
payment relief will reduce our licence costs steadily over the life of the
licences. Furthermore, having reached agreement with ITV Digital during 2001 to
allow the use of the ITV name in our transmission areas, we closed S2, our
digital-only channel, resulting in an annualised saving of £2.0m.
In light of the weakness in advertising and increased licence costs, we took
early cost reduction measures in Television. Whilst the benefits from headcount
reductions initiated during 2000 fed through, we further reduced staff numbers
in 2001. Discretionary spend, recruitment and programming costs have been
frozen since September.
However, we continue to focus strongly on the quality of our output and these
efforts and the creativity of our staff were recognised by the award in 2001 of
two Royal Television Society Awards - best Regional Daily News Magazine
Programme and Regional Presenter of the Year.
Our network programme production business, SMG Television Productions, began to
benefit from our investment in a strengthened senior creative team and,
although unable to fully mitigate the effects of Channel 4's decision not to
re-commission TFI Friday, enjoyed notable successes in 2001. For ITV we
produced four episodes of Taggart; a further two Rebus dramas; and,
significantly, our first network factual series, Club Reps, which regularly
commanded a 4m+ audience in a 10.30pm slot when it was aired earlier this year.
We expect to see the full benefit from the team in 2002 and early success in
winning new commissions is encouraging.
PUBLISHING
Our Publishing Division, comprising newspapers and magazines, is less reliant
on national advertising, but these businesses were nonetheless affected by
general caution over the economic outlook and saw revenues fall in 2001 by 2%
to £77.4m (2000: £78.8m). Investment in further product development and some
cost increases outside our direct control, notably in newsprint, resulted in
operating profits reducing by 12% to £14.3m (2000: £16.3m).
A strong performance in the recruitment and property sectors in the early part
of the year dissipated in the second half, with other key categories, including
motoring and London display, recording slight declines across the year. Only
retail and entertainment held firm.
Circulation revenues across our newspapers increased slightly in 2001, as a
result of implementing price increases at both The Herald and Sunday Herald.
The Herald's weekday sales were resilient and the re-designed Saturday product
has performed well, while the Evening Times recorded one of the best
circulation performances of any evening newspaper in the UK. The Sunday Herald,
which achieved its first NRS (National Readership Survey) rating during the
year, maintained its steady progress, increasing full price sales by 11% and
reducing losses by one third, in line with plan.
Our newspapers were also recognised for quality during the year, with The
Saturday Herald's magazine being named Best Designed Newspaper Supplement of
the Year and the Sunday Herald, Royal Bank of Scotland Newspaper of the Year.
The construction of the new printing facilities for our newspapers is on
schedule with the phased transfer of the printing of our titles already
underway and we expect to close our existing operation by the end of 2002. Our
new presses will offer a wide range of efficiency improvements as well as
providing capacity to take on additional contract printing. Our product
development will also benefit from a significant number of design improvements
which can be accommodated by the new presses. In addition, we will benefit from
a 10% reduction in newsprint prices in 2002.
During 2001 we acquired Orpheus Publications, whose music-related magazines
have performed to forecast. However, the effects of Foot and Mouth Disease on
our farming title, and the electronics industry downturn on our electronics
title, contributed £1.0m to the profit decline of the Publishing Division.
RADIO
Our Radio Division, which consists principally of the national commercial
station, Virgin Radio, is solely dependent on national advertising revenues. As
a result of the advertising downturn, turnover reduced by 17% in 2001 to £27.9m
from £33.6m in the 10 months of SMG's ownership in 2000. This resulted in a 30%
reduction in operating profits for the corresponding period to £10.5m. However,
some of this decrease can be attributed to Virgin Radio's outperformance in
2000 when sales grew by 23% as a result of advertising around the Euro 2000
football tournament and from dot.com advertisers seeking exposure to the
station's valuable 20-44 year-old core audience.
The high profile and abrupt change of the station's breakfast show in July
contributed to volatile RAJAR audience figures across the year. However, the
establishment of a new format for this important show in the early part of 2002
should stabilise listening figures and allow us to build from a more solid and
consistent platform. The schedule across the day has been re-formatted and,
combined with a well defined and targeted music policy, is focusing closely on
the listening needs of the station's core audience.
