Final Results
SMG PLC
04 March 2003
Tuesday 4 March 2003
SMG plc
Preliminary Results
Year Ended 31 December, 2002
HIGHLIGHTS
* Results in line with expectations
* Advertising revenue growth of 4%
* Robust operating profits and high margins
* Continued market share growth
* Publishing sale agreed, exceeding market expectations
KEY FINANCIALS
* Total turnover £278.4m (2001: £280.8m)
* EBITDA* £65.6m (2001: £65.7m)
* Total operating profit** £55.5m (2001: £57.2m)
* Statutory operating profit £28.3m (2001: £37.1m loss)
* Profit before tax*** £26.0m (2001: £36.0m)
* Statutory loss before tax £16.1m (2001: £64.2m)
* Basic earnings per share*** 6.1 pence (2001: 8.4 pence)
* Earnings before net financing charges £44.4m (2001: £27.1m), tax £2.0m (2001:
£6.3m), depreciation £10.1m (2001: £8.5m), goodwill amortisation £19.2m (2001:
£22.2m) and excluding other exceptional items £6.2m (2001: £70.3m) and online
activities £1.8m (2001: £1.8m).
** Excluding exceptional items £6.2m (2001: £70.3m), online activities £1.8m
(2001: £1.8m) and goodwill amortisation £19.2m (2001: £22.2m).
*** Excluding exceptional items £21.1m (2001: £76.2m), online activities £1.8m
(2001: £1.8m) and goodwill amortisation £19.2m (2001: £22.2m).
Andrew Flanagan, Chief Executive of SMG, said:
'We have delivered a strong performance in continued tough trading conditions.
We grew advertising revenues across the Group and held total operating profit
broadly in line with last year. We have well-branded, profitable assets and are
well positioned to benefit from the advertising upturn when it comes.
'The successful sale of our publishing business will reduce debt and sharpen our
focus on the national advertising market and we are strongly placed to
capitalise on the opportunities that the Communications Act will present.
'Overall, we remain cautious about the outlook for 2003 and we are managing the
business on the basis that any material recovery in advertising markets will not
occur before 2004.'
For further information contact:
Andrew Flanagan Chief Executive 020 7882 1199
George Watt Group Finance Director on day of release,
Callum Spreng Corporate Affairs Director 0141 300 3300
thereafter
James Hogan Brunswick 020 7404 5959
Ben Brewerton
There will be a presentation for City analysts at 9.30 a.m. today at:
ABN Amro, 250 Bishopsgate, London EC2.
CHAIRMAN'S STATEMENT
Against a background of tough trading conditions, SMG's businesses put in robust
performances in 2002, outperforming their respective advertising markets. We
succeeded in growing advertising revenues by some 4%, and held total turnover
for the year at close to 2001 levels. EBITDA (excluding exceptional items and
online activities) was on a par with last year and a marginal reduction in
operating profit (excluding exceptional items, goodwill amortisation and online
activities) represented a strong underlying performance. All the Group's
divisions remain profitable, strongly positioned in their respective markets and
able to benefit quickly from the advertising recovery when it arrives.
The Group as a whole has reinforced its strategic positioning through the agreed
sale of its Publishing Division, at a price of £216m, ahead of market
expectations. Once completed, this will broadly halve the Group's debt and
sharpen our focus on the important national advertising market that represents
90% of our non-publishing revenues. With geographically complementary assets,
excellent franchises and common customers, SMG is strongly positioned to
capitalise on our national cross media strategy.
Total Group turnover in 2002, at £278.4m, was broadly in line with the previous
year (2001: £280.8m) and reflected reduced network television commissions and
lower radio advertising revenues, almost fully offset by increased advertising
revenues in Out of Home. We achieved EBITDA (excluding exceptional items and
online activities) of £65.6m (2001: £65.7m), with total operating profits for
2002 (excluding exceptional items, online activities and goodwill amortisation),
of £55.5m, 3% lower than in the previous year (2001: £57.2m) as depreciation on
our new printing facility commenced. Increased interest charges of £29.5m
(2001: £21.2m), incurred as a result of the renegotiation of our debt during the
year and a reduced FRS17 credit (a non-cash item), resulted in a pre-tax profit
(excluding exceptional items, online activities and goodwill amortisation) of
£26.0m (2001: £36.0m). Basic earnings per share (excluding exceptional items,
online activities and goodwill amortisation) reduced accordingly to 6.1 pence
(2001: 8.4 pence).
