Interim Results

SMG PLC 09 September 2004 Thursday 9th September, 2004 SMG plc Interim Results Six months ended 30 June, 2004 HIGHLIGHTS • Increases in like-for-like turnover, profits and margins • Successful disposals lead to significant debt reduction • Focused on securely positioned core businesses • Advertising market recovery looks sustainable 2004 2003 % change Group Turnover (like-for-like**) £88.5m £86.0m + 3% Group Turnover (total) £88.5m £106.3m - 17% Total Operating Profit* (like-for-like**) £13.6m £12.2m + 11% Total Operating Profit £6.0m £6.0m - Profit Before Tax * (like-for-like**) £5.5m £4.6m + 20% Statutory Profit Before Tax £1.9m £5.9m - 68% Basic Earnings per Share* 1.6 pence 1.6 pence - Statutory Basic Earnings per Share 0.6 pence 2.1 pence - 71% * Before exceptional items and goodwill amortisation ** Like for like excludes the publishing business (disposed April 2003) and SRH stake (disposed January 2004) and their related interest cost benefits in addition to the effects of FRS17 interest cost changes, penalty interest and interest rate movements • An interim dividend has been re-introduced at 1.0p per share (2003: nil) Andrew Flanagan, Chief Executive of SMG, said: 'We have continued to strengthen the balance sheet, reduced our debt and prepared the Group for a return to growth. With securely-positioned businesses and the advertising upturn continuing, SMG is in a strong position within UK media. Our high operational gearing will ensure that future top line growth will rapidly feed through to profits and, in the process, enhance shareholder value.' Further enquiries: SMG Andrew Flanagan, Chief Executive 020 7882 1199 on day of results George Watt, Group Finance Director Callum Spreng, Corporate Affairs Director 0141 300 3300 thereafter Brunswick James Hogan 020 7404 5959 Simon Sporborg James Crampton SMG plc 2004 Interim Results Chairman's Statement OVERVIEW SMG has had a productive and encouraging first six months, with like-for-like increases in Group turnover, operating profits and operating margins and the prospect of further trading improvements to come. The advertising upturn is showing signs of sustainability, our businesses are well-positioned to benefit from the improving market conditions as they feed through and we anticipate further growth in the second half of 2004. We are continuing our strategy of focusing the Group on its core businesses with the objective of delivering sustainable growth in shareholder value. In January we sold our shareholding in Scottish Radio Holdings plc for £90.5m and, subject to regulatory approval, we should complete the sale of our holding in GMTV to ITV plc for £31.0m shortly. By the year-end, subject to receipt of the proceeds from the GMTV stake sale, the Group will have reduced debt by 70% in two years. We anticipate entering 2005 with an efficient and cost effective balance sheet. Our landmark sales agreement with ITV plc, announced in May, places our television business in a secure position within the new ITV landscape, which should ensure its ongoing health and viability. The audience measurement issues that have affected our Radio business are being addressed and we have already seen a recovery in recorded listening figures for Virgin Radio. The strength of the Outdoor market looks set to continue and we anticipate a much-improved period for cinema audiences in the second half, as the stronger schedule of film releases continues. We continue to seek further opportunities for cross-platform sales, similar to the £1.0m arrangement with Unilever announced earlier this year, to enhance the revenue generation of our businesses. Group turnover, measured on a like-for-like basis, grew in the first six months of 2004 to £88.5m (2003: £86.0m). The Group's high operational gearing resulted in this 3% growth in turnover translating into 11% growth in operating profits to £13.6m (2003: £12.2m). Headline pre-tax profits were maintained at £5.5m (2003: £5.5m). This represented a growth of £0.9m on a like-for-like basis when adjusting for FRS17 and the disposal of our stake in SRH. Earnings per share remained at 1.6p (2003: 1.6p). In recent years the Board deferred decisions on dividend until after