Final Results - Year Ended 31 December 1999

Scottish Media Group PLC 22 February 2000 Scottish Media Group plc Preliminary Results For the Year Ended 31 December 1999 Financial Highlights - Total Turnover - up 17% to £242.7m - EBITDA* - up 16% to £63.0m - Operating Profit** - up 14% to £55.3m - Pre-tax Profit** - up 9% to £50.0m - Earnings per Share** - up 14% to 56.9 pence Operational Highlights - Record profits - reaching £50.0m** - National expansion - outdoor and cinema acquisitions - Successful launches - Sunday Herald and S2 - Internet investment - launch of s1 - Transforming acquisition of Ginger Media * Earnings before interest, tax, depreciation, amortisation and excluding exceptionals ** Excluding exceptionals and before the impact of goodwill amortisation under FRS10 Commenting on the results, Don Cruickshank, Chairman of SMG, said: '1999 was a very significant year for SMG. Expanding nationally into two of the fastest-growing media sectors in the UK, while launching two ambitious new products, such as our Sunday newspaper and digital television channel, is a remarkable achievement in itself. To do so while generating record pre-tax profits of £50 million is doubly satisfying. With the Group in such good shape, the acquisition of Ginger Media is set to transform SMG's position, elevating the Group to a new position within UK media. The opportunities which lie ahead for SMG have never been better and we look forward with confidence to the remainder of 2000.' For further information, contact: Andrew Flanagan Chief Executive 020 7446 7383 Gary Hughes Group Finance Director 020 7446 7383 Callum Spreng Corporate Affairs Director 020 7446 7383 James Hogan Brunswick Group 020 7404 5959 1999 Full Year Results Preliminary Announcement Chairman's Statement 1999 was a year of significant progress for SMG. Not only did we once again generate record pre-tax profits, achieving £50.0m for the first time, but we also launched two successful new products and expanded outside Scotland into two of the UK's fastest-growing media sectors. The Group's continued growth in turnover and profitability was even more rewarding given the loss of the Channel 4 rebate and, against this background, represents a significant accomplishment. This underlines our management's track record of improving performance from our existing businesses, while pursuing the strategy of building SMG into a national UK media group through successful, well-branded assets. These impressive achievements were reinforced in January by the announcement, and subsequent approval by our shareholders, of SMG's proposed acquisition of Ginger Media Group. Following Radio Authority approval, which is expected shortly, this development is set to transform SMG into a leading UK media player. The headline financial results for 1999 are: 1999 1998 Increase Total Turnover £242.7m £207.4m 17% EBITDA* £63.0m £54.5m 16% Total Operating Profit** £55.3m £48.6m 14% Profit before Tax** £50.0m £46.0m 9% Earnings per Share** 56.9p 49.8p 14% Dividend per Share 26.5p 24.2p 10% * Earnings before interest, tax, depreciation, amortisation and excluding exceptionals ** Excluding exceptionals and before the impact of goodwill amortisation under FRS10 Turnover was up 17%, at £242.7m, reflecting increased revenues in television and newspapers and a part-year contribution from our outdoor and cinema advertising businesses, acquired during the year. The cash generative qualities of the Group's operations were underpinned by strong growth in EBITDA, which increased by 16% to £63.0m. The growth in operating profits, by 14% to £55.3m, was delivered against the background of the loss of the Channel 4 rebate, which contributed £3.7m of profit in 1998, and £4.4m of initial losses from our Sunday newspaper and digital television channel launches. Taking all this into account, the achievement of £50.0m of pre-tax profit is an excellent performance by the management team. This 9% improvement over 1998 also reflects higher interest costs of £5.3m (1998: £2.6m), largely due to the funding cost on the acquisitions made during the year. Earnings per share were increased by 14% to 56.9 pence, ahead of profit before tax due to a reduction in the effective tax rate, and the Board is recommending a final dividend of 17.7 pence which, when added to the interim of 8.8 pence, provides a full-year dividend of 26.5 pence - an increase of 10% over 1998. TELEVISION Our Television Division performed well during the period. Total television turnover increased by 2% to £140.3m in 1999, largely reflecting growth in airtime revenue which was particularly strong in the second half of the year. Operating profits improved to £34.7m (1998: £33.7m). This was achieved after covering the start-up losses on S2, our new