Business Update

SMG PLC
27 June 2007





27 June 2007


100-Day Business Review


The Board of SMG has completed its 100-day business review and will focus on
three components to deliver shareholder value in its turnaround plan: the sale
of non-core assets; restructuring the TV business; and growing revenues.


Key Highlights


• Clear turnaround plan focusing on growing revenues through Broadcast,
  Content and Ventures with 12 KPI's for 2008 and 2010

• The IPO of Virgin Radio is on track for autumn

• Primesight and Pearl & Dean remain non-core

• Inherited financial projections for 2007 have been revised

• Approximately £1.5 million of annualised cost savings already achieved
  with a target of £2.5 million by the end of 2007

• Senior management reduced from seven to three to ensure clear lines of
  accountability

• Early wins through the renegotiation of Minotaur deal; the refocus of
  the PRTS campaign; and the planned introduction of an additional advert break
  in regional evening news


Rob Woodward, Chief Executive of SMG, commented:


'We have had a very thorough look at the business and taken some short term
remedial actions and reconfigured SMG to deliver sustainable growth. I have set
out 12 challenging but achievable Key Performance Indicators in Broadcast,
Content and Ventures.


Over the next six months we will focus on the disposal of the non-core assets.
This will result in a content focused business that I am confident will be
revived and transformed to become Scotland's most influential, relevant,
innovative and trusted media brand.'


There will be a presentation for analysts at the offices of ABN Amro, 250
Bishopsgate, London EC2 today at 9am.


Further enquiries:

SMG plc
Rob Woodward, Chief Executive                                 Tel: [phone]
George Watt, Chief Financial Officer
Debbie Johnston, Head of Communications

Brunswick Group LLP
James Hogan / Simon Sporborg / Ash Spiegelberg                Tel: [phone]


Introduction


Overview


The 100-day business review process has been completed and the Board will focus
on three components to deliver shareholder value: the sale of non-core assets;
restructuring the TV business; and growing revenues.


The disposal of the non-core assets is expected to be completed by the end of
2007 resulting in a content focused business that will be revived and
transformed to become Scotland's most influential, relevant, innovative and
trusted media brand. The Board aims to build a TV business focused on being the
broadcaster of choice in the community of Scotland leveraging our relationship
with our viewers; relationship with our advertisers; access to ITV content; and
ability to create content in house.


Financial projections for 2007


The detailed analysis has confirmed the new management team's initial
impressions that the previous growth initiatives and in particular the New Media
strategy were not delivering. Specifically the contribution from E-Commerce will
be £3.0 million lower than expected; ITV sponsorship and interactive revenue
weakness will result in a decrease of £1.6 million to profit before tax; and
Production Commissions have been impacted by £0.9 million due to some new
commissions not materialising as anticipated.


The shortfall will be largely offset by an additional £1.0 million of cost
savings and a positive IFRS 5 impact on profit before tax of £3.5 million due to
non depreciation of assets held for sale.


Virgin Radio, Primesight and Pearl & Dean are performing in line with Board
expectations and the Board is confident of achieving our revised performance
targets in 2007.


Sale of non-core assets


As SMG has previously outlined an immediate objective is to reduce debt through
the sale of non-core assets. This will be achieved through the IPO of Virgin
Radio whilst Primesight and Pearl & Dean remain non-core.


IPO of Virgin Radio


The IPO of Virgin Radio is on track for the autumn. Virgin Radio is one of the
UK's three national radio licences and is the only national station with a rock
and pop format. It broadcasts in analogue format on AM and digitally on DAB,
satellite television, digital terrestrial television and online in addition to
holding a London FM licence. Its valued brand and multi-platform stance puts the
business in a unique position to capitalise on digital listening where it
already out-competes the market average by a considerable margin (18% versus
12%). Virgin Radio has 2.5 million listeners across the UK, principally in the
20-44 year old age bracket - a particularly attractive demographic group to
advertisers.


It has consistently outperformed the UK radio market (+9% year on year revenue
growth to June versus a declining market) and displays particular strengths in
sponsorship and promotions, which represent 25% of revenue.

Virgin Radio's IPO will create a strong and focused radio business, with a great
brand, that will provide an attractive, pure-play investment opportunity with a
strong platform for future growth. A strong Board is currently being formed and
announcements will be made shortly.


Primesight and Pearl & Dean.


The Board confirms that Primesight and Pearl & Dean remain non-core assets of
the Group. A more ambitious growth plan has been prepared for Primesight which
will capitalise on the fast growth experienced in the Outdoor sector. We can
also confirm there has been additional buyer interest in this business.


Restructuring the TV Business


Reorganisation of the Management team


At the end of May, SMG announced the leadership team at SMG Television to create
a strong foundation for the future focus on one business comprising
Broadcasting, Content and Ventures. The key management positions in the TV
Business are Bobby Hain, Managing Director of Broadcast; David Archer, Managing
Director of stv Ventures; and Elizabeth Partyka, Acting Managing Director of
Content.


They will be supported by George Watt, Chief Financial Officer, Suzanne Burns,
HR Director and Anmar Kawash, Director of Strategy and Planning.