the year-end. With the advertising recovery looking more certain and with the balance sheet considerably strengthened, the Board has decided to re-introduce the interim dividend, which will be 1.0p (2003: nil). TELEVISION Our television business - the largest operation within the Group - recorded a very strong performance in the first half of the year, growing operating profits by 35% to £8.4m (2003: £6.2m) on turnover up 8% to £58.1m (2003: £54.0m). This strong performance resulted from our share of NAR (Net Advertising Revenues) rising to 6.4% (2003: 6.1%), its highest year to date level since 1995, signalling the ongoing strength of our television business within the new ITV landscape as we outperformed the rest of the ITV Network in national airtime sales. Regional airtime sales were very strong, up 29% with the return to television of a number of indigenous Scottish advertisers taking advantage of our six micro advertising regions across Scottish and Grampian Television and others targeting a Scotland-only audience. Our television business has a unique and attractive position within UK terrestrial commercial television. The conditions agreed by ITV plc at the time of the merger of Carlton Communications plc and Granada plc have resulted in SMG's network programme costs - our largest single cost - being capped at the level of inflation which, at a time of increasing investment in the network budget to maintain audiences, is clearly advantageous to SMG. Separately, as a result of the successful renegotiation of our sales contract with ITV plc, SMG's share of national advertising revenues has effectively been guaranteed at its 2003 level. Although we are currently outperforming ITV plc, this measure will, in essence, underpin the majority of our television advertising revenues going forward. With our largest television cost item capped, our national advertising revenues underpinned and the continuation of strong local revenues, Scottish and Grampian Television are in an excellent position to reap the benefit from the upturn in television advertising markets. Alongside our new sales agreement, we also reached agreement with ITV plc to sell our 25% shareholding in GMTV. As detailed at that time, the sale of this stake for £31.0m is subject to regulatory approval and certain shareholder pre-emption rights. These processes are proceeding as anticipated and we expect the completion of the sale early in the fourth quarter. Our audience has held up well across the period and our share of viewing in peak-time - the most important time of day for advertising revenues - grew to 32.4% (31.4% Jan-June 2003), maintaining our lead over our nearest rival, BBC1. While our share of commercial viewing has seen a marginal fall of one percentage point to 49.3%, as multi-channel viewing increases, we continue to outperform ITV as a whole and, as a result, our CRR performance remains at par. The return to Scottish and Grampian screens of Scottish Premier League (SPL) football for the 2004/2005 season will help to consolidate that position in the second half of the year. We have secured the SPL highlights rights for the next four seasons and this will assist in delivering to advertisers access to younger male viewers. Additionally, we won the resources contract for Setanta, who have launched Scotland's new subscription-based SPL live football television channel. Alongside this, we are producing and broadcasting from our Glasgow studios their Rangers TV and Celtic TV subscription-based stations. In total, this contract will generate revenues of £2.0m per annum over 2004/5 to 2008/9. Revenues for our network television production business, SMG Television Productions, will again be weighted towards the second half in 2004. We have secured new commissions from the ITV Network Centre for Taggart (6 x 90 minutes) and a new drama, Missing (2 x 90 minutes), alongside further commissions from BBC, Channel 4, Five and the Discovery network. RADIO Virgin Radio is the UK's only national commercial rock and pop station, and consequently is reliant solely on national radio markets for revenues, where an encouraging first three months was followed by a weaker second quarter. For us, this