pan-Scottish digital channel launched in April, and the effect of the loss of the Channel 4 rebate. Broadcasting Airtime sales grew by 6%, broadly in line with the ITV Network as a whole. This growth was achieved despite a number of major advertisers, including the English clearing banks, ONdigital and a number of 'dot.com' entrants, concentrating their considerable advertising spend outside of Scotland, and in particular in the south east of the UK. Despite this, our share of ITV Net Advertising Revenue (NAR) only marginally reduced from 6.13% to 6.12%, as local airtime sales continued to grow ahead of national sales during the year. The introduction of six advertising sub-regions in Scotland, creating a more competitive option for local advertisers who previously used only local radio and press, led to local airtime sales growing by over 8%. The launch of S2, our digital channel - on time and on budget - has succeeded in introducing further new advertisers to television. Alongside our existing channels, which we have transmitted in digital format since 1998, S2 represents an important opportunity for the future development of our television and new media interests. Audience ratings represent the currency of television airtime sales, and ITV's ability to attract mass audiences remains fundamental to its success. A number of schedule improvements were made by the ITV Network Centre during 1999, including the move of News at Ten along with a substantial investment in new programming. These developments, coupled with our continued investment in regional programmes, succeeded in increasing our audience share in peak-time to 38.0% in 1999 from 37.2% in the prior year. STE As part of a reorganisation of our television operations, key staff within our network television production business, Scottish Television Enterprises (STE), were relocated to London, closer to our main customer, the ITV Network Centre, and to the network television community as a whole. The programme production business has long lead-times, and the benefits arising from the relocation will emerge in 2000. Meanwhile, in 1999, STE maintained its profits at 1998 levels and continued to develop and pitch new ideas and formats. We have already won a number of exciting new drama, current affairs and children's programme commissions, which are currently in production for delivery in 2000. PUBLISHING Our Publishing Division, which includes the Group's newspaper, magazine and electronic publishing operations, achieved an increase in total turnover of 9%, from £69.5m in 1998 to £76.1m in 1999. Despite the absorption of the launch costs of new products, operating profits were maintained in line with those achieved in the prior year at £14.9m (1998: £14.9m). Newspapers Newspapers turnover increased by 6% to £67.2m in the year, primarily as a result of the launch of the Sunday Herald. In a tough marketplace, total advertising revenues from the ongoing titles were on a par with those achieved in the prior year, with a strong performance from high value display advertising (up 16%) offsetting weakness in motors and retail. The key classified category of property was marginally ahead year on year, while recruitment revenues were maintained at 1998 levels. Through continued investment and product improvement, circulation on our flagship title, The Herald, was marginally ahead of that achieved in 1998, allowing it to gain market share and increase its overall readership. The highlight of 1999 in our newspapers division was the successful launch, in February, of the Sunday Herald - transforming the Group into a seven day publisher. The Sunday Herald has been well-received in a competitive marketplace and, by the end of 1999, already had the third highest circulation for a Sunday broadsheet in Scotland after less than 11 months on the news- stands, with average sales of 56,000 per week. Operating profits from our existing newspapers showed good growth in 1999, rising 13%, largely as a result of improved efficiency. As anticipated, start-up costs on the Sunday Herald resulted in a reduction in total newspapers operating profits to £12.7m (1998: £13.6m). Other Publishing We continue to develop our magazines business and, during 1999, we acquired three titles to add to our existing stable. Predominantly as a result of these acquisitions, turnover within this part of the Group grew substantially to £7.1m (1998: £4.9m), with operating profit also well ahead at £2.2m (1998: £1.2m). In June, we bought out the minority holding in Delphic Interactive, our electronic publishing operation. With turnover now at £1.8m, and breaking even, it serves as a good platform for our online developments. OUT OF HOME 1999 saw SMG expand beyond Scotland through the acquisition of national businesses