As indicated in December when we announced the sale of SMG Publishing, we intend
to pay a dividend for the year of 2.5 pence (2001: 3.0 pence), providing
dividend cover of 2.4 times (excluding exceptional items, goodwill amortisation
and online activities). This will be confirmed upon completion of the sale.
TELEVISION
The effects on television of the global advertising downturn eased sufficiently
in the second half of 2002 to offset first half falls in airtime revenues, but
fewer network programme commissions resulted in turnover in our Television
Division reducing by 9% to £128.5m (2001: £141.6m). However in airtime sales we
outperformed the ITV Network, which fell by 1%, and we held advertising revenues
at 2001 levels through a strong performance in regional airtime sales (+9%). As
a result we recorded a further improvement in our NAR (Net Advertising Revenues)
share to 6.3% (2001: 6.2%).
Carriage of our services on digital satellite and the increased number of
digital homes in Scotland raised our digital dividend to £4.3m in 2002, and will
further reduce our licence costs in future years. However this was insufficient
to fully offset our first full 12 months licence costs at their increased level
and the increased costs associated with d-sat carriage. Additional investment
in the ITV network schedule and a reduction in programme production commissions
also had an impact, resulting in operating profits reducing from £25.4 m to
£20.8m.
ITV remains the most popular TV channel in the UK in the important peaktime
period. The investment of an additional £25m in the ITV schedule in the second
half of 2002 was an important signal of ITV's determination to withstand the
encroachment of multichannel TV and the increasingly commercialised BBC. In
Scotland, Scottish and Grampian TV continued to dominate peaktime viewing with a
32% audience share at this time - once again commanding a significant lead over
our nearest rival, BBC1 Scotland, at 27%. This was achieved despite an
understrength BARB panel for much of the year. The panel has been reinforced
significantly since then and is now more representative of UK and regional
audiences. Combined with a stronger programme schedule this has seen our
audience performance in the early part of 2003 recover markedly.
In addition, the introduction of the Charter for Nations and Regions has allowed
us to invest in the production of higher quality regional programmes, creating
on-screen improvements for viewers in Scotland. At the same time, it reduces
the programme commitment of our licences by four-and-a-half hours per week in
Scottish and half an hour in Grampian TV giving a much more streamlined
schedule.
Broadcasters across the UK tightened their belts in 2002, resulting in our
network television programme business, SMG Television Productions, winning fewer
commissions during the year. This is principally a variable cost and low risk
business therefore the impact of lower commissions was limited in profit terms.
Nonetheless we made progress in broadening the range of our programming and
customer base, with our first ever commission for the BBC and our first factual
series for ITV, Club Reps, one of the highest performing documentary series of
the year. A large amount of development work was also carried out in 2002,
prompting significant interest from broadcasters and already in 2003 we have
secured a number of new commissions, including a further series of Taggart, a 50
part children's series and Grampian's first network commission for many years.
RADIO
Virgin Radio offers advertisers a unique audience proposition on a national
basis. While some radio stations were protected by strong local markets,
offsetting the decline in national advertising revenues, Virgin Radio was fully
exposed to the downturn. As a result, in 2002 Virgin Radio's turnover fell by
7% to £25.9m (2001: £27.9m).
Early cost reduction measures put in place at the station and a further increase
in its industry-leading operating margin to 39% (2001: 38%) almost fully
mitigated the reduction in revenues, resulting in an marginally reduced
operating profit of £10.0m (2001: £10.5m).
However, 2002 represented a year of transition for Virgin Radio, as we rebuilt
the station following a volatile 2001. We continued to refine its music
offering and carried out extensive audience research to ensure that the
station's programming satisfies the listening tastes of its target
20-45-year-old audience. Inevitably, through this period of change, Virgin
Radio's audience reach and listening hours fell.
Virgin Radio now has a re-shaped schedule in place, underpinned by the Sony
Award-winning Pete & Geoff Breakfast Show. The popular 'no repeat nine to five
workday' proposition is supplemented by an excellent drive time show hosted by
Daryl Denham, and early indications of audience take-up are encouraging. With
confidence in the station line-up we have now launched a £3m marketing campaign
to increase the station's profile and encourage sampling and we are confident of
building from this new platform achieved in 2002.