was exacerbated by the effects of the Q4 2003 RAJAR audience figures, which saw a marked decline in Virgin Radio's listening hours. Although the Q2 2004 RAJAR results, published in July, showed a significant correction in Virgin Radio's reach and listening hours, the Q4 2003 RAJAR results affected the station's trading position and, overall, turnover fell to £10.2m (2003: £11.8m). Through cost reductions, and lower marketing expenditure, operating profits of £2.5m were achieved (2003: £3.0m) and the operating margin was maintained at 25%. We, and others, have identified some important weaknesses in RAJAR's sample sizes and listening weights and we have been working with RAJAR to remedy these. Although some progress has been made, there is no doubt that under the current measurement system Virgin Radio's results will continue to be subject to artificial volatility until these issues are rectified. Virgin Radio stands to gain significantly from the increasing uptake of digital radio, due to its strong brand and broad audience appeal. The station already has a strong digital presence and has been available to listeners on DAB; Sky; and the Internet for some time. We continue to target appropriate upcoming new licences as they are announced by Ofcom and, in addition to the Edinburgh licence, we are also planning to bid for the new Belfast licence in partnership with a local consortium. OUT OF HOME SMG's Out of Home Division, comprising outdoor and cinema advertising, continued to benefit from the strong outdoor advertising market but was affected by the lack of blockbuster movies in the first half of 2004. This resulted in Outdoor sales increasing by 16%, while cinema revenues fell by 9%, giving an overall flat year-on-year turnover performance for the division of £20.2m (2003: £20.2m). Due to the weighting of cinema trading to the second half, operating profit was held back to £2.1m (2003: £3.2m). Primesight has a strong and growing position in the outdoor advertising sector and we have continued to invest in this area of our business. The six-sheet panel estate is now over 12,000 and we are actively expanding our large format Backlight portfolio in order to further enhance our competitive position. Pearl & Dean's revenues are closely linked to cinema audiences which were held back during the first half due to the lack of any major blockbusters. We expect this situation to more than reverse over the next six months with a stronger second half schedule of releases including Shrek 2 and Spiderman 2 (already in cinemas) and the forthcoming releases of Bridget Jones 2 and The Incredibles. PROSPECTS The early stages of the advertising recovery have been marked by a degree of unevenness, as expected, both on a month by month and a sector by sector basis. However, as the recovery proceeds, this is becoming less pronounced. The growth in our television and outdoor businesses has been maintained into the third quarter, and we hope to see cinema benefit in the second half on the back of a better film line-up. Virgin Radio's improved second quarter RAJARs are starting to influence positively advance bookings, but the radio markets remain quite short term. Our Primesight business continues to perform strongly. While we expect to see margin improvement as a result of revenue growth in the second half, development costs and continuing investment in Out of Home will moderate any increased profitability. With a strengthened balance sheet and current trading in line with our expectations, we believe the Group is well placed to take advantage of the advertising upturn as it feeds through the remainder of 2004 and into 2005. Chris Masters Chairman SMG plc 9 September, 2004 Consolidated profit and loss account for the six months ended 30 June 2004 Excluding exceptionals Total including and FRS10(see note 3) exceptionals and FRS10 6 6 6 6 Audited months months months months full year 2004 2003 2004 2003 2003 Note £m £m £m £m £m Turnover Continuing operations 88.5 86.0 88.5 86.0 188.2 Discontinued operations - 20.3 - 20.3 21.0 ------ ------ ------ ------ ------ Total turnover 2 88.5 106.3 88.5 106.3 209.2 ------ ------- ------ ------- ------- Net operating expenses (76.6) (92.5) (84.0) (99.9) (193.8) Reorganisation costs 3 - - - (2.5) (2.5) Litigation matters 3 - - - 3.0 3.0 Development costs 3 - - - (3.0) (3.0) Provision for onerous contracts 3 - - - - (3.8) Writedown of investments 3 - - - - (3.5) ------ ------ ------ ------ ------- Total operating expenses (76.6) (92.5) (84.0) (102.4) (203.6) -------- -------- -------- --------- --------- Operating profit Continuing operations 11.9 11.3 4.5 1.4 3.3 Discontinued operations - 2.5 - 2.5 2.3 ----- ----- ----- ----- ----- Group operating profit 11.9 13.8 4.5 3.9 5.6 ------ ------ ----- ----- ----- Share of associates 3 1.7 4.0 1.5 2.1 5.8 ----- ----- ----- ----- ----- Total operating profit 2 13.6 17.8 6.0 6.0 11.4 Gain on disposal of subsidiary undertaking 3 - - (2.5) 33.0 33.0 Gain on disposal of associate undertaking 3 - - 10.1 - - ----- ----- ----- ---- ----- Profit on ordinary activities before financing charges 13.6 17.8 13.6 39.0 44.4 --- --- --- --- --- Net financing charges before exceptionals 5 (8.1) (12.3) (8.1) (12.3) (23.4) Exceptional financing charges 3,5 - - (3.6) (20.8) (20.8) ------- ------- ------- -------- -------- Net financing charges 5 (8.1) (12.3) (11.7) (33.1) (44.2) ------- -------- -------- -------- -------- Profit on ordinary activities before taxation 5.5 5.5 1.9 5.9 0.2 Tax on profit on ordinary activities 6 (0.5) (0.6) - 0.8 1.9 ------- ------- ------- ------- ------- Profit on ordinary activities after taxation 4 5.0 4.9 1.9 6.7 2.1 Dividends 7 (3.1) - (3.1) - (7.9) ------- ------- ------- ------- ------- Profit/ (loss) transferred to reserves 1.9 4.9 (1.2) 6.7 (5.8) ----- ----- ------- ------- ------- Earnings per ordinary share - basic 8 1.6p 1.6p 0.6p 2.1p 0.7p Consolidated balance sheet at 30 June 2004 Audited Note 30 June 30 June 31 December 2004 2003 2003 £m £m £m Fixed assets Intangible assets 9 225.6 240.4 233.0 Tangible assets 29.6 35.4 34.8 Investments 10 8.2 89.1 87.3 --------- --------- --------- 263.4 364.9 355.1 --------- --------- --------- Current assets Stock 26.7 27.0 22.7 Debtors and prepayments 61.5 53.1 52.5 Cash at bank and in hand 7.5 10.0 10.0 --------- --------- ---------- 95.7 90.1 85.2 --------- --------- ---------- Creditors: amounts falling due within one year Creditors and accrued charges (37.3) (27.8) (35.4) Bank loans and overdrafts (2.8) (11.2) (30.2) Corporation tax (7.3) (8.0) (9.1) Proposed dividend (11.0) (7.8) (7.9) ----------- ---------- ----------- (58.4) (54.8) (82.6) ----------- ---------- ----------- Net current assets 37.3 35.3 2.6 ----------- ---------- ----------- Total assets less current liabilities 300.7 400.2 357.7 ----------- ---------- ----------- Creditors: amounts falling due after more than one year Bank loans (144.5) (220.5) (198.4) Creditors and accrued charges (1.3) (2.4) (1.3) Convertible unsecured loan stock (22.8) (22.8) (22.8) Secured loan stock (0.8) (0.9) (0.8) ----------- ----------- ----------- (169.4) (246.6) (223.3) ----------- ----------- ----------- Provisions for liabilities and charges (0.8) (4.1) (2.0) ----------- ----------- ----------- Net assets excluding pension liability 130.5 149.5 132.4 Pension liability (62.1) (52.0) (62.8) ----------- ----------- ----------- Net assets including pension liability 68.4 97.5 69.6 ----------- ----------- ----------- Capital and reserves Called up share capital 7.8 7.8 7.8 Share premium account 58.8 58.8 58.8 Revaluation reserve - 3.1 - Merger reserve 173.4 173.4 173.4 Profit and loss account (171.6) (145.6) (170.4) ----------- ----------- ----------- Equity shareholders' funds 12 68.4 97.5 69.6 ----------- ----------- ----------- Consolidated cash flow statement for the six months ended 30 June 2004 Restated Restated Audited Note 6 months 6 months Full Year 2004 2003 2003 £m £m £m Operating activities Net cash (outflow)/ inflow from operating activities 13 (7.7) 1.6 21.1 --------- --------- --------- Dividends received from associate undertakings 2.2 1.2 1.8 --------- --------- ---------- Returns on investments and servicing of finance Interest received 0.1 0.1 0.1 Interest paid (6.4) (14.4) (23.6) Debt restructuring costs - (41.0) (41.0) ---------- ---------- ---------- (6.3) (55.3) (64.5) ---------- ---------- ---------- Taxation UK corporation