in two of the UK's fastest-growing media sectors - outdoor and cinema advertising. These operations, which provide UK-wide coverage, currently form the Group's Out of Home Division and generated post-acquisition operating profits of £4.0m on turnover of £26.3m in the period. Outdoor Advertising Outdoor advertising in the UK has experienced high growth in recent years and in March we acquired Primesight, a market leader in six sheet roadside panels, for a consideration of £35.0m. As a national business, Primesight met our development and investment criteria well, with particular strengths in Greater London and the Midlands. To provide the Group with a stronger presence in the Scottish outdoor market, we acquired Baillie Advertising, a privately owned outdoor contractor, also in March. Primesight's international airports agency business, which did not match our requirements, was sold to a management buy-out team in November, for a consideration of £2.0m. These moves have created a national advertising business which is well-positioned for further growth within the outdoor sector. The UK outdoor market slowed down in 1999 compared with prior years but we were still able to grow Primesight through an aggressive panel build programme. Primesight's six-sheet panel inventory increased by 30%, from 5,700 on acquisition to over 7,500 by the year-end, and we remain committed to expanding our outdoor presence in this way, having set targets to reach 9,000 panels by the end of 2000. Cinema Advertising In June, we acquired Pearl & Dean, one of the best-known brands in UK advertising. The UK cinema advertising market continues to show strong growth, and is particularly suited to advertisers wishing to reach a young, up-market audience. The timing of our acquisition coincided with the release of the year's most popular films, resulting in post-acquisition profits with a strong bias towards the second half of Pearl & Dean's year. We expect a more balanced performance in 2000. The renewal of our contract with Showcase and the increase in our share of cinemas owned by Apollo Leisure from 50% to 100%, coupled with the ongoing development of new multiplexes, has resulted in Pearl & Dean now managing over 1,000 screens for the first time in its history. CORPORATE DEVELOPMENT Ginger Media Group On 31 January, 2000, SMG's shareholders approved the acquisition of Ginger Media Group ('Ginger Media') at an aggregate price of £225m, including the assumption of approximately £75m of Ginger Media's debt. Ginger Media operates across radio, television programme production and the internet and this acquisition transforms SMG into a leading player in the UK media sector. Radio Authority approval is expected shortly. The acquisition fits extremely well with the Group's strategy of building from its strong base in Scotland into fast-growing, complementary media sectors through the acquisition of successful, well-branded media assets. Virgin Radio has one of only three national commercial radio franchises, with its AM service supplemented by a valuable London FM licence. Radio continues to represent the fastest growing media sector in the UK, underpinning Virgin Radio's excellent recent financial performance. We plan to bring Virgin Radio, Primesight and Pearl & Dean together to form a new National Division of SMG, gaining significant benefit from a common management approach and a coordinated offering to advertisers. Ginger Television is a fast-growing television programme maker, producing a range of successful mainstream programming, principally for Channel 4 and the BBC. Its programme strands, and customer base, are highly complementary to those of STE, providing a good fit with our existing network programme production operation. Ginger Media's internet operation complements, and is fully integrated across all of its activities, providing the opportunity to accelerate the development of internet radio and related transactional services. I look forward to announcing the completion of the acquisition of Ginger Media Group in the very near future. Internet Strategy and Launch of s1 The Group's strong market position in Scotland, coupled with the creative and technical expertise that exists within both Delphic and Ginger Online, means that SMG is well placed within Scotland to benefit from the commercial opportunities offered by the internet. In addition, the online presence of Ginger Media will be further developed, on a national and international basis, to the benefit of the Group as a whole. The first element of SMG's internet strategy will harness these resources and create the opportunity for SMG to use the internet in a cohesive and coordinated way, through local content and advertising. Drawing on the Group's existing strength in the