Virgin Radio's tight cost control has resulted in an operating margin of 38%
which, although reduced from 12 months ago, is still industry-leading.
OUT OF HOME
In contrast to many businesses in the sector, SMG's Out of Home Division,
comprising outdoor and cinema advertising, saw significant growth during the
year. Turnover grew by 16% to £33.4m (2000: £28.7m) and we were able to convert
this into a 21% increase in operating profits to £5.2m (2000: £4.3m).
In outdoor, increased panel numbers - up 14% to 9,500 - resulted in continued
growth in advertising revenues across the year.
Demand from advertisers seeking an effective route to young, upmarket consumers
grew and an increase in screens, along with an improved crop of film releases,
including blockbusters such as Bridget Jones's Diary and Harry Potter, saw
cinema turnover grow by 23% over 2000. The award of the UGC Cinemas contract,
which took effect from the start of 2002, has now increased our market share to
45% the highest share for Pearl & Dean since 1988, further enhancing the future
prospects of this business.
CORPORATE DEVELOPMENT
The Government will publish the draft Communications Bill shortly and we
anticipate that this will provide a clear indication of the shape and scope of
media ownership regulation reform. SMG has played a full part in the
consultation process in advance of this draft legislation and we remain
convinced that for the UK media industry to develop, there must be significant
and far-reaching changes to existing legislation. We are further advanced in
the exploitation of cross media than many in the industry and, in a new
regulatory environment, we believe we can accelerate our growth.
Early in 2001 we increased our shareholding in SRH to 29.5% in anticipation of
such regulatory reform. However, the media world has changed significantly
since then. All media stocks have reduced in value, and SRH was no exception.
Whilst our shareholding in SRH remains strategically important and valuable, we
have decided to recognise this reduction in the value of this holding, lowering
it by £56.3m to £89.3m, reflecting the SRH share price at 31 December 2001.
This is a prudent step, in line with the long term strategic nature of this
investment. Alongside this, we are writing down the carrying value of our
investment in Heart of Midlothian plc to £3.5m.
In the light of the difficult advertising market conditions that prevailed in
2001, and their impact on the Group's earnings, we entered into discussions
with our lenders in order to renegotiate the covenants and terms of our
borrowing facilities. Agreement has now been formally reached with our lenders
and this has resulted in a £5.9m exceptional charge in 2001 relating to fees,
professional adviser costs and increased interest charges. All the Group's
borrowings have now been secured until June 2003 and these new arrangements
provide certainty of funding as we approach a period of significant importance
for the UK media sector.
PROSPECTS
The advertising markets in the UK have yet to show substantive signs of
recovery and, as expected, the first quarter of 2002 shows modest year on year
falls in advertising across a number of media sectors. However, these declines
are significantly less severe than those experienced in the second and third
quarter of last year when the downturn in advertising was at its most acute.
Encouragingly, the market is becoming more predictable and buying activity is
reverting to more traditional patterns. In particular, radio, as the medium
most able to take short-term money, is showing the first signs of recovery.
Within each of our businesses we continue to make progress and improve market
share. Television has seen further share gains in the first quarter of 2002
with advertising revenues down 10% compared to a fall of 14% for ITV as a
whole. Publishing has benefited from a more stable recruitment sector after a
weak start in early January while the national display market has also
stabilised. Radio is strengthening and Out of Home continues to outperform
other sectors as well as benefiting from the substantial increase in cinema
market share resulting from the UGC contract win.
With a more stable advertising market and the full impact of our cost reduction
actions of last year coming through, we believe that SMG's businesses will
strengthen during the remainder of the year and will be well placed for the
advertising upturn when it comes.