tax (paid)/ received (0.2) 3.7 7.1 ---------- ---------- --------- Capital expenditure and financial investment Purchase of tangible fixed assets (3.3) (9.4) (13.1) Sale of tangible fixed assets 5.1 0.4 0.4 ---------- ---------- ---------- 1.8 (9.0) (12.7) ---------- ---------- ---------- Acquisitions and disposals Disposal of associate undertaking 11 89.0 211.0 211.0 ---------- ---------- ---------- Equity dividends paid - - (7.8) ---------- ---------- ---------- Cash inflow before financing 78.8 153.2 156.0 ---------- ---------- ---------- Financing Repayment of bank borrowings (83.9) (169.9) (169.9) Cash placed on deposit - (10.0) (10.0) Release of cash on deposit 2.5 - - Increase in bank borrowings - 20.5 28.4 Net repayment of loan notes/stock - (0.2) (0.3) ----------- ----------- ---------- (81.4) (159.6) (151.8) ----------- ----------- ---------- Cash (outflow)/ inflow in the period (2.6) (6.4) 4.2 ----------- ----------- ---------- Movement in net debt Audited 6 months 6 months Full Year 2004 2003 2003 £m £m £m Opening net debt (242.5) (398.9) (398.9) Cash (outflow)/ inflow in the period (2.6) (6.4) 4.2 Decrease in debt financing 81.4 159.6 151.8 Currency translation gain - - 0.4 ---------- --------- --------- Closing net debt (163.7) (245.7) (242.5) ---------- --------- --------- Notes to the interim statement for the six months ended 30 June 2004 1.Basis of preparation of the interim statement The interim statement, which is unaudited, has been prepared on a basis that is consistent with the accounting policies and practices adopted for the Group for the year ended 31 December 2003. The balance sheet at 31 December 2003 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. The Group accounts for pension costs and retirement benefits in line with FRS17. This requires an annual actuarial assessment of the defined benefit schemes, which is carried out by the Group's independent actuarial advisers. In the six months ended 30 June 2004 the Group has accounted for these schemes on the basis of the 2003 actuarial assessment. This will be updated during the second half of the year and any actuarial gains and losses arising will be shown in the statement of total recognised gains and losses for 2004. 2.Segmental analysis The analysis of the Group's turnover and operating profit by operating division is set out below: 6 months 2004 6 months 2003 Audited full year 2003 Continuing Discontinued Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total operations operations Total £m £m £m £m £m £m £m £m £m Turnover Television 58.1 - 58.1 54.0 - 54.0 121.2 - 121.2 Radio 10.2 - 10.2 11.8 - 11.8 23.2 - 23.2 Out of Home 20.2 - 20.2 20.2 - 20.2 43.8 - 43.8 Publishing - - - - 20.3 20.3 - 21.0 21.0 ----- --- ------ ------ ------ ------ ------- ------ ------ Total turnover 88.5 - 88.5 86.0 20.3 106.3 188.2 21.0 209.2 ------ --- ------ ------ ------ ------- ------- ------ ------- Turnover in the first six months of 2004 includes £1.1m (2003: £0.8m) of revenues from sources outside the UK. The audited full year results for 2003 included £1.6m of revenues from outside the UK. 6 months 2004 6 months 2003 Audited full year 2003 Continuing Discontinued Continuing Discontinued Total Continuing Discontinued operations operations Total operations operations operations operations Total £m £m £m £m £m £m £m £m £m Operating profit Television 8.4 - 8.4 6.2 - 6.2 18.0 - 18.0 Radio 2.5 - 2.5 3.0 - 3.0 7.3 - 7.3 Out of Home 2.1 - 2.1 3.2 - 3.2 5.5 - 5.5 Publishing - - - - 3.0 3.0 - 2.8 2.8 Associates 1.7 - 1.7 4.0 - 4.0 9.6 - 9.6 Pension costs (1.1) - (1.1) (1.1) (0.5) (1.6) (1.8) (0.5) (2.3) ------- --- ------- ------- ------- ------- ------- ------- ------- Total operating profit* 13.6 - 13.6 15.3 2.5 17.8 38.6 2.3 40.9 Exceptional items - - - (2.5) - (2.5) (10.9) - (10.9) Goodwill amortisation (7.6) - (7.6) (9.3) - (9.3) (18.6) - (18.6) ------- --- ------- ------- ---- ------- -------- ------ ------- Total operating profit (FRS3) 6.0 - 6.0 3.5 2.5 6.0 9.1 2.3 11.4 ------- --- ------ ------- ----- ------- ------- ------ ------- * Excluding exceptional items and FRS10. Operating profit in the first six months of 2004 includes £0.8m (2003: £0.5m) arising outside the UK. The audited full year results for 2003 included £1.2m of operating profits from outside the UK. FRS17 pension costs are incurred in Television £0.9m (2003: £0.9m), Radio £0.1m (2003: £0.1m), Out of Home £0.1m (2003: £0.1m), and, in 2003 only, Publishing (£0.5m). The audited full year results for 2003 included FRS 17 costs of £1.5m in Television, £0.1m in Radio, £0.2m in Out of Home, and £0.5m in Publishing. 