Scottish classified advertising market, and our content infrastructure in television and newspapers, we will create a family of web-sites, under the brand 's1'. This package will create a comprehensive online offering by linking classified advertising sites in such areas as jobs, houses and motors, with content-driven sites derived from our popular regional television programmes. These sites will be heavily marketed through strong cross-promotion using our extensive media resources in Scotland. We will further underpin our presence in Scotland through the launch, in partnership with our major shareholder, Flextech plc, of a new Scottish listings web-site, 's1 scene one'. This initiative will present an attractive and relevant offering to consumers and advertisers and will be further supported by a full range of online ticketing and e-commerce services, linked to Flextech's existing 'scene one' product. SMG's national presence will be supplemented by the expansion of Ginger Media's existing online activities to include a portfolio of linked internet radio stations, with certain services targeted specifically at the Scottish market. Further development of ticketing and other transactional services is also planned, alongside the expansion of Virgin Radio's existing online trading service for advertising agencies. These innovative services will be launched on a phased basis over the next 18 months, thereby extending considerably the range and depth of the media services provided by SMG. This will require an investment of more than £10m over the period, supported by the Group's marketing resources. GMTV The new licence terms for GMTV, which came into effect on 1 January, 1999, have significantly enhanced the prospects of this national television franchise. In line with our strategy of building the Group around well- branded media assets, we increased our shareholding in GMTV, by 5% to 25% on 4 January, 2000, at a purchase price of £6.1m, including the assumption of £0.5m of loan stock. Hearts Football Club SMG's £8.0m investment in Heart of Midlothian plc in September 1999 represented a valuable opportunity for the Group to become involved in one of the strongest football brands in Scotland, both as an investor and as the club's media partner. The investment, which saw SMG become a 19.9% shareholder in the company and subscribe for £4.5m in convertible loan stock, will be used to strengthen the squad, further develop the stadium and invest in the club's already successful youth development programme. This is designed to lead to enhanced performance on the field and regular involvement in the European competitions, longer cup runs and increased gates. In addition, SMG will benefit from a direct insight into developments in Scottish football, an important source of content for our broadcast television interests. SMG plc We announced in January the proposed creation of a new holding company for the Group, to be named SMG plc in order to reflect the broader national presence of the Group. This will encompass all of the Group's existing and planned operations, and approval for the corporate re-structuring and name change will be sought from shareholders at the AGM in May. BOARD, MANAGEMENT & STAFF I joined SMG as Chairman in June, midway through a year of evolution for the Board, as it sought to draw on a new mix of skills and experience, reflecting the changing profile of the Group. Executive Directors, Donald Emslie (Managing Director, Television) and Des Hudson (Managing Director, Publishing) were appointed to the Board, followed by Non-Executive Director, Stephen Cook from our largest shareholder, Flextech plc. Sir Gavin Laird, Alistair Moffat and David Montgomery all stepped down and we are grateful to them for their contributions to the development of the Group. Since the year-end, we have announced the appointment of Fiona Harrison as a Non-Executive Director, and I would like to take this opportunity to welcome Fiona to the Board. The Group's management and staff continue to display the energy and adaptability necessary for the new challenges presented by this dynamic industry, and I pay tribute to their continued hard work and dedication during the year. PROSPECTS The UK advertising market has seen a solid start to 2000. The strength of the UK economy has been reflected in good television airtime sales overall, however in common with last year, some of that growth is being focused on the South East of the UK. The healthy Scottish economy is contributing to renewed growth in newspaper recruitment advertising and other advertising sectors are performing steadily. Our Out of Home Division started the year with outdoor advertising revenues strengthening and cinema enjoying a busy February with the release of Toy