Don Cruickshank
Chairman, SMG plc
Consolidated profit and loss account
for the year ended 31 December 2001
2001 2000 restated
Pre online, Online, Pre online, Online,
exceptionals exceptionals Results exceptionals exceptionals Results
and FRS10 and FRS10 for and FRS10 and FRS10 for
year year
Note £m £m £m £m £m £m
Turnover
Continuing operations 279.0 0.5 279.5 300.5 - 300.5
Acquisitions 1.3 - 1.3 - - -
------- ------- ------- ------- ------- -------
Total turnover 2 280.3 0.5 280.8 300.5 - 300.5
Net operating expenses (229.0) (17.8) (246.8) (232.4) (13.6) (246.0)
Reorganisation costs 3 - (9.0) (9.0) - (5.0) (5.0)
Writedown of investments 3 - (5.0) (5.0) - - -
Internet development 3 - - - - (5.0) (5.0)
------- ------- ------- ------- ------- -------
Total operating expenses (229.0) (31.8) (260.8) (232.4) (23.6) (256.0)
Operating profit
Continuing operations 51.1 (31.3) 19.8 68.1 (23.6) 44.5
Acquisitions 0.2 - 0.2 - - -
------- ------- ------- ------- ------- -------
Group operating profit 51.3 (31.3) 20.0 68.1 (23.6) 44.5
Share of associates 5.9 (6.7) (0.8) 2.2 (0.3) 1.9
Writedown of investment 3 - (56.3) (56.3) - - -
in associates
------- ------- ------- ------- ------- -------
Total operating profit/ 2 57.2 (94.3) (37.1) 70.3 (23.9) 46.4
(loss)
Net interest payable and 4 (21.2) (5.9) (27.1) (11.3) - (11.3)
similar charges
------- ------- ------- ------- ------- -------
Profit/(loss) on ordinary 36.0 (100.2) (64.2) 59.0 (23.9) 35.1
activities before taxation
Tax on profit/(loss) on 5 (9.7) 3.4 (6.3) (15.3) 1.8 (13.5)
ordinary activities
------- ------- ------- ------- ------- -------
Profit/(loss) on ordinary 26.3 (96.8) (70.5) 43.7 (22.1) 21.6
activities after taxation
Dividends 6 (9.6) - (9.6) (21.0) - (21.0)
------- ------- ------- ------- ------- -------
Profit/(loss) transferred 16.7 (96.8) (80.1) 22.7 (22.1) 0.6
to reserves
==== ==== ==== ==== ==== ====
Earnings per ordinary
share
- basic 7 8.4p (22.5p) 15.0p 7.4p
==== ==== ==== ====
- diluted 7 8.4p (21.3p) 14.2p 7.2p
==== ==== ==== ====
Consolidated statement of total recognised gains and
losses
For the year ended 31 December 2001
2001 2000
£m £m
(Loss)/profit for the financial year attributable to (70.5) 21.6
shareholders
Unrealised surplus on revaluation of properties - 3.1
Actuarial loss recognised in the pension schemes (48.2) -
Deferred tax arising thereon 14.5 -
------- -------
Total recognised (losses)/gains relating to the (104.2) 24.7
financial year
Prior year adjustment (1.6) -------
-------
Total recognised (losses)/gains since last annual (105.8)
report
====
Consolidated balance sheet
at 31 December 2001
2001 2000
Restated
Note £m £m
Fixed assets
Intangible assets 8 336.4 356.5
Tangible assets 10 81.0 57.4
Investments 11 93.3 112.1
------- -------
510.7 526.0
------- -------
Current assets
Stock 23.5 31.3
Debtors and prepayments 62.2 63.2
------- -------
85.7 94.5
------- -------
Creditors: amounts falling due within one year
Creditors and accrued charges (54.5) (64.4)
Bank loans and overdrafts 16 (226.9) (134.2)
Other loans 16 (140.0) -
Corporation tax (8.7) (17.1)
Proposed dividend (4.7) (13.9)
------- -------
(434.8) (229.6)
------- -------
Net current liabilities (349.1) (135.1)
------- -------
Total assets less current liabilities 161.6 390.9
------- -------
Creditors: amounts falling due after more than one year
Creditors and accrued charges (2.5) (3.1)
Other loans 16 - (140.0)
Convertible unsecured loan stock 12 (22.8) (22.9)
Secured loan notes 12 (1.1) (2.3)
------- -------
(26.4) (168.3)
------- -------
Provisions for liabilities and charges 13 (15.6) (7.6)
------- -------
Net assets excluding pension (liability)/asset 119.6 215.0
Pension (liability)/asset (21.8) 9.2
------- -------
Net assets including pension (liability)/asset 97.8 224.2
==== ====
Capital and reserves
Called up share capital 7.8 7.7
Share premium account 58.5 44.5
Shares to be issued 1.3 27.8
Merger reserve 173.4 173.4
Revaluation reserve 3.1 3.1
