2000 Interim Results

SMG PLC 22 August 2000 SMG plc 2000 Interim Results Six Months Ended 30 June 2000 KEY FINANCIALS * Total Turnover - up 37% to £152.7m * EBITDA * - up 39% to £ 40.4m * Total operating profit * - up 41% to £ 36.4m * Profit before tax * - up 25% to £ 30.0m * Earnings per share * - up 16% to 7.8 pence * Dividend per share - up 5% to 2.3 pence HIGHLIGHTS * Record interim earnings and profits * Excellent first-time contribution from Virgin Radio/Ginger Television * Increased stake in GMTV (25%) * Share placing to raise up to £45m * Well positioned for growth * Excluding exceptional items and FRS10 goodwill amortisation Commenting on the interim results, Andrew Flanagan, Chief Executive of SMG, said: 'These record results highlight that SMG continues to go from strength to strength. With the acquisition of Ginger Media Group now firmly under our belts, and delivering exceptional returns, we are now well set to continue our development as a major player in UK media.' For further information contact: Andrew Flanagan Chief Executive 020 7882 1088 Gary Hughes CFO and Business Development Director George Watt Acting Group Finance Director Callum Spreng Director of Corporate Affairs Ben Brewerton Brunswick 020 7404 5959 SMG plc 2000 Interim Results CHAIRMAN'S STATEMENT Overview SMG's progress in the first six months of 2000 has been significant, both in terms of its corporate development and operational performance. In addition we have re-branded the group and carried out a corporate restructuring, positioning SMG well for future expansion. The acquisition of Ginger Media Group was completed in March and both Virgin Radio and Ginger Television have been quickly, and effectively, integrated into the Group. In addition, we were able, at the beginning of the year, to increase our holding in GMTV to 25%, further strengthening our position in UK media. Our existing businesses, as well as those we have acquired, have performed well in the first six months, resulting in pre-tax profit (excluding exceptional items and FRS10) growing by 25% to £30.0 million (1999: £24.0 million), a new record. Turnover across the same period grew by 37% to £152.7 million. Earnings per share (excluding exceptional items and FRS10) increased from 6.7 pence in 1999, on a restated basis, to 7.8 pence, a growth of some 16%. The Board has also agreed an interim dividend of 2.3 pence (1999: 2.2 pence). The change of the group's name to SMG took place in June, following the completion of a corporate restructuring and a four-for-one share split. These changes ensure that SMG is now appropriately structured, and branded, to continue its development as a leading player in the UK information and entertainment marketplace. Today, simultaneously with the publication of our interim results, we have announced that we are proposing to raise up to £45.0 million (net of expenses) through a cash placing of 14.6 million new ordinary shares, representing approximately 5% of SMG's issued share capital. This will strengthen the group's balance sheet and provide us with the necessary flexibility to finance and execute new investment and acquisition opportunities quickly. Television With advertising revenues across our Broadcasting business growing by 7%, and as a result of initial savings from staff reductions, we have been able to improve operating margins to 29%. In addition, our network programme production business benefited from a first time contribution from Ginger Television. Overall, Television profits in the first half increased to £19.5 million, from £16.4 million in the same period last year, a growth of 19%. Although advertising growth was ahead of expectations, we were not able to match the exceptional growth across ITV nationally which was fuelled by a surge of dot.com advertising in the South East of England, and an unprecedented level of self-promotion by the larger ITV groups. We believe these factors to be largely temporary but it did result in our Net Advertising Revenue (NAR) share reducing from 6.2% to 5.8% in the period. We expect to regain some market share in the