Story 2. We have once again set challenging targets for each of our businesses which reflect the determination of SMG's management and Board to continue to drive the Group forward. While achieving the required levels of performance will be demanding, I look forward to the remainder of 2000 with confidence. In the meantime, we look forward to welcoming Ginger Media's management and staff to SMG in the near future, following the expected approval of The Radio Authority. Don Cruickshank Chairman 22 February, 2000 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 December 1999 Excluding Total including exceptionals exceptionals and and FRS10 FRS10 Note 1999 1998 Growth* 1999 1998 £m £m £m £m Turnover Continuing operations 215.1 207.4 4% 215.1 207.4 Acquisitions 21.8 - 21.8 - Discontinued operations 5.8 - 5.8 - _______ ______ _______ ________ Total turnover 2 242.7 207.4 17% 242.7 207.4 Net operating expenses (189.1) (162.5) (191.7) (162.7) Reorganisation costs 3 - - (2.5) - Pre-launch costs 3 - - - (3.4) Fixed asset impairment 3 - - - (3.8) _______ _______ _______ ________ Net operating expenses (189.1) (162.5) (194.2) (169.9) Operating profit Continuing operations 49.1 44.9 9% 48.9 37.5 Acquisitions 4.5 - (0.4) - Channel 4 rebate - 3.7 - 3.7 _______ _______ _______ ________ Group operating profit 2 53.6 48.6 10% 48.5 41.2 Share of associate 1.7 - 1.7 - Equity accounting reinstatement 3 - - (5.7) - _______ _______ _______ ________ Total operating profit 55.3 48.6 14% 44.5 41.2 Exceptional items Profit on sale of investments 3 - - - 6.9 Investment written back 3 - - 3.0 - _______ _______ _______ ________ Profit on ordinary activities before interest 55.3 48.6 14% 47.5 48.1 Net interest payable 4 (5.3) (2.6) (5.3) (2.6) _______ _______ _______ ________ Profit on ordinary activities before taxation 50.0 46.0 9% 42.2 45.5 Taxation on profit on ordinary activities 5 (13.0) (13.7) (11.8) (15.3) _______ _______ _______ ________ Profit on ordinary activities after taxation 37.0 32.3 30.4 30.2 Dividends 6 (17.3) (15.7) (17.3) (15.7) _______ _______ _______ ________ Profit transferred to reserves 19.7 16.6 13.1 14.5 ======= ======= ======= ======== Earnings per ordinary share - basic 7 56.9p 49.8p 14% 46.8p 46.6p ======= ======= ======= ======== - diluted 7 55.9p 49.2p 14% 46.2p 46.1p ======= ======= ======= ======== * Growth is calculated excluding exceptionals and FRS10 Consolidated Balance Sheet at 31 December 1999 Note 1999 1998 £m £m Fixed assets Intangible assets 8 126.0 60.0 Tangible assets 10 45.8 34.4 Investments 11 10.5 - _________ _________ 182.3 94.4 _________ _________ Current assets Stock 17.4 14.3 Debtors and prepayments 56.8 47.8 _________ _________ 74.2 62.1 _________ _________ Creditors: amounts falling due within one year Creditors and accrued charges 41.9 33.8 Bank loans and overdrafts 12 77.3 3.4 Corporation tax 14.5 17.7 Proposed dividend 11.6 10.5 _________ _________ 145.3 65.4 _________ _________ Net current liabilities (71.1) (3.3) _________ _________ Total assets less current 111.2 91.1 liabilities _________ _________ Creditors: amounts falling due after more than one year Creditors and accrued charges 2.2 3.9 Convertible unsecured loan stock 13 23.2 23.3 Secured loan stock 13 2.8 - _________ _________ 28.2 27.2 _________ _________ Provisions for liabilities and charges 14 5.8 1.7 _________ _________ Net assets 77.2 62.2 ========= ========= Capital and reserves Called up share capital 6.5 6.5 Share premium account 101.1 99.2 Profit and loss account (30.4) (43.5) _________ _________ Equity shareholders' funds 15 77.2 62.2 ========= ========= Consolidated Cash Flow Statement for the year ended 31 December 1999 Note 1999 1998 £m £m Operating activities Net cash inflow from continuing operating activities 16 50.0 54.5 _______ ______ Returns on investments and servicing of finance Interest received 0.2 0.3 Interest paid (4.6) (3.2) Interest paid on finance leases (0.1) (0.1) _______ ______ (4.5) (3.0) _______ ______ Taxation UK corporation tax paid (including ACT) (13.2) (22.2) _______ _______ Capital expenditure and financial investment Purchase of tangible fixed assets (10.8) (10.6) Sale of tangible fixed assets 0.3 - Purchase of fixed asset investments (8.5) - _______ _______ (19.0) (10.6) _______ _______ Acquisitions and disposals Purchase of subsidiary undertakings 9 (63.0) (4.1) Net debt acquired with subsidiary undertakings 9 (4.4) - Sale of subsidiary undertakings 1.0 - Purchase of current asset investments - (8.4) Sale of current asset investments - 42.7 _______ _______ (66.4) 30.2 _______ _______ Equity dividends paid (16.2) (15.5) _______ _______ Cash (outflow)/inflow before financing (69.3) 33.4 _______ _______ Financing Repayment of principal under finance leases (0.4) (0.4) Net repayment