We continue to view the radio sector as very attractive and expect that once the
current downturn is over that it will revert to its historically high rates of
growth. New licence opportunities arise on a regular basis and we are currently
in the process of applying for the Maidstone, Glasgow and West Midlands
licences.
OUT OF HOME
Our Out of Home Division grew turnover strongly in 2002 to £45.4m (2001:
£33.4m), an increase of 36%. Outdoor grew by 11%, in part due to an increase
in panel numbers to 10,200 sites (+7%), and Cinema, on the back of screen market
share building significantly to 38% (2001: 30%), saw revenue grow by 50%.
Overall, operating profits increased to £6.2m (2001: £5.2m).
Out of Home has developed into a valuable component of our national proposition
on the back of strong organic growth. We have won a number of important
corporate contracts in outdoor, particularly in the petrol station sector,
allowing us to further extend our range of precisely targeted packages in what
has traditionally been a broadcast medium. Furthermore, we have launched a new
range of high quality, back-illuminated billboards, in premium locations in the
London area, that have proved very popular with FMCG and retail advertisers.
The win of the prestigious UGC Cinemas contract served to underline the
continuing resurgence of Pearl & Dean, one of the strongest brands in UK media,
and we continue to seek further opportunities to build market share.
PUBLISHING
We announced the sale of SMG Publishing on 23 December 2002, on time and ahead
of price expectations. With shareholder approval secured in January, we now
await clearance from the DTI and we hope to complete the sale by Easter.
While an excellent business, we had concluded that in the process of
strengthening our balance sheet we wanted to focus more sharply on national
advertising markets, which represent some 90% of our non-publishing revenues.
Furthermore, with an apparent increase in regulatory attention on local media
ownership in the Communications Bill and the growing consolidation of the
regional newspaper market, we decided our publishing business was no longer core
to our future. As expected, interest from both trade and financial buyers was
strong from the outset and we were able to conduct a very effective auction for
this business.
Nonetheless, our Publishing Division made a valuable contribution to the Group
in 2002, and succeeded in holding turnover at £77.5m (2001: £77.4m). This
reflected a 1% fall in newspaper revenues, balanced by an 8% increase in
magazines revenues. Reduced headcount, newsprint and marketing costs assisted
us in increasing operating profit by 5% to £15.0m (2001: £14.3m).
ASSOCIATES
Our investments in GMTV Ltd and Scottish Radio Holdings plc produced a £7.4m
contribution to pre-tax profits (2001: £5.9m). GMTV's strong operating
performance, after significant improvements in audience delivery, resulted in an
equity accounted share of profits of £2.6m (2001: £1.1m). SRH, in which we have
a 29.5% shareholding, has benefited from its exposure to local advertising,
which has been less affected by the advertising downturn. However, losses in
its billboard advertising business, now sold, resulted in a flat contribution of
£4.8m (2001: £4.8m).
EXCEPTIONAL ITEMS
There were a number of exceptional items in 2002, including four linked elements
relating to the restructuring of our debt in July, as reported in our interim
accounts, the net effect of which was a £0.1m credit to the profit and loss
account. In addition, there was a £15m exceptional cost, non-cash in 2002, for
the time-accrued portion of the exit cost of our fixed interest debt. This
represents approximately 50% of the total exit cost of our long-term debt. This
will result in a reduction in the Group's ongoing interest costs.
We also incurred a £6.2m exceptional non-cash cost representing our share of
SRH's exceptional loss on the disposal of its loss-making billboard business,
Score Outdoor.
CORPORATE DEVELOPMENT
We continue to seek out, and develop, organic expansion initiatives. Local TV
airtime sales in Scotland have consistently shown potential for growth and we
are optimistic of further network TV commissions in 2003. There remain
opportunities for development of our radio strategy through new licence
applications and, through outdoor panel growth and cinema contract tenders, we
plan to further extend Out of Home's position.
The UK media and communications sector is set to transform in the coming 12
months, with the introduction of the Communications Act expected during the
course of 2003. The disposal of our publishing business will reduce the effect
of regulatory restraints imposed on local media, strengthen the Group's balance
sheet and sharpen our focus on the national advertising market.
This positions SMG as a high quality cross media organisation with well-branded
national assets, strongly-placed to capitalise on the opportunities that the new
legislation presents.
PROSPECTS
The strengthening of advertising markets in the second half of 2002 has slowed
in the early part of 2003 and the market has again become more short term.