second half as these factors recede and other major advertisers rebalance their campaigns. Our continued investment in new technology and improved efficiency in programme making has inevitably resulted in a need for fewer staff. Early in the year we introduced a redundancy programme and have set aside an exceptional reorganisation provision of £5.0 million for the group as a whole. We therefore expect to see continued benefit from reduced costs across the remainder of the year and into 2001. Both Scottish Television and Grampian Television maintained their market leading positions in their respective regions with a peak-time audience share of 37%, on par with 1999, despite the growth in multi-channel homes. This performance was ahead of ITV and we substantially outperformed our nearest rival, BBC Scotland, by a sizeable 11 percentage points. Network programme production now comprises Scottish Television Enterprises (STE) and Ginger Television, which together make SMG the sixth largest programme producer in the UK. STE's repositioning in 1999 has allowed us to start the process of successfully rebuilding the level of commissioned programmes and, importantly, its development slate. Ginger Television has contributed strongly to first half profits in the four months since acquisition and has won a further commission for The Priory which will start its third series on Channel 4 next month. TFI Friday will end its five year run in December and we have been asked by Channel 4 to develop a replacement show as well as other programming featuring Chris Evans. Publishing With newspaper advertising on our established titles (The Herald and Evening Times) growing ahead of the market at 7%, and continued attention to cost control, we were able to improve profits within Publishing to £9.1 million, from £8.6 million in the equivalent period last year. This improvement was achieved despite the costs of an extra five publication days of the Sunday Herald, launched in February last year. Advertising revenues showed renewed signs of growth after the slowdown in the first half of 1999, with recruitment and property advertising particularly strong as a result of faster growth in the local economy. Motoring remains weak, given the uncertainty in the new and second-hand markets due to the ongoing review of pricing in the motor industry. The Scottish newspaper market has become increasingly competitive in 2000, with the launch of Metro, a free daily tabloid, and The Scotsman and The Times significantly cutting cover prices in an attempt to increase market share. While we have seen some impact on circulation from these initiatives, The Herald and Evening Times have largely been able to withstand this pressure. We have therefore maintained cover prices and supported the products through improved editorial, new designs and increased promotion. However, we will continue to monitor our competitors' current activities to determine if a more direct response to discounted cover prices is necessary. The Sunday Herald is now firmly established in the Sunday market with an audited circulation of 55,000 copies per week, and a market share of approximately 25%, making it Scotland's third best-selling Sunday broadsheet. It is now regularly on advertisers' planning schedules and we have seen good advertising growth in the period. We continue to develop and improve the product, supported by substantial promotional and marketing activities. Losses in the first half of 2000 amounted to £1.3 million, in line with 1999 while covering an additional five weeks of production. Radio Our Radio Division was established following the acquisition of Virgin Radio, part of Ginger Media Group. The exceptional growth potential of the radio sector, which we identified prior to the acquisition, has been strongly evident since we took control with radio advertising revenues growing by 31% year-on-year in our first four months of ownership. A significant element of this improvement has come from dot.com advertisers who, in addition to regarding radio as internet friendly, were attracted to Virgin Radio's