of loan notes (1.5) (0.3) Share capital options exercised 0.1 0.1 _______ _______ (1.8) (0.6) _______ _______ (Decrease)/increase in cash in the period (71.1) 32.8 _______ _______ Movement in net debt 1999 1998 £m £m Opening net debt (29.0) (62.5) Cash outflow in the period (71.1) 32.8 Issue of loan notes (5.1) - Other movements 0.4 0.7 _______ ______ Closing net debt (104.8) (29.0) ======= ====== NOTES TO THE PRELIMINARY ANNOUNCEMENT for the year ended 31 December 1999 1. Basis of preparation The financial information for the years ended 31 December 1999 and 31 December 1998 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 1998 have been applied consistently to both years, subject to implementing the requirements of the new accounting standards noted below. The auditors have completed their audit of the financial information contained herein and have confirmed that they expect to give an unqualified opinion. The statutory accounts for the year ended 31 December 1999 will therefore be finalised on the basis of the financial information presented by the directors in this preliminary announcement. The profit and loss account is shown including, and excluding, exceptional items and the impact of goodwill amortisation under FRS 10 in order to provide a fuller understanding of the underlying operations and performance of the Group. FRS12 'Provisions, Contingent Liabilities and Contingent Assets' and FRS13 'Derivatives and other Financial Instruments: Disclosures' came into effect during the year and have been adopted as required. 2. Segmental analysis The results for the year ended 31 December 1999 include the turnover and contribution from the acquisitions of the magazine titles Boxing News on 4 January 1999 and Independent Community Pharmacist ('ICP') and Independent Electrical Retailer ('IER') on 15 July 1999 (publishing), Primesight plc ('Primesight') on 2 March 1999 (Out of Home), Baillie Advertising Ltd ('Baillie') on 29 March 1999 (Out of Home) and Pearl & Dean Cinemas Limited ('Pearl & Dean') on 7 June 1999 (Out of Home), all of which have been consolidated from their respective acquisition dates. In addition, the Group disposed of its interest in Primesight International Limited, a subsidiary entity of Primesight, on 16 November 1999. The analysis by class of business of the Group's turnover and operating profit (excluding exceptional items and the impact of goodwill amortisation under FRS10) is set out below: 1999 1998 £m £m Turnover Television 140.3 137.9 Publishing 76.1 69.5 Out of Home 26.3 - ___________ ___________ Total turnover 242.7 207.4 =========== =========== The results of the Television division cover broadcasting and network programme production. The Publishing division includes the results of the Group's newspapers, magazines and electronic publishing interests. The results of outdoor and cinema advertising acquisitions are included within the Out of Home category. Turnover in 1999 includes £4.2m (1998: £1.8m) of revenues from sources outside the UK. 1999 1998 £m £m Operating profit Television 34.7 33.7 Publishing 14.9 14.9 Out of Home 4.0 - ___________ ____________ Operating profit 53.6 48.6 =========== ============ Operating profit in 1999 is stated after £4.4m of start up losses on the launch of two new products - the Sunday Herald and S2. The Sunday Herald, the Group's Sunday newspaper, was launched on 7 February 1999 and S2, the Group's digital television channel, was launched on 30 April 1999. Television operating profit in 1998 includes a £3.7m contribution from the Channel 4 rebate mechanism which was terminated as of 31 December 1998. There is therefore no comparable contribution in 1999. Operating profit in 1999 includes £0.6m (1998:£0.9m) arising outside the UK. Discontinued activities did not contribute to operating profit in 1999. 3. Exceptional items (i) A provision for exceptional costs amounting to £2.5m has been made to cover planned reorganisation initiatives following the acquisition of Primesight, Baillie and Pearl & Dean and the consequent consolidation of the Group's London based property requirements. (ii) In 1998, a provision for exceptional costs amounting to £3.4m was made to cover all pre-launch costs relating to the launch of the Sunday Herald. (iii) In 1998, an exceptional fixed asset write-off amounting to £3.8m was made to cover a permanent diminution to the carrying value of the Publishing division's main operating facilities at Albion Street. (iv) During 1991 and 1992, the Group invested £2.5m in taking a 20% shareholding in Good Morning Television Limited ('GMTV') and in 1993, invested a further £3.0m in loan stock issued by GMTV. GMTV incurred significant losses following its launch primarily due to a high level of licence fee payments. The Group's original