Until the Iraq situation is resolved, and there is greater certainty over the
economic outlook, we believe advertising levels will remain subdued.
We have seen some modest reduction in first quarter advertising revenues in
television but we believe this to be a timing issue. The late negotiation of
ITV contracts has combined with a late Easter to create the shortfall. However,
the significant deflation on ITV pricing, caused by improved audience ratings,
will add to ITV's attractiveness and draw additional advertisers as we go
through the year. The radio market, reflecting its short-term nature, remains
tough but we believe our marketing campaign will help drive market share,
although its costs will impact on first half profits. Out of Home continues to
buck the trend of the overall market and we are again seeing strong growth and
continuing increased market shares. Overall we remain cautious about the outlook
and we are managing our businesses on the basis that any material recovery in
advertising markets will not occur before 2004.
Don Cruickshank
Chairman
SMG plc
Consolidated profit and loss account
for the year ended 31 December 2002
2002 2001
Note Pre online, Online, Pre online, Online,
exceptionals and exceptionals Results exceptionals exceptionals Results
FRS10 and FRS10 for year and FRS10 and FRS10 for year
£m £m £m £m £m £m
Turnover 2 277.3 1.1 278.4 280.3 0.5 280.8
Net operating expenses (229.2) (18.3) (247.5) (229.0) (17.8) (246.8)
Reorganisation costs 3 - - - - (9.0) (9.0)
Writedown of investments 3 - - - - (5.0) (5.0)
------- ------- ------- ------- ------- -------
Total operating expenses (229.2) (18.3) (247.5) (229.0) (31.8) (260.8)
Group operating profit 48.1 (17.2) 30.9 51.3 (31.3) 20.0
Share of associates 4 7.4 (3.8) 3.6 5.9 (6.7) (0.8)
Writedown of investment in
associates 3 - - - - (56.3) (56.3)
------- ------- ------- ------- ------- -------
Total operating profit/(loss) 2 55.5 (21.0) 34.5 57.2 (94.3) (37.1)
Share of associate loss on sale
of subsidiary 4 - (6.2) (6.2) - - -
------- ------- ------- ------- ------- -------
Profit/(loss) on ordinary
activities before financing
charges 55.5 (27.2) 28.3 57.2 (94.3) (37.1)
Net financing charges 3,5 (29.5) (14.9) (44.4) (21.2) (5.9) (27.1)
------- ------- ------- ------- ------- -------
Profit /(loss) on ordinary
activities before taxation 26.0 (42.1) (16.1) 36.0 (100.2) (64.2)
------- ------- ------- ------- ------- -------
Tax on profit/(loss) on ordinary
activities 6 (7.0) 5.0 (2.0) (9.7) 3.4 (6.3)
Profit/(loss) on ordinary
activities after taxation 19.0 (37.1) (18.1) 26.3 (96.8) (70.5)
Dividends 7 - - - (9.6) - (9.6)
------- ------- ------- ------- ------- -------
Profit/(loss) transferred to
reserves 14 19.0 (37.1) (18.1) 16.7 (96.8) (80.1)
------- ------- ------- ------- ------- -------
Earnings per ordinary - basic 8 6.1p (5.8p) 8.4p (22.5p)
share
------- ------- ------- ------- ------- -------
- diluted 8 6.2p (5.2p) 8.4p (21.3p)
------- ------- ------- ------- ------- -------
Consolidated statement of total recognised gains and losses
for the year ended 31 December 2002
2002 2001
£m £m
Loss for the financial year attributable to shareholders (18.1) (70.5)
Actuarial loss recognised in the pension schemes (52.8) (48.2)
Deferred tax arising thereon 15.7 14.5
Share of associate actuarial loss recognised (0.7) -
------- -------
Total recognised losses relating to the financial year (55.9) (104.2)
Prior year adjustment - (1.6)
------- -------
Total recognised losses since last annual report (55.9) (105.8)
------- -------
Consolidated balance sheet
at 31 December 2002
2002 2001
Note £m £m
Fixed assets
Intangible assets 9 315.4 336.4
Tangible assets 10 80.5 81.0
Investments 11 89.6 93.3
------- -------
485.5 510.7
------- -------
Current assets
Stock 22.6 23.5
Debtors and prepayments 60.2 62.2
------- -------
82.8 85.7
------- -------
Creditors: amounts falling due within one year