excellent audience demographics and national reach. This led to a strong operating performance, with Virgin Radio contributing £6.0 million of profit in our first half results. Virgin Radio's music format and branding has been fine-tuned around its innovative proposition '10 Great Songs in a Row' to build brand awareness, along with a significant increase in promotional support. Across the first half, audience levels were broadly at expected levels but the strong gains in the first quarter RAJARs reversed in the second quarter. Our own research and analysis indicates we have increased younger listeners at the expense of the over-thirties and we will adjust our play-list in the second half to restore the balance of our audience. Since becoming part of SMG, Virgin Radio, through its participation in Switch Digital, has secured a place on the second London digital radio multiplex. This is in addition to Virgin Radio's carriage on Digital One, the national digital radio multiplex, which commenced broadcasting in November 1999. While placing the station at the forefront of the development of digital radio, it has also allowed us to launch a new radio service in London, a classic soul format, 'The Groove'. The costs of this service, and the national digital transmission costs of Virgin Radio, are not material, but significantly it allows for an automatic rollover of both our national AM and our London FM licences until 2008 and 2011 respectively. Out of Home Our Out of Home business, comprising outdoor and cinema advertising, benefited from a full six month contribution from Primesight (acquired in March 1999) and Pearl & Dean (acquired in June 1999). Revenue increased to £13.5 million (1999: £7.2 million) and Out of Home contributed profits of £1.8 million (1999: £0.9 million) in the period. The outdoor sector performed well, particularly in the second quarter where Primesight's six sheet panel revenues grew by over 40%. We continue to grow our panel inventory to meet this demand but this has been slower than 1999 due to the need to meet additional planning requirements. However, this is a timing issue and we still expect to grow our six sheet panels to 8,500 by the end of the year. Although there were no blockbuster movie releases in the first half of 2000, a steady stream of high quality films and continued growth of cinema audiences led to strong increases in cinema advertising revenues. Pearl & Dean had over 1,000 screens under contract during the period and continues to grow its market share of cinema advertising revenues. Internet Our approach to the opportunities offered by the internet was outlined earlier this year and focuses on building on our market-leading position in Scotland, and on our popular radio services. Progress in both areas has been good and we now have specialists from all parts of SMG refining and developing our plans. Delphic Interactive, the group's electronic publishing arm, will cease to operate externally and will now provide internet expertise and services across the group. In addition Virgin Radio, through Ginger On-Line, is already offering a number of exciting revenue generating services. Audited research demonstrated that virginradio.co.uk receives 290,000 unique visitors, and eight million page impressions a month, with an average visit lasting 24 minutes. From this successful base, advertising, sponsorship and e-commerce revenues are now running near to £100,000 per month. We plan to have the first of our Scotland-focused sites, s1, live by the end of the third quarter, with a full roll-out during 2001. The start up costs of s1 are being treated as an exceptional item in the first half results and a provision of £5.0 million has been taken to accommodate this. Prospects With both the UK and Scottish economies performing well, the outlook for advertising revenues in the second half is positive. While we expect the rate of dot.com advertising growth to slow, both our radio and television businesses are enjoying encouraging levels of advertising growth from the more traditional sectors, with radio generating good revenue