3.Exceptional items i) Associates Share of associates contribution for the six months to 30 June 2004 includes the equity accounted results of GMTV Limited ('GMTV'), including related amortisation of goodwill of £0.2m (six months to 30 June 2003: £0.2m and audited full year 2003: £0.3m). The six months to 30 June 2003 include both the equity accounted results of Scottish Radio Holdings plc ('SRH'), including goodwill amortisation of £1.7m (audited full year 2003: £3.5m), and GMTV. ii) Gain on disposal of subsidiary undertaking In 2003, the disposal of the Company's Publishing division resulted in a provisional gain on sale of £33.0m. In line with the sale and purchase agreement final agreement has been reached with Gannet in July 2004 on the completion account's net assets. This will result in a net payment being due to Gannet and the provisional gain on sale has been adjusted by £2.5 million during the six month period to 30 June 2004. iii) Gain on disposal of associate undertaking The disposal of the Company's investment in SRH on 16 January 2004 resulted in a gain on disposal of £10.1m (see also note 11). iv) Reorganisation costs In 2003, a provision for exceptional costs amounting to £2.5m was made to cover reorganisation initiatives, primarily in the Group's television operations following the move to the Aberdeen studios to new state of the art digital studios. v) Litigation matters As was disclosed within the 2002 annual report, the Group had received a legal claim from Chris Evans, one of the former shareholders in Ginger Media Group Limited, pursuing the final tranche of share-based consideration which would have been payable had all of his contractual terms been met. The Group vigorously defended this matter and submitted a substantial counter-claim for damages. On 26 June 2003 the court ruled that Chris Evans had broken the terms of his contract and that the Group acted properly in terminating his contract. Mr Justice Lightman concluded that Chris Evans was not entitled to any of the share-based consideration he was claiming and dismissed his own claim for damages. The judge also ruled that the Group was entitled to seek costs and damages from Chris Evans. On 28 July 2003 the Group reached a full and final settlement with Chris Evans, which resulted in the Group receiving £6.7m covering all costs and damages in September 2003. This settlement was recognised within the 2003 results as follows: - the exceptional write off of legal and other costs incurred by the Group directly in defence of the claim of £3.7m; and - the recognition of an offsetting exceptional credit of the recovery of these costs and associated damages of £6.7m. vi) Development costs The Group is committed to developing its radio business and has to date applied for a number of new FM regional radio licences offered by the Radio Authority, and subsequently Ofcom, as part of its remit to increase the number of analogue local licences. An exceptional charge of £3.0m was made in 2003 to cover costs incurred bidding for radio licences. vii) Provision for onerous contracts In 2003, a provision of £3.8m was made with respect to an onerous sales contract covering bonus payments on sales of television airtime. This contract was reviewed following the merger of Carlton and Granada airtime sales houses and replaced on more beneficial terms. viii) Writedown of investments A provision for £3.5m was made in 2003 against the investment in Heart of Midlothian plc ('Hearts') to write off the remaining carrying value of the investment. ix) Provision for impairment of fixed assets An exceptional fixed asset provision amounting to £1.1m was made in 2003 to cover an impairment in the value of the Group's property at Cowcaddens. This reflects the Group's plans to relocate the Scottish Television business