Profit and loss account (146.3) (32.3)
------- -------
Equity shareholders' funds 14 97.8 224.2
==== ====
Consolidated cash flow statement
for the year ended 31 December 2001
2001 2000
Note £m £m
Operating activities
Net cash inflow from continuing operating 15 43.4 60.7
activities
------- -------
Dividends received from associates and 1.3 -
investments
------- -------
Returns on investments and servicing of
finance
Interest received 0.2 0.6
Interest paid (25.7) (15.9)
Interest paid on finance leases - (0.1)
------- -------
(25.5) (15.4)
------- -------
Taxation
UK corporation tax paid (11.6) (13.9)
------- -------
Capital expenditure and financial
investment
Purchase of tangible fixed assets (32.0) (18.1)
Purchase of fixed asset investments - (103.1)
Sale of tangible fixed assets 1.7 1.5
------- -------
(30.3) (119.7)
------- -------
Acquisitions and disposals
Purchase of subsidiary undertakings 9 (2.7) (115.1)
Net debt acquired with subsidiary undertakings 9 - (73.2)
Increased investment in associate undertaking (46.2) (6.1)
------- -------
(48.9) (194.4)
------- -------
Equity dividends paid (18.8) (18.8)
------- -------
Cash outflow before financing (90.4) (301.5)
------- -------
Financing
Net proceeds from debt placing - 140.0
Net proceeds from rights issue - 59.3
Net proceeds from share placing - 42.3
Share capital options exercised 0.7 1.9
Net repayment of loan notes (1.2) 1.6
Repayment of principal under finance leases (0.3) (0.5)
------- -------
(0.8) 244.6
------- -------
Cash outflow in the period (91.2) (56.9)
------- -------
Movement in net debt 2001 2000
£m £m
Opening net debt (300.4) (104.8)
Cash outflow in the period (91.2) (56.9)
Issue of loan notes (2.3) -
Other movements 0.1 (138.7)
------- -------
Closing net debt (393.8) (300.4)
===== =====
Notes to the preliminary announcement
for the year ended 31 December 2001
1. Basis of preparation
The financial information for the years ended 31 December 2001 and 31 December
2000 is taken from, but does not constitute, the Group's statutory accounts for
those years. The accounting policies set out in the financial statements for
the year ended 31 December 2000 have been applied consistently to both years,
with the exception that FRS17 `Retirement Benefits', FRS18 `Accounting
Policies' and FRS19 `Deferred Tax' have been adopted in full during the year.
Certain prior year amounts have been reclassified to conform with the current
year's presentation. The auditors have completed their audit of the financial
information contained herein and have issued an unqualified opinion, including
an explanatory paragraph highlighting the status of the Group's renegotiation
of its bank debt and loan notes.
2. Segmental analysis
The results for the year ended 31 December 2001 include the turnover and
operating profit from the acquisitions of Orpheus Publications Limited
('Orpheus') and Town & District Posters Limited ('Town & District') which are
consolidated from the date of acquisition, 16 May and 30 November 2001
respectively. Scottish Radio Holdings plc ('SRH') has been equity accounted
from 20 February 2001.
The analysis of the Group's turnover and operating profit by operating division
is set out below:
2001 2000
£m £m
Turnover
Television 141.6 159.4
Publishing 77.4 78.8
Radio 27.9 33.6
Out of Home 33.4 28.7
------- -------
280.3 300.5
Online 0.5 -
Total turnover 280.8 300.5
==== ====
Turnover in 2001 includes £1.7m (2000: £1.1m) of revenues from sources outside
the UK.
2001 2000
Restated
£m £m
Operating profit
Television 25.4 37.1
Publishing 14.3 16.3
Radio 10.5 15.0
Out of Home 5.2 4.3
Associates 5.9 2.2
Pension costs (FRS17) (4.1) (4.6)
------- -------
Total operating profit excluding online, exceptional items and 57.2 70.3
FRS10
Online (1.8) -
Exceptional items (note 3) (70.3) (10.0)
Goodwill amortisation (22.2) (13.9)
------- -------
Total operating (loss)/profit (FRS3) (37.1) 46.4
===== =====
Operating profit in 2001 includes £0.7m (2000: £0.6m) arising outside the UK.