across the summer months. Publishing looks set to maintain its progress on advertising growth through the remainder of the year. We expect Out of Home to continue its good start to the year, particularly in the outdoor sector. Appropriately, management concentrated for much of the first half of 2000 on the acquisition and integration of Ginger Media Group, in addition to ensuring that our existing businesses continue to deliver up to their potential. With this achieved, we will continue to seek out fresh opportunities through which to continue SMG's development as a major player in UK media. We regard the relaxation of ITV ownership constraints as indicative of the need for deregulation in the UK media sector. However, such deregulation requires to be both consistent and comprehensive. Against the background of this changing environment, SMG is well-positioned to capitalise on the opportunities which will arise. Don Cruickshank Chairman 22 August 2000 Consolidated Profit And Loss Account for the six months ended 30 June 2000 Excluding Total including exceptionals exceptionals and and FRS10 FRS10 Audited 6 6 6 full Note months months months year 2000 1999 Growth 2000 1999 £m £m * £m £m Turnover Continuing operations 125.5 111.2 13% 125.5 236.9 Acquisitions 27.2 - 27.2 - Discontinued operations - - - 5.8 ________ _______ ________ _______ Total turnover 2 152.7 111.2 37% 152.7 242.7 Net operating expenses (116.4) (85.2) (122.4) (191.7) Reorganisation costs 3 - - (5.0) (2.5) Internet development 3 - - (5.0) - ________ _______ ________ _______ Net operating expenses (116.4) (85.2) (132.4) (194.2) Operating profit Continuing operations 28.8 26.0 11% 16.9 48.5 Acquisitions 7.5 - 3.4 - ________ _______ ________ _______ Group operating profit 36.3 26.0 40% 20.3 48.5 Share of associate 0.1 (0.1) 0.1 1.7 Equity accounting reinstatement 3 - - - (5.7) ________ _______ ________ _______ Total operating profit 2 36.4 25.9 41% 20.4 44.5 Exceptional items Investment written back 3 - - - 3.0 ________ _______ ________ _______ Profit on ordinary activities before interest 36.4 25.9 41% 20.4 47.5 Net interest payable 4 (6.4) (1.9) (6.4) (5.3) ________ _______ ________ _______ Profit on ordinary activities before taxation 30.0 24.0 25% 14.0 42.2 Taxation on profit on 5 ordinary activities (7.8) (6.3) (6.3) (11.8) ________ _______ ________ _______ Profit on ordinary activities after taxation 22.2 17.7 7.7 30.4 Dividends 6 (6.7) (5.7) (6.7) (17.3) __________ _______ ________ _______ Profit transferred to reserves 15.5 12.0 1.0 13.1 ========== ======= ======== ======= Earnings per ordinary share - basic 7 7.8p 6.7p 16% 2.7p 11.5p ========== ======= ======== ======= - diluted 7 7.6p 6.6p 15% 2.8p 11.4p ========== ======= ======== ======= *Growth is calculated excluding exceptionals and goodwill amortisation under FRS10 Consolidated Balance Sheet at 30 June 2000 Audited 30 30 31 Note June June December 2000 1999 1999 £m £m £m Fixed assets Intangible assets 8 364.4 124.6 126.0 Tangible assets 51.4 44.3 45.8 Investments 10 11.0 3.0 10.5 _______ _______ __________ 426.8 171.9 182.3 _______ _______ __________ Current assets Stock 18.3 16.1 17.4 Debtors and prepayments 75.7 60.1 56.8 _______ _______ __________ 94.0 76.2 74.2 _______ _______ __________ Creditors: amounts falling due within one year Creditors and accrued charges 65.4 44.8 41.9 Bank loans and overdrafts 11 218.7 63.9 77.3 Corporation tax 16.9 24.3 14.5 Proposed dividend 6.7 5.7 11.6 _______ _______ __________ 307.7 138.7 145.3 _______ _______ __________ Net current liabilities (213.7) (62.5) (71.1) _______ _______ __________ Total assets less current 213.1 109.4 111.2 liabilities _______ _______ __________ Creditors: amounts falling due within one year Creditors and accrued charges 2.1 3.9 2.2 Convertible unsecured loan stock 22.9 23.2 23.2 Secured loan stock 2.7 5.1 2.8 _______ _______ __________ 27.7 32.2 28.2 _______ _______ __________ Provisions for liabilities and charges 12 6.3 6.5 5.8 _______ _______ __________ Net assets 179.1 70.7 77.2 ======= ======= ========== Capital and reserves Called up share capital 