to a new purpose built facility. The total impairment to fixed assets was £4.2m, however, £3.1m was charged to the revaluation reserve as it represents a reversal of the studio property revaluation uplift in 2000. The property was sold in May 2004 at the expected market value. x) Financing charges (a) £3.6m of unamortised bank facility arrangement fees relating to the Group's current facility have been offset against the gain on sale of SRH following the reduction of the Group's bank debt and facilities from the proceeds of this sale. (b) In April 2003, the Group made a payment of £35.8m to United States and United Kingdom note-holders in relation to exiting early from the high fixed rate interest charges on this debt. An exceptional provision of £15.0m was made in 2002 and the remaining exceptional cost of £20.8m was included in net financing charges during 2003. 4. Reconciliation of profit excluding and including exceptionals and FRS10 Audited 6 months 6 months full year 2004 2003 2003 £m £m £m Profit on ordinary activities after taxation: Excluding exceptionals and FRS10 5.0 4.9 15.8 Goodwill amortisation (7.6) (9.3) (18.6) Reorganisation costs - (2.5) (2.5) Litigation matters - 3.0 3.0 Writedown of investments - - (3.5) Provision for onerous contracts - - (3.8) Development costs - (3.0) (3.0) Gain on disposal of subsidiary undertaking (2.5) 33.0 33.0 Gain on disposal of associate undertaking 10.1 - - FRS 11 impairment of fixed assets - - (1.1) Exceptional finance charges (3.6) (20.8) (20.8) Tax credit on exceptionals 0.5 1.4 3.6 -------- -------- -------------- Including exceptionals and FRS10 1.9 6.7 2.1 -------- -------- -------------- 5.Net financing charges Audited 6 months 6 months full year 2004 2003 2003 £m £m £m Interest payable: Bank loans and overdrafts 6.7 11.6 20.0 CULS and loan note interest 0.8 0.7 1.5 -------- -------- -------- Group interest payable 7.5 12.3 21.5 Share of associates - 0.3 0.7 -------- -------- -------- Total interest payable 7.5 12.6 22.2 Interest receivable (0.6) (0.2) (0.8) -------- -------- --------- Net interest payable 6.9 12.4 21.4 Pension finance charge/(credit) 1.2 (0.1) 2.0 -------- -------- -------- Net financing charges excluding exceptional items 8.1 12.3 23.4 -------- -------- -------- Exceptional financing charges 3.6 20.8 20.8 -------- -------- -------- Net financing charges 11.7 33.1 44.2 -------- -------- -------- 6.Tax on profit on ordinary activities Audited 6 months 6 months full year 2004 2003 2003 £m £m £m The charge/ (credit) for taxation is as follows: Charge/ (credit) for the period excluding exceptional items and FRS10 0.4 (0.5) (0.5) Share of taxation of associate undertakings 0.1 1.1 2.1 ------- ------- ------ Tax on profit on ordinary activities excluding exceptional items and FRS10 at 10% (2003: 10%) 0.5 0.6 0.6 Tax credit on exceptional items (0.5) (1.4) (3.6) ------- ------- ------- - (0.8) (1.9) ------- ------- ------- 7.Dividends Audited 6 months 6 months full year 2004 2003 2003 £m £m £m 2003 final dividend of 2.5p per share - - 7.9 2004 interim proposed dividend of 1.0p per share 3.1 - - --------- ------- ----- 3.1 - 7.9 --------- ------- ----- It is proposed to pay the interim dividend on 6 January 2005 to shareholders on the register at 3 December 2004. 8.Earnings per share Basic earnings per share (EPS), excluding exceptional items and the impact of goodwill amortisation under FRS10, is calculated as follows: Audited 6 months 6 months Full year 2004 2003 2003 Attributable profit for the financial period(£m) 5.0 4.9 15.8 Weighted average number of shares in issue(m) 314.3 314.2 314.2 Earnings per ordinary share (pence) 1.6 1.6 5.0 ----- ----- ----- Basic EPS, inclusive of exceptional items and after goodwill amortisation under FRS10, in the six months to 30 June 2004 is 0.6p (six months to 30 June 2003: (2.1p) and audited full year 2003: (0.7p)). There is no difference between basic and diluted EPS because neither the share options nor CULS are dilutive in the period. 