Creditors and accrued charges (39.7) (54.5)
Bank loans and overdrafts (239.8) (226.9)
Other loans (134.9) (140.0)
Corporation tax (3.3) (8.7)
Proposed dividend - (4.7)
------- -------
(417.7) (434.8)
------- -------
Net current liabilities (334.9) (349.1)
------- -------
Total assets less current liabilities 150.6 161.6
------- -------
Creditors: amounts falling due after more than one year
Creditors and accrued charges (2.5) (2.5)
Convertible unsecured loan stock 12 (22.8) (22.8)
Secured loan notes 12 (0.9) (1.1)
------- -------
(26.2) (26.4)
------- -------
Provisions for liabilities and charges 13 (25.2) (15.6)
------- -------
Net assets excluding pension liability 99.2 119.6
Pension liability 16 (58.3) (21.8)
------- -------
Net assets including pension liability 40.9 97.8
------- -------
Capital and reserves
Called up share capital 7.8 7.8
Share premium account 58.8 58.5
Shares to be issued - 1.3
Merger reserve 173.4 173.4
Revaluation reserve 3.1 3.1
Profit and loss account (202.2) (146.3)
------- -------
Equity shareholders' funds 14 40.9 97.8
------- -------
Consolidated cash flow statement
for the year ended 31 December 2002
2002 2001
Note £m £m
Operating activities
Net cash inflow from continuing operating activities 15 41.5 43.4
------ ------
Dividends received from associates 1.7 1.3
------ ------
Returns on investments and servicing of finance
Debt restructuring costs (8.2) -
Interest received 0.1 0.2
Interest paid (34.2) (25.7)
------ ------
(42.3) (25.5)
------ ------
Taxation
UK corporation tax paid (1.0) (11.6)
------ ------
Capital expenditure and financial investment
Purchase of tangible fixed assets (13.5) (32.0)
Sale of tangible fixed assets 6.2 1.7
------ ------
(7.3) (30.3)
------ ------
Acquisitions and disposals
Purchase of subsidiary undertakings - (2.7)
Increased investment in associate undertaking - (46.2)
------ ------
- (48.9)
------ ------
Equity dividends paid (4.7) (18.8)
------ ------
Cash outflow before financing (12.1) (90.4)
------ ------
Financing
Cash gain on closure of swap 3.7 -
Share capital options exercised - 0.7
Net repayment of loan notes/stock (1.8) (1.2)
Repayment of principal under finance leases - (0.3)
------ ------
1.9 (0.8)
------ ------
Cash outflow in the period (10.2) (91.2)
------ ------
Movement in net debt 2002 2001
£m £m
Opening net debt (393.8) (300.4)
Cash outflow in the period (10.2) (91.2)
Issue of loan notes - (2.3)
Swap translation gain 5.1 -
Other movements - 0.1
------ ------
Closing net debt (398.9) (393.8)
------ ------
Notes to the preliminary announcement
for the year ended 31 December 2002
1. Basis of preparation
The financial information for the year ended December 2001 is derived from the
statutory financial statements for that year which have been delivered to the
Registrar of Companies. The previous auditors reported on those financial
statements; their report was unqualified, although it included an explanatory
paragraph regarding the status of the Group's refinancing, and did not contain a
statement under s237(2) or (3) Companies Act 1985. The statutory financial
statements for the year ended 31 December 2002 will be finalised on the basis of
the financial information presented by the directors in this preliminary
announcement and will be delivered to the Registrar of Companies in due course.
The accounting policies set out in the financial statements for the year ended
31 December 2001 have been applied consistently to both years.
2. Segmental analysis
The analysis of the Group's turnover and operating profit by operating division
is set out below:
2002 2001
£m £m
Turnover
Television 128.5 141.6
Publishing 77.5 77.4
Radio 25.9 27.9
Out of Home 45.4 33.4
------- -------
277.3 280.3
Online 1.1 0.5
------- -------
Total turnover 278.4 280.8
------- -------
Turnover in 2002 includes £3.7m (2001: £1.7m) of revenues from sources outside
the UK.
ITC qualifying revenue was £108.5m (2001: £109.1m).