7.3 6.5 6.5 Share premium account - 100.5 101.1 Shares to be issued 27.8 - - Merger reserve 173.4 - - Profit and loss account (29.4) (36.3) (30.4) _______ _______ __________ Equity shareholders' funds 13 179.1 70.7 77.2 ======= ======= ========== Consolidated Cash Flow Statement for the six months ended 30 June 2000 Audited Note 6 6 Full months months Year 2000 1999 1999 £m £m £m Operating activities Net cash inflow from continuing operating activities 14 27.4 22.4 50.0 _______ _______ _______ Returns on investments and servicing of finance Interest received 0.1 - 0.2 Interest paid (8.2) (1.3) (4.6) Interest paid on finance leases (0.1) (0.1) (0.1) _______ _______ _______ (8.2) (1.4) (4.5) _______ _______ _______ Taxation UK corporation tax paid (including ACT) (4.7) (1.5) (13.2) _______ _______ _______ Capital expenditure and financial investment Purchase of tangible fixed assets (10.8) (4.8) (10.8) Purchase of fixed asset investments - - (8.5) Sale of tangible fixed assets 1.5 - 0.3 _______ _______ _______ (9.3) (4.8) (19.0) _______ _______ _______ Acquisitions and disposals Purchase of subsidiary undertakings 9 (115.1) (60.0) (63.0) Net debt acquired with subsidiary undertakings 9 (73.2) (4.4) (4.4) Increased investment in associate undertaking 10 (6.1) - - Sale of subsidiary undertakings - - 1.0 _______ _______ _______ (194.4) (64.4) (66.4) _______ _______ _______ Equity dividends paid (11.7) (10.5) (16.2) _______ _______ _______ Cash outflow before financing (200.9) (60.2) (69.3) _______ _______ _______ Financing Net proceeds from rights issue 59.3 - - Repayment of principal under finance leases (0.2) (0.3) (0.4) Repayment of loan notes - (0.1) (1.5) Share capital options exercised 0.4 0.1 0.1 _______ _______ _______ 59.5 (0.3) (1.8) _______ _______ _______ Cash outflow in the period (141.4) (60.5) (71.1) ======= ======= ======= Movement in Net Debt 2000 1999 1999 £m £m £m Opening net debt (104.8) (29.0) (29.0) Cash outflow in the period (141.4) (60.5) (71.1) Issue of loan stock - (5.1) (5.1) Other movements 0.6 0.4 0.4 _______ _______ _______ Closing net debt (245.6) (94.2) (104.8) ======= ======= ======= Notes to the Interim Statement for the six months ended 30 June 2000 1. Basis of preparation of the Interim Statement The interim statement, which is unaudited, has been prepared on a basis which is consistent with the accounting policies and practices adopted for the Group for the year ended 31 December 1999, with the exception that FRS15 'Tangible Fixed Assets' and FRS16 'Current Tax' came into effect during the period and have been adopted as required. The balance sheet at 31 December 1999 and the results for the year then ended have been extracted from the Group's annual report and financial statements, which have been filed with the Registrar of Companies. The auditors' opinion on the financial statements was unqualified and did not include a statement under section 237(2) or (3) of the Companies Act 1985. Fixed annual charges are apportioned to the interim period on the basis of time elapsed. Other expenses are accrued in accordance with the same principles used in the preparation of the annual financial statements. The tax charge for the first half of the current year is based on the rate expected to prevail for the full year. Where relevant, all prior year figures have been restated to reflect the impact of a 1-for-10 rights issue, completed on 15 March 2000, and a 4-for-1 share split which took place on 26 June 2000. 2. Segmental analysis The results for the six months ended 30 June 2000 include the post- acquisition turnover and operating profits from Ginger Media Group Limited ('GMG') which was acquired on 14 March 2000. GMG comprises Virgin Radio (Radio), Ginger Online (Radio) and Ginger Television (Television) which have been consolidated as subsidiaries from the date of acquisition. The analysis of the Group's turnover and operating profit by operating division is set out below: Audited 6 6 full months months year 2000 1999 Growth 1999 £m £m £m Turnover Television 85.9 65.5 31% 140.3 Publishing 40.1 38.5 4% 76.1 Radio 13.2 - - - Out of Home 13.5 7.2 88% 26.3 __________ ______ _______ Total turnover 152.7 111.2 37% 242.7 __________ ______ _______ Turnover in the first six months of 2000 includes £0.5m (1999: £3.6m) of revenues from sources outside the UK. The audited full year results for 1999 included £4.2m of revenues from outside the UK. Audited 6 6 full months months year 2000 1999 Growth 1999 £m £m £m Operating profit Television 19.5 16.4 19% 36.4 Publishing 9.1 8.6 6% 14.9 Radio 6.0 - - - Out of Home 1.8 0.9 100% 4.0 _______ ______ _______ Headline operating profit 36.4 25.9 41% 55.3 Exceptional items (note 3) (10.0) (8.2) - (8.2) Goodwill amortisation (6.0) (0.8) - (2.6) _______ ______ _______ Total operating profit (FRS3) 20.4 16.9 21% 44.5 _______ ______ _______ Operating profit in the first six months of 2000 includes £0.3m (1999: £0.7m) arising outside the UK. The audited full year results for 1999 included £0.6m of operating profits from outside the UK. 3. Exceptional items (i) A provision for exceptional costs amounting to £5.0m has been made in the period to 30 June 2000 to cover planned reorganisation initiatives within the Group's Television and Publishing operations. In 1999, an amount of £2.5m was provided to cover post acquisition reorganisation initiatives following the acquisition of Primesight plc, Baillie Advertising Limited and Pearl & Dean Cinemas Limited and the consequent consolidation of the Group's London based property requirements. (ii) A provision for exceptional costs amounting to £5.0m has been made in the period to 30 June 2000 to cover the pre-launch costs of s1, the Group's family of Scottish based content and e-commerce internet sites. (iii) During 1999 the Group re-commenced equity accounting for GMTV Limited ('GMTV'), the licence holder for the Channel 3 breakfast television service, and a non-cash exceptional charge of £5.7m was recognised relating to the Group's equity accounted share of losses before tax for the period 1995 through to 1998. In addition, a provision held against GMTV loan stock was released in 1999 resulting in a non-cash exceptional profit of £3.0m 4. Net interest payable Audited 6 6 full months months year 2000 1999 1999 £m £m £m Interest payable: Bank loans and overdrafts 5.4 0.6 3.4 CULS interest 0.8 1.0 1.6 Finance leases 0.1 0.1 0.1 ________ _______ _______ Group interest payable 6.3 1.7 5.1 Share of associate (GMTV) 0.2 0.2 0.4 ________ _______ _______ Total interest payable 6.5 1.9 5.5 Interest receivable (0.1) - (0.2) ________ _______ _______ Net interest payable 6.4 1.9 5.3 ________ _______ _______ 5. Taxation on profit on ordinary activities Audited 6 6 Full months months year 2000 1999 1999 £m £m £m The charge for taxation is comprised as follows: Charge for the period at 26.0% (1999: 26.0%) 7.8 6.3 13.0 Tax credit on exceptional items (1.5) (1.2) (1.2) ________ _______ ________ 6.3 5.1 11.8 ________ _______ ________ 6. Dividends Audited 6 6 full months months year 2000 1999 1999 £m £m £m 2000 interim of 2.3p per share (1999: 2.2p) 6.7 5.7 5.7 1999 final paid of 4.4p per share - - 11.6 __________ _______ ________ 6.7 5.7 17.3 __________ _______ ________ It is proposed to pay the interim dividend on 13 November 2000 to shareholders on the register at 13 October 2000. 7. Earnings per share Basic earnings per share (EPS), excluding exceptional items and the impact of goodwill amortisation under FRS10, is calculated as follows: Audited full 6 months 6 months year 2000 1999 1999 Attributable profit for the financial period (£m) 22.2 17.7 37.0 Weighted average number of shares in issue (m) 285.6 264.4 264.4 Earnings per ordinary share (pence) 7.8 6.7 14.0 ________ _______ _______ Basic EPS, inclusive of exceptional items and after goodwill amortisation under FRS10, in the six months to 30 June 2000 is 2.7p (six months to 30 June 1999: 4.9p and audited full year 1999: 11.5p). Diluted EPS, excluding exceptional items and the impact of goodwill amortisation under FRS10, is calculated as follows: Audited 6 6 full months months year 2000 1999 1999 Attributable profit for the financial 22.8 18.3 38.1 period (£m) Weighted average number of shares in issue 299.2 277.2 277.2 (m) Diluted EPS (pence) 7.6 6.6 13.7 ________ _______ _______ Diluted EPS, inclusive of exceptional items and after goodwill amortisation under FRS10, in the six months to 30 June 2000 is 2.8p (six months to 30 June 1999: 4.8p and audited full year 1999: 11.4p) 8. Intangible assets Intangible assets 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), and capitalised goodwill on acquisitions completed since 1 January 1998. Mastheads are not subject to annual amortisation, but are reviewed annually for any permanent diminution. Capitalised goodwill is being amortised on a straight-line basis over 20 years, as summarised below: £m Cost At 1 January 2000 72.8 Acquisitions - GMG 238.2 Acquisitions - GMTV 6.2 ______ At 30 June 2000 317.2 ______ Amortisation At 1 January 2000 2.8 Charge for the period 6.0 ______ At 30 June 2000 8.8 ______ Net book value at 30 June 2000 308.4 ______ Net book value at 31 December 1999 70.0 ______ 9. Acquisitions On 14 March 2000, the company declared its offer for GMG unconditional and the results have been consolidated from this date using the acquisition accounting method. The book values of the assets and liabilities of GMG immediately prior to the acquisition and the fair value adjustments required in recognition of the change of ownership are as follows: Book value Accounting prior to policy Fair value Fair acquisition adjustments adjustments value £m £m £m £m Tangible assets 0.7 - (0.3) 0.4 Intangible assets 3.8 (3.8) - - Stock - 4.5 - 4.5 Debtors 15.2 (2.1) (0.3) 12.8 Cash 12.1 - - 12.1 Borrowings (85.3) - - (85.3) Creditors (18.9) 0.6 (4.5) (22.8) Provisions (3.9) - - (3.9) ____________ ___________ ___________ ________ Net liabilities acquired (76.3) (0.8) (5.1) (82.2) ____________ ___________ ___________ ________ Fair value consideration Cash 107.9 Shares 40.9 Acquisition expenses 7.2 ________ Total consideration 156.0 ________ Goodwill arising 238.2 ________ Fair value consideration The £115.1m of consideration met in cash excludes the assumption of GMG's indebtedness and preference shares amounting to £73.2m. The £40.9m of consideration met in shares is in the form of ordinary and deferred shares in SMG (Jersey) Ltd. The shares can be exchanged into SMG plc ordinary shares in three separate tranches, the first at completion and the following two anniversaries. As at 30 June 2000, the deferred consideration remaining to be paid amounts to £27.8m. Accounting policy adjustments The main adjustments are as follows: (i) In accordance with FRS10, an adjustment has been made to write off the intangible asset (£3.8m) and related debtors (£0.4m) and creditors (£4.2m) in respect of Virgin Radio's radio licences. (ii) Adjustments to stock (£4.5m), debtors (£1.6m) and creditors (£3.3m) have been made in order to align income recognition on television programme production with the Group's existing accounting policies. Fair value adjustments The fair value of fixed assets has reduced by £0.3m to reflect the write down of certain assets, which are due for replacement. Debtors have decreased by £0.3m in respect of potential bad debts and creditors have increased by £4.5m to cover potential liabilities arising from certain contractual arrangements entered into prior to the acquisition. Analysis of net cash outflow in respect of the acquisition of GMG £m Cash consideration 107.9 Borrowings 85.3 Cash balances acquired (12.1) Acquisition expenses 7.2 ___________ Net cash outflow 188.3 ___________ 10. Investments Investments held at 30 June 2000 represent £8.5m in Heart of Midlothian plc ('Hearts'), comprising £3.5m of ordinary share capital and £4.5m of secured convertible loan stock, along with capitalised acquisition costs. In addition, it includes £2.5m of loans to associated undertakings. The Group's investment in associated undertakings relates to GMTV and was increased on 5 January 2000 from 20% to 25% for a cash consideration of £5.6m and the assumption of a further £0.5m of GMTV loan stock increasing the investment in GMTV loan stock to £2.5m. Goodwill in relation to GMTV is shown at note 8. 