FRS17 pension costs are incurred in Television £2.2m (2000: £2.5m), Publishing
£1.6m (2000: £1.8m), Radio £0.1m (2000: £0.1m) and Out of Home £0.2m (2000: £
0.2m).
3. Exceptional items
i. Reorganisation costs
A provision for exceptional costs amounting to £9.0m has been made in 2001, £
6.0m to cover reorganisation initiatives across the Group and £3.0m to cover
reorganisation initiatives in relation to the Publishing division's new
printing plant. In 2000 a similar provision amounting to £5.0m was made in
relation to reorganisation activities in the Group's Television and Publishing
operations.
ii. Debt restructuring costs
A provision for exceptional costs amounting to £5.9m has been made to cover
costs and charges relating to renegotiating debt facility terms with the
Group's lenders.
iii. Writedown of investments
Provisions of £5.0m and £56.3m respectively have been made against the
investments in Heart of Midlothian plc ('Hearts') and SRH to reflect their
market value at the year end.
iv. Internet development
In 2000, a provision for exceptional costs amounting to £5.0m was made to cover
the pre-launch costs of s1, the Group's family of Scottish based content and
e-commerce Internet sites.
4. Net interest payable and similar charges
2001 2000
Restated
£m £m
Interest payable:
Bank loans and overdrafts 23.9 14.3
CULS and loan note interest 1.6 1.6
Finance leases - 0.1
------- -------
Group interest payable 25.5 16.0
Share of associates 0.4 0.3
------- -------
Total interest payable 25.9 16.3
Interest receivable (0.5) (1.0)
------- -------
Net interest payable 25.4 15.3
Pension finance credit (4.2) (4.0)
------- -------
Net interest payable and similar charges excluding exceptional 21.2 11.3
items
Debt restructuring costs (see note 3) 5.9 -
------- -------
Net interest payable and similar charges 27.1 11.3
==== ====
5. Tax on profit/(loss) on ordinary activities
2001 2000
£m £m
The charge for taxation is as follows:
Charge for the year at 27% (2000:26%) excluding online, 8.1 15.3
exceptional items & FRS 10
Share of taxation of associated undertakings 1.6 -
------- -------
9.7 15.3
Tax credit on online and exceptional items (3.4) (1.8)
------- -------
6.3 13.5
==== ====
6. Dividends
2001 2000
£m £m
Interim paid of 1.5p per share (2000: 2.3p) 4.9 7.1
Proposed final of 1.5p per share (2000: 4.5p) 4.7 13.9
------- -------
9.6 21.0
==== ====
It is proposed to pay the final dividend on 12 July 2002 to shareholders on the
register at 14 June 2002.
7. Earnings per share
Basic earnings per share (EPS), excluding online, exceptional items and the
impact of goodwill amortisation under FRS10, is calculated as follows:
2001 2000
Restated
Attributable profit for the financial period (£m) 26.3 43.7
Weighted average number of shares in issue (m) 312.7 291.4
Earnings per ordinary share (pence) 8.4 15.0
Basic EPS, inclusive of online, exceptional items and after goodwill
amortisation under FRS10, for the year was (22.5p) (2000: restated 7.4p).
Diluted EPS, excluding online, exceptional items and the impact of goodwill
amortisation under FRS10, is calculated as follows:
2001 2000
Restated
Attributable profit for the financial period (£m) 27.4 44.8
Weighted average number of shares in issue (m) 326.0 315.2
Diluted earnings per ordinary share (pence) 8.4 14.2
Diluted EPS, inclusive of online, exceptional items and after goodwill
amortisation under FRS10 for the year was (21.3p) (2000: restated 7.2p).