2002 2001
£m £m
Operating profit
Television 20.8 25.4
Publishing 15.0 14.3
Radio 10.0 10.5
Out of Home 6.2 5.2
Associates 7.4 5.9
Pension costs (FRS17) (3.9) (4.1)
------- -------
Total operating profit excluding online activities, exceptional items and FRS10 55.5 57.2
Online activities (1.8) (1.8)
Exceptional items (note 3) - (70.3)
Goodwill amortisation (19.2) (22.2)
------- -------
Total operating profit/(loss) (FRS3) 34.5 (37.1)
------- -------
Operating profit in 2002 includes £1.3m (2001: £0.7m) arising outside the UK.
FRS17 pension costs are incurred in Television £2.1m (2001: £2.2m), Publishing
£1.5m (2001: £1.6m), Radio £0.1m (2001: £0.1m) and Out of Home £0.2m (2001:
£0.2m).
3. Exceptional items
(i) Reorganisation costs
A provision for exceptional costs amounting to £9.0m was 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.
(ii) Writedown of investments
Provisions of £5.0m and £56.3m respectively were made in 2001 against the
investments in Heart of Midlothian plc ('Hearts') and Scottish Radio Holdings
plc ('SRH') to reflect their market value at the year end.
(iii) Financing costs
a) A provision for £3.6m has been made in 2002 to cover
additional costs and charges relating to renegotiating debt
facility terms with the Group's lenders. In 2001, a similar
provision for £5.9m was also made to cover costs and charges
relating to renegotiating debt facility terms with the Group's
lenders.
b) Following the early termination of the Group's 10 year
currency and interest rate swap arrangements, a £3.7m gain
resulted due to favourable movements in UK and US interest
rates. In addition, a foreign exchange translation gain of
£5.1m resulted from favourable £/$ exchange rate movements
between the initial borrowing of US$ Notes and the new swap
arrangements.
c) A provision for an exceptional loss of £5.1m has been made in
2002 in respect of the onerous nature of the back end fee in
relation to the borrowings noted above.
d) Provision has been made in 2002 for an exceptional charge of
£15.0m to cover 50% of the estimated payments due to US and
UK note-holders relating to exiting early from the high fixed
rate interest charges on this debt (see note 17). The
provision is based on spreading this cost across the period of
the restructuring agreement with the Group's lenders in
accordance with FRS4.
4. Associates
Share of associates contribution includes the equity accounted results of GMTV
Limited ('GMTV') and SRH, including related amortisation of goodwill £3.8m
(2001: £6.7m). During its financial year ended 30 September 2002, SRH
recognised an exceptional loss on the disposal of its Outdoor advertising
operations with the Group's equity accounted share being £6.2m.
5. Net financing charges
2002 2001
£m £m
Interest payable:
Bank loans and overdrafts 21.8 23.9
CULS and loan note interest 1.6 1.6
------- -------
Group interest payable before penalty interest 23.4 25.5
Penalty interest margin 6.0 -
------- -------
Group interest payable 29.4 25.5
Share of associates 0.6 0.4
------- -------
Total interest payable 30.0 25.9
Interest receivable (0.3) (0.5)
------- -------
Net interest payable 29.7 25.4
Pension finance credit (0.2) (4.2)
------- -------
Net financing charges excluding exceptional items 29.5 21.2
Exceptional financing costs (see note 3) 14.9 5.9
------- -------
Net financing charges 44.4 27.1
------- -------
2002 2001
6. Tax on profit/(loss) on ordinary activities
£m £m
The charge for taxation is as follows:
Charge for the year at 27% (2001:27%) excluding online activities, exceptional
items & FRS 10 5.1 8.1
Share of taxation of associated undertakings 1.9 1.6
------- -------
7.0 9.7
Tax credit on online activities and exceptional items (5.0) (3.4)
------- -------
2.0 6.3
------- -------
7. Dividends 2002 2001
£m £m
Interim paid of nil per share (2001: 1.5p) - 4.9
Proposed final of nil per share (2001: 1.5p) - 4.7
------- -------
- 9.6
------- -------
8. Earnings per share
Basic earnings per share (EPS), excluding online activities, exceptional items
and the impact of goodwill amortisation under FRS10, is calculated as follows:
2002 2001
Attributable profit for the financial period (£m) 19.0 26.3
Weighted average number of shares in issue (m) 313.4 312.7
Earnings per ordinary share (pence) 6.1 8.4
Basic EPS, inclusive of online activities, exceptional items and after goodwill
amortisation under FRS10, for the year was a loss of (5.8p) (2001: (22.5p)).