11. Bank loans and overdrafts The Group had treasury facilities amounting to £225.0m at its disposal as at 30 June 2000. Of this, £30.0m was available for general corporate purposes. In August, the Group completed a refinancing of its funding arrangements with the establishment of a £140.0m 10 year private placement and a new £200.0m 3 year revolving credit facility. As at 22 August 2000, the Group had treasury headroom of approximately £150.0m. 12. Provisions for liabilities and charges Audited 6 months 6 months full year 2000 1999 1999 £m £m £m Deferred taxation 2.3 1.4 2.3 Equity accounted losses 4.0 5.1 3.5 ________ __________ __________ 6.3 6.5 5.8 ________ __________ __________ Equity accounted losses represents the equity accounted losses on GMTV. 13. Reconciliation of movements in equity shareholders' funds Audited 6 months 6 months full year 2000 1999 1999 £m £m £m Profit for the financial period 7.7 12.9 30.4 Dividends (6.7) (5.7) (17.3) ___________ ___________ ___________ 1.0 7.2 13.1 Increase in share premium 72.3 - - Shares issued 0.8 1.3 1.9 Shares to be issued 27.8 - - ___________ ___________ ___________ Net movement in shareholders' funds 101.9 8.5 15.0 Opening shareholders' funds 77.2 62.2 62.2 ___________ ___________ ___________ Closing equity shareholders' funds 179.1 70.7 77.2 ___________ ___________ ___________ The ordinary share capital and share premium have moved as follows: Share Share Merger capital premium reserve Total £m £m £m £m At 1 January 2000 6.5 101.1 - 107.6 1-for-10 underwritten rights issue 0.7 58.6 - 59.3 GMG consideration 0.1 12.9 - 13.0 Conversion of 6.5% Cumulative - 0.3 - 0.3 Unsecured Loan Stock Group share option and profit share - 0.5 - 0.5 schemes Transfer to merger reserve - (173.4) 173.4 - _________ _______ _______ ________ At 30 June 2000 7.3 - 173.4 180.7 _________ _______ _______ ________ On 26 June 2000 a Scheme of Arrangement between SMG plc and its shareholders under section 425 of the Companies Act 1985 was implemented. This was sanctioned by the Court of Session on 23 June 2000 and all issued shares in Scottish Media Group plc were then cancelled. Following the cancellation, the share capital of Scottish Media Group plc was restored to its former nominal amount and the credit arising as a result of the cancellation was applied in paying up in full new Scottish Media Group plc shares equal in nominal value to the shares cancelled. The new Scottish Media Group plc shares were issued to SMG plc, which, as a result, became the new holding company of the Group. On 26 June 2000 the new ordinary shares in SMG plc were admitted to the Official List of the London Stock Exchange. A 4-for-1 share split took place on the same date. The application of merger accounting principles to the consolidation of the new holding company results in the share capital of the Group in prior years being equivalent to the share capital of Scottish Media Group plc. As at 30 June 2000, the ultimate parent company had sufficient distributable reserves to make dividend payments at current levels for the foreseeable future. Shares to be issued represent deferred consideration remaining to be paid to GMG shareholders as discussed in note 9. 14. Reconciliation of operating profit to operating cash flows Audited 6 6 full months months year 2000 1999 1999 £m £m £m Continuing activities Operating profit (before exceptional items and FRS10) 36.3 26.0 53.6 Depreciation and other non-cash items 3.6 3.5 6.7 Decrease/(increase) in stock 4.6 (1.8) (3.1) Increase in debtors (4.1) (2.9) (4.7) (Decrease)/increase in creditors (9.8) 0.5 1.0 Reorganisation costs (3.2) (1.1) (1.4) Sunday paper pre-launch costs - (1.8) (2.1) _________________ _______ _______ Net cash inflow from continuing operations 27.4 22.4 50.0 _________________ _______ _______ 15. A copy of this statement is being sent to all shareholders on 11 September 2000 and will be available for inspection by members of the public at the Company's registered office at 200 Renfield Street, Glasgow.

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