This new management structure, of which six directly report into Rob Woodward,
ensures clear lines of accountability, as well as promoting an emphasis on
collaboration and teamwork. The culture within the entire TV business is being
transformed into a single company with a single brand, an accountable leadership
team and engaged staff.


Cost reduction


There is a clear plan to reduce costs by an annualised £2.5 million by the end
of 2007. Good progress has already been made with a reduction in senior
management (from seven to three posts) and most current vacancies being
eliminated (15 posts), which together result in annualised savings of
approximately £1.5 million. The business units are on track to achieve further
annualised cost savings of £1.0 million by the end of 2007.


Delivery of improved commercial management


Through immediate remedial action there have been some early wins already
delivered. The renegotiation of Minotaur deal with Virgin Media resulting in
better terms and a strengthened relationship; the refocus of the PRTS campaign
'Watch to Win' resulting in a 50% increase in the weekly run rate; and the
planned introduction of an additional advert break in the regional evening news
resulting in increased sponsorship and advertising revenue.


In addition we are working with ITV to improve the ad sales relationship on
rolling out the ITV broadband product; and launching an stv broadband
proposition by Q4 2007.


Growing Revenues


Introduction

Whilst management is making progress on the sale of non-core assets and the
restructuring of the TV Business, the Board has a clear three year turnaround
plan focussed on growing revenues.


The Board aims to build a TV business centred on being the broadcaster of choice
in the community of Scotland leveraging our relationship with our viewers;
relationship with our advertisers; access to ITV content; and ability to create
content in house. Plus we will extend our community across other media
platforms. In the long term we aim to become Scotland's most influential,
relevant, innovative and trusted media brand. The business mix will also change
over this period with our dependence on national advertising reducing from
approximately 60% of total television revenues to 45%, while our content and
ventures businesses will increase from 28% to 40%.


This is based around the three divisions of Broadcast, Content and Ventures with
a clear focus on a single company, single brand with an accountable leadership
team and engaged staff. We will report on our progress against 12 KPI's.


Broadcast


The Broadcasting division will focus on the core TV channel to strengthen the
relationship with our audience and advertisers and act as the catalyst for
building out our presence on other new media platforms. This will be achieved by
taking control of the stv schedule and maximising ratings from ITV content &
regional content; developing and strengthening the stv brand; consolidating all
advertising activity under one leadership; taking ownership of the ITV
relationship; and controlling news under one brand ('stv news') and migrating
news editorial online.


The three Key Performance Indicators by which we will manage Broadcast are to:

 1. increase regional advertising market share from 19% to 25% by 2010 (21% in 18
    months)
 2. grow sponsorship revenues by 50% by 2010 (30% in 18 months)
 3. increase margins through better cost control and commercial management from
    10% to 14% by 2010 (11.0% in 18 months)


The goal is to deliver £5 million of revenue growth through improved targeting
of the local advertising base and improving margins through tighter commercial
management of the ITV relationship and improved efficiency.


Content


The Content division will deliver content and be positioned at the heart of the
business in order to strengthen and deepen our relationship with audiences and
advertisers across TV and other platforms. This will be achieved by a greater
focus on 360 degree cross-platform programming; building new programme brands;
becoming the natural home for Scottish talent; and centralising all creative
talent into one group.



The four Key Performance Indicators are to:

 4. grow produced hours from 45 hours to 130 hours by 2010 (60 hours in 18
    months)
 5. exploit the extensive content library to achieve 60% growth by 2010 (40% in
    18 months)
 6. grow rights exploitation business by 40% by 2010
 7. maintain margins at 10%


This will ensure that we remain a significant content producer for ITV and
develop relationships with other networks generating £10 million in revenue
growth.


Ventures


The Ventures division will focus on new growth opportunities. This new business
consolidates all new media activity across the group under one leader to
concentrate on building a powerful online presence through strong content and a
robust advertising model. This will be achieved by building a younger audience;
developing a local and relevant portal for Scottish audience; becoming a
Scottish component on international online brands; and partnering with new media
companies.


The five Key Performance Indicators are to:


 8. develop our online presence through stv.tv by delivering compelling online
    content to target 200,000 visitors a day by 2010 (30,000 visitors a day in
    18 months)
 9. increase online advertising revenue to £2 million (£0.75 million in 18
    months)
10. focus on regional transaction based consumer opportunities to build revenues
    of £2.5 million in 2010 (£1.0 million in 18 months)
11. expand into the Scottish classified advertising market to capture 3% of the
    total market in 2010 from a zero starting point (0.5% in 18 months)
12. increase margins from 5% to 30% by 2010 (10% in 18 months)


We will exploit our unique regional position through the stv brand. Our goal is
to dominate the Scottish new media market from a local perspective and generate
total Ventures revenues of £20 million by 2010.


Other


In addition there will be potential additional benefits through the ITV Network.
These include successful lobbying by ITV to amend CRR; improvement in the ITV
programme slate; an increase in non-advertising revenue generated through the
ITV consumer group; and leveraging ITV's significant investment in broadband to
expedite stv's launch of online broadband proposition.


SMG will provide updates on the sale of non-core assets as appropriate and
report back on progress on its 12 Key Performance Indicators in detail at each
results presentation.








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