Diluted EPS, excluding online activities, exceptional items and the impact of
goodwill amortisation under FRS10, is calculated as follows:
2002 2001
Attributable profit for the financial period (£m) 20.1 27.4
Weighted average number of shares in issue (m) 326.4 326.0
Diluted earnings per ordinary share (pence) 6.2 8.4
Diluted EPS, inclusive of online activities, exceptional items and after
goodwill amortisation under FRS10 for the year was a loss of (5.2p) (2001:
(21.3p)).
9. Intangible assets
Publishing titles Goodwill Total
£m £m £m
Cost
At 1 January 2002 56.0 312.9 368.9
Transfer to investments - (6.2) (6.2)
------- ------- -------
At 31 December 2002 56.0 306.7 362.7
------- ------- -------
Amortisation
At 1 January 2002 - 32.5 32.5
Charge for the period - 15.4 15.4
Transfer to investments - (0.6) (0.6)
------- ------- -------
At 31 December 2002 - 47.3 47.3
------- ------- -------
Net book value at 31 December 2002 56.0 259.4 315.4
------- ------- -------
Net book value at 31 December 2001 56.0 280.4 336.4
------- ------- -------
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.
Goodwill relating to GMTV was transferred to investments as GMTV's investment
carrying value is no longer negative.
10. Tangible fixed assets
Land and buildings Plant and technical
Leasehold Freehold equipment Total
£m £m £m £m
Cost or valuation
At 1 January 2002 0.7 14.8 121.8 137.3
Additions - 0.6 14.2 14.8
Disposals - (5.4) (4.2) (9.6)
------- ------- ------- -------
At 31 December 2002 0.7 10.0 131.8 142.5
------- ------- ------- -------
Depreciation
At 1 January 2002 0.3 0.1 55.9 56.3
Charge for year - 0.8 9.3 10.1
Disposals - (0.6) (3.8) (4.4)
------- ------- ------- -------
At 31 December 2002 0.3 0.3 61.4 62.0
------- ------- ------- -------
Net book value at 31 December 2002 0.4 9.7 70.4 80.5
------- ------- ------- -------
Net book value at 31 December 2001 0.4 14.7 65.9 81.0
------- ------- ------- -------
2002 2001
a) Freehold land & buildings comprise: £m £m
At valuation 9.4 13.9
At cost 0.6 0.9
------- -------
10.0 14.8
------- -------
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 existing use basis and in accordance with the RICS
Appraisal and Valuation Manual.
2002 2001
b) Historical cost figures for freehold buildings are: £m £m
Cost 11.2 16.6
Depreciation (5.2) (5.0)
------- -------
6.0 11.6
------- -------
11. Investments
Associated
Associated undertakings
undertakings share of net Other
goodwill assets investments Total
£m £m £m £m
At 1 January 2002 65.8 24.0 3.5 93.3
Transfer - GMTV 5.6 (1.3) - 4.3
Share of associated undertakings - 4.9 - 4.9
Share of loss on disposal of SRH Outdoor business - (6.2) - (6.2)
Share of associate actuarial loss recognised - (0.7) - (0.7)
Dividend received from associated undertaking - (1.7) - (1.7)
Goodwill amortisation (3.8) - - (3.8)
Loan stock repaid - (0.5) - (0.5)
------- ------- ------- -------
At 31 December 2002 67.6 18.5 3.5 89.6
------- ------- ------- -------
The transfer above represents the equity accounted losses for GMTV previously
shown at note 13 and the goodwill related to GMTV previously shown at note 9.
12. Loan stock
The convertible unsecured loan stock ('CULS') as at 31 December 2002 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 2002, no 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 2002, £0.2m
of loan notes were redeemed, leaving an outstanding balance of £0.9m at 31
December 2002.
The guaranteed unsecured loan notes dated June 2002 included in creditors
amounting to £2.3m which were issued to fund the acquisition of Orpheus bearing
interest at a rate of 1% below LIBOR were redeemed in full in May 2002.
13. Provisions for liabilities and charges
2002 2001
£m £m
Deferred taxation 5.0 1.4
Equity accounted losses - 1.3
Other provisions 20.2 12.9
------- -------
25.2 15.6
------- -------
Equity accounted losses have been transferred to investment in associates as
detailed in note 11 above.