9.Intangible assets Goodwill £m Cost At 1 January and 30 June 2004 293.0 -------- Amortisation At 1 January 2004 60.0 Charge for the period 7.4 -------- At 30 June 2004 67.4 -------- Net book value at 30 June 2004 225.6 -------- Net book value at 31 December 2003 233.0 -------- Net book value at 30 June 2003 240.4 -------- Goodwill comprises capitalised goodwill on acquisitions completed since 1 January 1998 and is being amortised on a straight-line basis over 20 years. 10.Investments Associated Associated Undertaking's Undertaking's share of net goodwill assets Total £m £m £m At 1 January 2004 63.8 23.5 87.3 Share of associate undertakings' profit - 1.6 1.6 Dividends received from associate undertakings - (2.2) (2.2) Goodwill amortisation (0.2) - (0.2) Disposal of associate undertaking (see note 11) (58.8) (19.5) (78.3) ------ ------ ------ At 30 June 2004 4.8 3.4 8.2 ------ ------ ------ 11.Disposal of associate undertakings On 16 January 2004 the Group sold its 27.8% shareholding in Scottish Radio Holdings plc ('SRH') to Emap plc. The sale of 9,729,361 ordinary shares in SRH raised cash proceeds of £90.5m, or 930p per share, resulting in a net gain on disposal of £10.1m after disposal costs of £2.1m. On 10 May 2004, the Group announced the sale of its 25% shareholding in GMTV to ITV plc for £31.0m subject to SMG shareholder and regulatory approvals as well as the conditions of the GMTV shareholder agreement. SMG shareholder approval was granted at an EGM on 4 June 2004 and the regulatory approval and GMTV shareholder agreement pre-emption processes are both ongoing at the date of this announcement. Completion is anticipated in the second half of 2004 resulting in a gain on sale of some £20.0m. 12.Reconciliation of movements in equity shareholders' funds Audited 6 months 6 months full year 2004 2003 2003 £m £m £m Profit for the period 1.9 6.7 2.1 Dividends (3.1) - (7.9) ------ ------- ------- Retained (loss)/ profit for the period (1.2) 6.7 (5.8) Goodwill previously written off included in retained profit for the period - 57.7 57.7 Reversal of revaluation reserve - - (3.1) Actuarial loss recognised - - (15.5) Deferred tax thereon - - 4.6 ------ ------- ------- Net movement in shareholders' (1.2) 64.4 37.9 funds ------ ------- ------- Opening shareholders' funds as previously stated 69.6 33.1 33.1 Prior year adjustment - - (1.4) ------ ------- ------- Opening shareholders' funds 69.6 33.1 31.7 ------ ------- ------- Closing equity shareholders'funds 68.4 97.5 69.6 ------ ------- ------- 13.Reconciliation of operating profit to operating cash flow Audited 6 months 6 months full year 2004 2003 2003 £m £m £m Group operating profit (before exceptional items and FRS10) 11.9 13.8 31.3 Depreciation and other non-cash items 3.4 4.9 6.8 Increase in stock (4.0) (4.8) (0.5) Increase in debtors (12.3) (0.4) (2.3) Decrease in creditors (2.8) (1.6) (6.3) Net Chris Evans settlement - - 4.6 Development costs and onerous contracts (0.8) - (1.1) Reorganisation costs (0.3) (0.3) (1.4) -------- -------- -------- Net cash (outflow)/ inflow before pension payment (4.9) 11.6 31.1 --- --- --- Payment to Caledonian Pension Scheme (2.8) (10.0) (10.0) -------- -------- -------- Net cash (outflow)/ inflow from operating activities (7.7) 1.6 21.1 -------- -------- -------- Net cash (outflow)/ inflow from operating activities before pension payment comprises: Continuing operating activities (4.9) 7.9 27.4 Discontinued operating activities - 3.7 3.7 -------- -------- -------- (4.9) 11.6 31.1 -------- -------- -------- 14.Mailing A copy of this statement is being sent to all shareholders on 1 October 2004 and will be available for inspection by members of the public at the Company's registered office at 200 Renfield Street, Glasgow. INDEPENDENT REVIEW REPORT TO SMG PLC Introduction We have been instructed by the company to review the financial information which comprises the consolidated profit and loss account, the consolidated balance sheet, the consolidated cash flow statement, the movement in net debt and related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2004. PricewaterhouseCoopers LLP Chartered Accountants GLASGOW 9 September 2004 Notes: (a)The maintenance and integrity of the SMG plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the website. (b)Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock Exchange QKFKPKBKBBCK

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