investment in GMTV was therefore fully written down by equity accounting over the period from 1992 to 1994. In 1996, full provision was made against the loan stock to reflect the continuing losses being incurred by GMTV at that time. During 1999, the Group undertook a review of the options in relation to its GMTV shareholding in light of the favourable renewal of GMTV's Channel 3 licence by the ITC. Following this review, a decision was taken to retain the investment. Equity accounting for the Group's share of GMTV losses was suspended in 1995 when the original investment was fully written off. Due to the changed circumstances noted above, the Group resumed equity accounting for GMTV in 1999 and a non-cash exceptional charge of £5.7m has been recognised relating to the Group's equity accounted share of losses before tax in the period from 1995 to 1998. In addition, GMTV's ability to repay its borrowings has also improved and the provision held against GMTV loan stock has been released in 1999 resulting in a non-cash exceptional profit of £3.0m. (v) The sale of the Company's interests in Ulster Television plc ('Ulster') on 23 February 1998 resulted in a net exceptional gain on sale of £3.5m. On 14 October 1998, the Company's interests in VCI plc ('VCI') were sold resulting in a net exceptional gain of £3.4m. 4. Net interest payable 1999 1998 £m £m Interest payable: Bank loans and overdrafts 3.4 1.1 Finance leases 0.1 0.1 Other interest 1.6 1.7 ________ _______ Group interest payable 5.1 2.9 Share of associate (GMTV) 0.4 - ________ _______ Total interest payable 5.5 2.9 Interest receivable (0.2) (0.3) ________ _______ Net interest payable 5.3 2.6 ======== ======= 5. Taxation on profit on ordinary activities 1999 1998 £m £m The charge for taxation is as follows: Charge for the period at 26.0% (1998: 29.8%) 13.0 13.7 Tax (credit)/charge on exceptional items (1.2) 1.6 ________ _______ 11.8 15.3 ======== ======= 6. Dividends 1999 1998 £m £m Interim paid of 8.8 pence per share (1998: 8.0 pence) 5.7 5.2 Proposed final of 17.7 pence per share (1998: 16.2 pence) 11.6 10.5 ________ _______ 17.3 15.7 ======== ======= It is proposed to pay the interim dividend on 23 May 2000 to shareholders on the register at 8 May 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: 1999 1998 Attributable profit for the financial period (£m) 37.0 32.3 Weighted average number of shares in issue (m) 65.0 64.8 Basic earnings per ordinary share (pence) 56.9p 49.8p Basic EPS including exceptional items and after FRS10 amortisation for the period was 46.8p (1998: 46.6p). Diluted EPS, excluding exceptional items and the impact of goodwill amortisation under FRS10, is calculated as follows: 1999 1998 Attributable profit for the financial period (£m) 38.1 33.4 Weighted average number of shares in issue (m) 68.2 67.9 Diluted earnings per ordinary share (pence) 55.9p 49.2p Diluted EPS including exceptional items and after FRS10 amortisation for the period was 46.2p (1998: 46.1p). 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 purchased goodwill on acquisitions (£70.0m) as summarised below. £m £m As at 31 December 1998 4.0 Acquisitions Boxing News 0.6 Primesight 35.2 Baillie 6.6 Pearl & Dean 22.5 Delphic Interactive 0.5 ICP/IER 3.2 68.6 _____ _____ 72.6 Amortisation during the year (2.6) _____ As at 31 December 1999 70.0 ===== 9. Acquisitions Acquisitions in 1999 comprised Boxing News, ICP/IER, Primesight, Baillie and Pearl & Dean, together with the remaining 49% minority interest in Delphic Interactive. The net assets acquired and related fair value adjustments are shown below: Primesight Pearl Other Fair Value Total & Dean Adjustments £m £m £m £m £m Tangible fixed 8.7 0.3 0.3 (0.7) 8.6 assets Stock 0.1 - - (0.1) - Debtors 2.9 6.7 - (0.3) 9.3 Creditors (7.5) (3.2) (0.5) (1.9) (13.1) Deferred tax (0.5) - - - (0.5) Net debt acquired (1.5) (2.9) - - (4.4) _______ ______ ______ _______ ______ Net assets/(liabilities) acquired 2.2 0.9 (0.2) (3.0) (0.1) _______ ______ ______ _______ ______ Fair value consideration Cash 60.5 Loan notes 5.1 Shares issued 0.4 Acquisition expenses 2.5 ______ Total consideration 68.5 ______ Goodwill arising (see note 8) 68.6 ====== The principal fair value adjustments relate to provisions for the cost of obtaining planning consent on certain outdoor sites (£0.7m), provisions against certain onerous contracts (£0.7m), fixed asset writedowns (£0.7m) and adjustments to bad debt and other provisions (£0.9m). 