14. Reconciliation of movements in equity shareholders' funds
2002 2001
£m £m
Loss for the year (18.1) (70.5)
Dividends - (9.6)
------- -------
Retained loss for the year (18.1) (80.1)
Increase in share premium 0.3 14.0
Shares issued - 0.1
Movement in shares to be issued (1.3) (26.5)
Amount deducted in respect of shares issued to QUEST - (0.2)
Actuarial loss recognised (52.8) (48.2)
Deferred tax thereon 15.7 14.5
Share of associate actuarial loss recognised (0.7) -
------- -------
Net movement in shareholders' funds (56.9) (126.4)
------- -------
Opening shareholders' funds as previously stated 97.8 225.8
Prior year adjustment - (1.6)
------- -------
Opening shareholders' funds restated 97.8 224.2
------- -------
Closing equity shareholders' funds 40.9 97.8
------- -------
15. Reconciliation of operating profit to operating cash flows
2002 2001
£m £m
Continuing activities
Group operating profit (before online activities, exceptional items and FRS10) 48.1 51.3
Depreciation and other non-cash items 7.5 6.4
Decrease in stock 0.9 7.8
Decrease/(increase) in debtors 2.0 (2.3)
Decrease in creditors (11.8) (12.7)
Reorganisation costs (5.2) (3.6)
Internet development costs - (3.5)
------- -------
Net cash inflow from continuing operations 41.5 43.4
------- -------
16. Pension costs
The Group operates three defined benefit pension schemes. These are trustee
administered and the schemes' assets are held independently of the Group's
finances. Pension costs are assessed in accordance with the advice of an
independent professionally qualified actuary.
The schemes are the Scottish Television Retirement Benefit Scheme, the
Caledonian Publishing Pension Scheme and the Grampian Television Retirement and
Death Benefit Scheme. The schemes are closed schemes and therefore under the
projected unit method the current service cost will increase as the members of
the scheme approach retirement.
A full actuarial valuation of the schemes was carried out at 1 January 2002 and
updated to 31 December 2002 by a qualified independent actuary. The major
assumptions used by the actuary were:
At 31 December At 31 December
2002 2001
Rate of increase in salaries 2.75% 3.00%
Rate of increase of pensions in payment 2.25% 2.50%
Discount rate 5.50% 5.75%
Inflation 2.25% 2.50%
The fair value of the assets in the schemes, the present value of the
liabilities in the schemes and the expected rate of return at each balance sheet
date was:
At 31 December At 31 December
2002 2001
£m £m
Equities 7.00% 112.3 7.50% 151.9
Bonds 5.00% 61.1 4.50% 54.6
Property 7.00% - 7.50% -
------- -------
Total market value of assets 173.4 206.5
Present value of schemes' liabilities (256.7) (237.6)
------- -------
Deficit in the schemes (83.3) (31.1)
Related deferred tax asset 25.0 9.3
------- -------
Net pension liability (58.3) (21.8)
------- -------
Analysis of the amount charged to operating profit
2002 2001
£m £m
Defined benefit - current service cost 3.2 3.8
Money purchase 0.7 0.3
------- -------
Total operating profit charge 3.9 4.1
------- -------
17. Publishing disposal, financing and going concern
On 23 December 2002, the Group announced the sale of its Publishing division to
Gannett UK for £216m. The sale is subject only to approval by the Secretary of
State for Trade and Industry and in preparing the financial statements on the
going concern basis, the directors are confident that such approval will be
received. Shareholder approval for the transaction was received at an
Extraordinary General Meeting on 24 January 2003.
The disposal, combined with drawdowns under a new £245m bank facility, the
availability of which is conditional on the disposal of Publishing division,
will result in the repayment of the Group's existing bank and 2010 loan note
debt and provide ongoing funding for the Group to 31 December 2005. The cost of
early repayment of the 2010 loan notes is estimated, at current interest rates,
to be approximately £30m. As reflected in note 3 and in accordance with FRS4,
the Group is making a provision in 2002 for £15m representing 50% of this cost.
By replacing the existing facilities at this time the Group expects to benefit
from reduced interest rates, estimated to create savings of approximately £20m
over the remaining maturity of the 2010 loan notes. In addition, on completion,
an exceptional gain on sale of approximately £40m will be recognised which will
be free of tax.
18. Mailing
A copy of the annual report is being sent to all shareholders on 9 May 2003 and
will be available for inspection by members of the public at the Company's
registered office at 200 Renfield Street, Glasgow.
This information is provided by RNS
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