8. Intangible assets
Publishing Goodwill Total
titles
£m £m £m
Cost
At 1 January 2001 56.0 317.2 373.2
Acquisitions Orpheus - 5.2 5.2
Town & District - 0.8 0.8
Pearl & Dean minority interest - 0.8 0.8
Adjustment to Ginger goodwill - (11.1) (11.1)
------- ------- -------
At 31 December 2001 56.0 312.9 368.9
------- ------- -------
Amortisation
At 1 January 2001 - 16.7 16.7
Charge for the period - 15.8 15.8
------- ------- -------
At 31 December 2001 - 32.5 32.5
------- ------- -------
Net book value at 31 December 2001 56.0 280.4 336.4
==== ==== ====
Net book value at 31 December 2000 56.0 300.5 356.5
==== ==== ====
Publishing titles comprise the masthead values ascribed to the Group's two
principal newspaper titles on acquisition, being The Herald (£50.0m) and the
Evening Times (£6.0m). Mastheads are not subject to annual amortisation, but
are reviewed annually for any impairment.
Goodwill comprises capitalised goodwill on acquisitions completed since 1
January 1998 and is being amortised on a straight-line basis over 20 years. The
Ginger goodwill adjustment relates to the write-back of goodwill and related
items previously included within shares to be issued.
9. Acquisitions
Acquisitions in 2001 comprised Orpheus and Town & District, together with the
remaining 1.4% minority interest in Pearl & Dean Cinemas Limited ('Pearl &
Dean') which the Group did not already own. Goodwill amounted to £5.2m, £0.8m
and £0.8m respectively (see note 8).
10. Tangible fixed assets
Plant,
technical
Land and buildings equipment
Leasehold Freehold and other Total
£m £m £m £m
Cost or valuation
At 1 January 2001 0.7 16.4 94.0 111.1
Additions - - 33.4 33.4
Disposals - (1.6) (5.6) (7.2)
------- ------- ------- -------
At 31 December 2001 0.7 14.8 121.8 137.3
------- ------- ------- -------
Depreciation
At 1 January 2001 0.3 0.7 52.7 53.7
Charge for year - - 8.5 8.5
Disposals - (0.6) (5.3) (5.9)
------- ------- ------- -------
At 31 December 2001 0.3 0.1 55.9 56.3
------- ------- ------- -------
Net book value at 31 December 2001 0.4 14.7 65.9 81.0
==== ==== ==== ====
Net book value at 31 December 2000 0.4 15.7 41.3 57.4
==== ==== ==== ====
2001 2000
a) Freehold land & buildings comprise: £m £m
At valuation 13.9 13.9
At cost 0.9 2.5
------- -------
14.8 16.4
==== ====
Professional valuations were carried out by NAI Gooch Webster, Chartered
Surveyors, on the Group's studio properties at 30 June 2000. The valuations
were prepared on the basis of open market value and in accordance with the RICS
Appraisal and Valuation Manual.
2001 2000
b) Historical cost figures for freehold buildings are: £m £m
Cost 16.6 18.2
Depreciation (5.0) (5.6)
------- -------
11.6 12.6
------- -------
11. Investments
Investments held at 31 December 2001 represent £3.5m in Hearts and £89.8m in
associated undertakings, £89.3m for SRH and £0.5m for GMTV Limited ('GMTV')
loan stock. At 31 December 2001, the investments in Hearts and SRH were written
down to market valuation.
The Group's investment in Hearts comprises £3.5m of ordinary share capital and
£4.5m of secured convertible loan stock along with capitalised acquisition
costs and a writedown of £5.0m.
The Group's investment of £103.1m in SRH at 31 December 2000 was increased
during the year and the Group began equity accounting for SRH as an associate
effective from 20 February 2001. At 31 December 2001, the investment in SRH
consists of net assets and equity accounted profits (£23.5m) and goodwill (£
128.5m) less goodwill amortisation (£6.4m) and a writedown of £56.3m.
12. Loan stock
The convertible unsecured loan stock ('CULS') as at 31 December 2001 is
convertible on 30 April in each of the years 1999 to 2007 inclusive. The CULS
are convertible into new SMG shares on the basis of 50.2808 SMG shares per £100
nominal of SMG CULS. The CULS are unsecured obligations of SMG and bear
interest at a rate of 6.5% per annum. On 30 April 2001, £0.1m of CULS were
converted.
Secured loan notes dated October 2007 amounting to £5.1m were issued to fund
the acquisition of Primesight. The loan notes bear interest at a rate of 1.5%
below LIBOR and are redeemable on 1 April and 1 October each year. During 2001,
£1.2m of loan notes were redeemed.