10. Tangible fixed assets Plant and Land and buildings technical Leasehold Freehold Equipment Total £m £m £m £m Cost At 1 January 1999 0.5 18.4 57.9 76.8 Acquisitions 1.5 - 12.2 13.7 Additions 0.2 - 10.2 10.4 Disposals - (0.3) - (0.3) _____ _____ _____ _____ At 31 December 1999 2.2 18.1 80.3 100.6 _____ _____ _____ _____ Depreciation At 1 January 1999 0.3 4.8 37.3 42.4 Acquisitions - - 4.7 4.7 Charge for year - 0.4 7.3 7.7 _____ _____ _____ _____ At 31 December 1999 0.3 5.2 49.3 54.8 _____ _____ _____ _____ Net book value At 31 December 1999 1.9 12.9 31.0 45.8 ===== ===== ===== ===== Net book value At 31 December 1998 0.2 13.6 20.6 34.4 ===== ===== ===== ===== 11. Investments The investments held at 31 December 1999 represent £2.0m of GMTV loan stock which is discussed in note 3 above and the Group's £8.5m investment in Heart of Midlothian plc ('Hearts'), one of the leading football clubs in Scotland. 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. 12. Bank loans and overdrafts The Group had treasury facilities amounting to £215.0m at its disposal as at 31 December 1999, including two five year revolving credit facilities, one for £60.0m which runs to June 2002 and one for £120.0m which runs to May 2004. At 31 December 1999, £137.7m of these facilities were available to be used for general corporate purposes. On 13 January 2000, an additional £60.0m three year revolving credit facility was established and is also available for general corporate purposes. 13. Loan stock The convertible unsecured loan stock ('CULS') at 31 December 1999 is convertible on 30 April in each of the years 1999 to 2007 inclusive. The CULS are convertible into new Scottish Media Group shares on the basis of 12.5702 Scottish Media Group shares per £100 nominal of Scottish Media Group CULS. The CULS are unsecured obligations of Scottish Media Group and bear interest at a rate of 6.5% per annum. On 30 April 1999, £0.1m of CULS were converted. Secured loan stock dated October 2007 amounting to £5.1m was issued to fund the acquisition of Primesight. The loan stock bears interest at a rate of one and a half percent below LIBOR and is redeemable on 1 April and 1 October each year. On 1 October 1999, £2.3m of loan stock was redeemed. 14. Provisions for liabilities and charges Provisions for liabilities and charges comprise equity accounted losses on GMTV, as discussed at note 3, of £3.5m and deferred taxation amounting to £2.3m. The balance at 31 December 1998 is comprised of deferred taxation balances amounting to £1.7m. 15. Reconciliation of movements in equity shareholders' funds 1999 1998 £m £m Profit for the year 30.4 30.2 Dividends (17.3) (15.7) _______ _______ 13.1 14.5 Shares issued 1.9 1.0 _______ _______ Net movement in shareholders' funds 15.0 15.5 Opening shareholders' funds 62.2 46.7 _______ _______ Closing equity shareholders' funds 77.2 62.2 ======= ======= 16. Reconciliation of operating profit to operating cash flows 1999 1998 £m £m Continuing activities Group operating profit (before 53.6 48.6 exceptional items and FRS10) Depreciation and other non-cash items 6.7 6.5 (Increase)/decrease in stock (3.1) 2.9 Increase in debtors (4.7) (2.0) (Decrease)/increase in creditors 1.0 2.6 Reorganisation costs (1.4) (2.8) Sunday paper pre-launch costs (2.1) (1.3) ________ _______ Net cash inflow from continuing operations 50.0 54.5 ======== ======= 17. Post balance sheet events (i) On 4 January 2000, the Group announced it had increased its shareholding in GMTV from 20% to 25%, for a cash consideration of £5.6m, with a further £0.5m of GMTV loan stock assumed. (ii) On 13 January 2000, the Group announced it had entered into an agreement for its wholly owned subsidiary, Scottish Media Group (Jersey) Limited ('SMG (Jersey)'), to acquire the entire issued share capital of Ginger Media Group Limited ('Ginger Media'). Ginger Media is one of the leading independently owned media groups in the UK and comprises Virgin Radio, Ginger Television and a developing internet operation - Ginger Online. The total consideration amounts to approximately £225m which is to be satisfied £185m in cash (including the assumption of Ginger Media's indebtedness, including preference shares, which is expected to be approximately £75m) and £40m in shares. As part of the funding for this acquisition, the Group is raising approximately £58m, net of expenses, through a 1 for 10 fully underwritten rights issue. The acquisition of Ginger Media is conditional on approval from The Radio Authority. (iii) At the next Annual General Meeting, the Group will propose that a new holding company be established, to be called SMG plc, in order to reflect the broader national presence of the Group. The new company will encompass all of the Group's existing and proposed operations and will be established by way of a scheme of arrangement. 18. A copy of the annual report is being sent to all shareholders on 7 April 2000 and will be available for inspection by members of the public at the Company's registered office at Cowcaddens, Glasgow.

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