Also included within creditors are guaranteed unsecured loan notes dated June
2002 amounting to £2.3m issued to fund the acquisition of Orpheus. The loan
notes bear interest at a rate of 1% below LIBOR and are redeemable by 16 May
2002. No loan notes were redeemed during the period since acquisition.
13. Provisions for liabilities and charges
2001 2000
Restated
£m £m
Deferred taxation 1.4 0.9
Equity accounted losses 1.3 1.9
Other provisions 12.9 4.8
------- -------
15.6 7.6
==== ====
Equity accounted losses represents the equity accounted losses on GMTV.
14. Reconciliation of movements in equity shareholders' funds
2001 2000
Restated
£m £m
(Loss)/profit for the year (70.5) 21.6
Dividends (9.6) (21.0)
------- -------
Retained (loss)/profit for the year (80.1) 0.6
Increase in share premium 14.0 116.8
Shares issued 0.1 1.2
Shares to be issued (26.5) 27.8
Revaluation of freehold properties - 3.1
Amount deducted in respect of shares issued to (0.2) (0.9)
QUEST
Actuarial loss recognised (48.2) (25.4)
Deferred tax thereon 14.5 7.6
------- -------
Net movement in shareholders' funds (126.4) 130.8
------- -------
Opening shareholders' funds as previously stated 225.8 77.2
Prior year adjustment (1.6) 16.2
------- -------
Opening shareholders' funds restated 224.2 93.4
------- -------
Closing equity shareholders' funds 97.8 224.2
==== ====
Shares to be issued represent deferred consideration remaining to be paid to
Ginger Media Group and Town & District shareholders.
The prior year adjustment relates to the implementation of FRS17 - Retirement
benefits. The impact on profit of adoption of FRS17 was not material in either
year. No prior year adjustment has resulted from the adoption of FRS18
Accounting policies or FRS19 Deferred tax.
The balance sheet includes a deficit of £21.8m (2000: surplus £9.2m) net of a
deferred tax asset of £9.3m (2000: liability £3.9m) in respect of pension fund
deficits or surpluses of the Group's pension funds.
15. Reconciliation of operating profit to operating cash flows
2001 2000
£m £m
Continuing activities
Group operating profit (before online, exceptional items and 51.3 68.1
FRS10)
Depreciation and other non-cash items 6.4 7.5
Decrease/(increase) in stock 7.8 (1.3)
Increase in debtors (2.3) (9.8)
(Decrease)/increase in creditors (12.7) 2.5
Reorganisation costs (3.6) (5.3)
Internet development costs (3.5) (1.0)
------- -------
Net cash inflow from continuing operations 43.4 60.7
==== ====
16. Financing and post balance sheet events
The Group has reached agreement with its lenders on a renegotiation of the
Group's bank debt and 2010 loan note facilities. The agreement is subject to
final loan documentation being concluded but has now been formally approved by
all of the Group's lenders. The directors are confident that the final loan
documentation will be concluded. As a result, the financial statements do not
include any adjustments that may be required if it is not concluded.
The agreement has resulted in a £5.9m exceptional charge relating to fees,
professional advisor costs and increased interest charges related to 2001.
The revised terms also include more relaxed covenants and a reduction in the
life of the £140.0m 2010 loan notes to 30 June 2003, aligning them with the
Group's other facilities. However, as the Group was not in compliance with the
previous terms at 31 December 2001, in accordance with FRS4, these loan notes
require to be classified as current at the balance sheet date due to the
negotiations with lenders being incomplete at that date. In addition, security
will be granted over the bank debt and 2010 loan notes and a slightly higher
interest cost will be payable on the majority of the Group's debt.
The Group has undertaken to refinance the bank debt and 2010 loan notes by 30
June 2003 or, if necessary, to make disposals to ensure repayment by that date.
Once the necessary legal documentation has been finalised, this new agreement
will give the Group certainty of funding over the medium term without recourse
to shareholders and keeps open all strategic options as the UK media regulatory
regime relaxes.
17. Mailing
A copy of the annual report is being sent to all shareholders on 21 May 2002
and will be available for inspection by members of the public at the Company's
registered office at 200 Renfield Street, Glasgow.
22
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