Interim Results - Part 2

SCOTTISH MEDIA GROUP PLC 6 September 1999 PART 2 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the six months ended 30 June 1999 Excluding Total including exceptionals and FRS10 exceptionals and FRS10 Audited full Note 6 months 6 months 6 months year 1999 1998 Growth* 1999 1998 £m £m £m £m Turnover Continuing operations 103.7 99.9 4% 103.7 207.4 Acquisitions 7.5 - 7.5 - Total turnover 2 111.2 99.9 11% 111.2 207.4 Net operating expenses (85.2) (75.1) (86.0) (162.7) Reorganisation costs 3 - - (2.5) - Pre-launch costs 3 - - - (3.4) Fixed asset impairment 3 - - - (3.8) _______ _______ _______ __________ Net operating expenses (85.2) (75.1) (88.5) (169.9) Operating profit Continuing operations 25.0 23.1 8% 24.9 37.5 Acquisitions 1.0 - (2.2) - Channel 4 rebate - 1.7 - 3.7 _______ _______ _______ __________ Group operating profit 2 26.0 24.8 5% 22.7 41.2 Share of associate (0.1) - (0.1) - Equity accounting reinstatement 3 - - (5.7) - _______ _______ _______ __________ Total operating 25.9 24.8 4% 16.9 41.2 profit Exceptional items Profit on sale of investments 3 - - - 6.9 Investment written back 3 - - 3.0 - _______ _______ _______ __________ Profit on ordinary activities before interest 25.9 24.8 4% 19.9 48.1 Net interest payable 4 (1.9) (1.3) (1.9) (2.6) _______ _______ _______ __________ Profit on ordinary activities before taxation 24.0 23.5 2% 18.0 45.5 Taxation on profit on ordinary activities 5 (6.3) (7.0) (5.1) (15.3) _______ _______ _______ __________ Profit on ordinary activities after taxation 17.7 16.5 12.9 30.2 Dividends 6 (5.7) (5.2) (5.7) (15.7) _______ _______ _______ __________ Profit transferred to reserves 12.0 11.3 7.2 14.5 ======= ======= ======= ========== Earnings per ordinary share - basic 7 27.3p 25.5p 7% 19.9p 46.6p ======= ======= ======= ========== - diluted 26.8p 25.1p 7% 19.7p 46.1p ======= ======= ======= ========== * Growth is calculated excluding exceptionals and FRS10 Consolidated Balance Sheet at 30 June 1999 Audited Note 30 June 30 June 31 December 1999 1998 1998 £m £m £m Fixed assets Intangible assets 8 124.6 56.0 60.0 Tangible assets 44.3 35.2 34.4 Investments 10 3.0 - - 171.9 91.2 94.4 Current assets Stock 16.1 16.4 14.3 Debtors and prepayments 60.1 43.0 47.8 Cash at bank and in hand - 7.2 - _______ _______ _________ 76.2 66.6 62.1 _______ _______ _________ Creditors: amounts falling due within one year Creditors 44.8 33.3 33.8 and accrued charges Bank loans and overdrafts 11 63.9 - 3.4 Corporation 24.3 21.4 17.7 tax Proposed 5.7 5.2 10.5 dividend _______ _______ _________ 138.7 59.9 65.4 _______ _______ _________ Net current (liabilities)/assets (62.5) 6.7 (3.3) _______ _______ _________ Total assets less current liabilities 109.4 97.9 91.1 _______ _______ _________ Creditors: amounts falling due after more than one year Creditors 3.9 3.8 3.9 and accrued charges Corporation - 8.5 - tax Convertible unsecured loan stock 23.2 23.3 23.3 Secured loan stock 5.1 - - _______ _______ _________ 32.2 35.6 27.2 _______ _______ _________ Provisions for liabilities and charges 12 6.5 0.9 1.7 _______ _______ _________ Net assets 70.7 61.4 62.2 _______ _______ _________ Capital and reserves Called up share capital 6.5 6.5 6.5 Share premium account 100.5 99.2 99.2 Profit and loss account (36.3) (44.3) (43.5) _______ _______ _________ Equity shareholders' funds 13 70.7 61.4 62.2 ======= ======= ========= Consolidated Cash Flow Statement for the six months ended 30 June 1999 Audited Note 6 months 6 months Full Year 1999 1998 1998 £m £m £m Operating activities Net cash inflow from continuing operating activities 14 22.4 32.3 54.5 Returns on investments and servicing of finance Interest received - 0.1 0.3 Interest paid (1.3) (1.7) (3.2) Interest paid on finance leases (0.1) (0.1) (0.1) ______ ______ _______ (1.4) (1.7) (3.0) ______ ______ _______ Taxation UK corporation tax paid (including ACT) (1.5) (3.8) (22.2) ______ ______ _______ Capital expenditure and financial investment Purchase of tangible fixed assets (4.8) (4.2) (10.6) ______ ______ _______ Acquisitions and disposals Purchase of subsidiary 9 (60.0) - (4.1) undertakings Net debt acquired with subsidiary undertakings 9 (4.4) - - Purchase of current asset investments - - (8.4) Sale of current asset investments - 31.4 42.7 ______ ______ _______ (64.4) 31.4 30.2 ______ ______ _______ Equity dividends paid (10.5) (10.3) (15.5) ______ ______ _______ Cash (outflow)/inflow before financing (60.2) 43.7 33.4 ______ ______ _______ Financing Repayment of principal under finance leases (0.3) (0.1) (0.4) Repayment of Loan Notes (0.1) (0.2) (0.3) Share capital options exercised 0.1 0.2 0.1 ------ ------ ------ (0.3) (0.1) (0.6) (Decrease)/Increase in Cash in the period (60.5) 43.6 32.8 Movement in net debt 1999 1998 1998 £m £m £m Opening net debt (29.0) (62.5) (62.5) (Decrease)/increase in cash in the period (60.5) 43.6 32.8 Issue of loan stock (5.1) - - Other movements 0.4 - 0.7 ______ ______ _______ Closing net debt (94.2) (18.9) (29.0) ______ ______ _______ Notes to the Interim Statement for the six months ended 30 June 1999 1. Basis of preparation of the Interim Statement The interim statement, which is unaudited, has been prepared on a basis which is consistent with the accounting policies and practices adopted for the Group for the year ended 31 December 1998 with the exception that FRS12 'Provisions, Contingent Liabilities and Contingent Assets' came into effect during the period and has been adopted as required. The balance sheet at 31 December 1998 and the results for the year then ended have been extracted from the Group's annual report and financial statements which have been filed with the Registrar of Companies. The auditors' opinion on the financial statements was unqualified and did not include a statement under section 237(2) or (3) of the Companies Act 1985. Fixed annual charges are apportioned to the interim period on the basis of time elapsed. Other expenses are accrued in accordance with the same principles used in the preparation of the annual financial statements. The tax charge for the first half of the current year is based on the rate expected to prevail for the full year. 2. Segmental analysis The results for the six months ended 30 June 1999 include the turnover and contribution from the acquisitions of the magazine title Boxing News on 4 January 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 and Dean Cinemas Limited ('Pearl and Dean') on 7 June 1999 (Out of Home), which have been consolidated from their respective acquisition dates. The analysis by class of business of the Group's turnover and operating profit is set out below: 6 months 6 months Audited full year 1999 1998 1998 £m £m £m Turnover Television 65.5 64.5 137.9 Publishing 38.5 35.4 69.5 Out of Home 7.2 - - ___________ ________ ________ Total turnover 111.2 99.9 207.4 ___________ ________ ________ The results of the Television division include broadcasting and network production activities. The Publishing division includes newspapers, magazines and electronic publishing. The results of outdoor and cinema activities are included in the Out of Home category. Turnover in the first six months of 1999 includes £3.6m (1998: £0.7m) of revenues from sources outside the UK. The audited full year results for 1998 include £1.8m of revenues from outside the UK. 6 months 6 months Audited full year 1999 1998 1998 £m £m £m Operating profit Television 16.5 15.9 33.7 Publishing 8.6 8.9 14.9 Out of Home 0.9 - - _________ ________ __________ Operating profit 26.0 24.8 48.6 _________ ________ __________ Operating profit in the period to 30 June 1999 includes £2.0m start up losses on the launch of two new products - the Sunday Herald and S2. The Sunday Herald, the Group's new Sunday newspaper, was launched on 7 February 1999 and S2, the Group's new digital television channel, was launched on 30 April 1999. Television operating profit in the six months to 30 June 1998 includes a £1.7m contribution from the Channel 4 rebate mechanism which was terminated at 31 December 1998. There is therefore no comparable contribution in the six months to 30 June 1999. Operating profit in the first six months of 1999 includes £0.7m (1998:£0.4m) arising outside the UK. The audited full year results for 1998 include £0.9m of operating profits from outside the UK. 3. Exceptional items (i) A provision for exceptional costs amounting to £2.5m has been made in the six months to 30 June 1999 to cover planned reorganisation initiatives following the acquisition of Primesight, Baillie and Pearl and Dean and the consequent consolidation of the Group's London based property requirements. (ii) In the 1998 full year results, 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 the 1998 full year results, 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, Glasgow following a Board decision to exit the site by end of 2002. (iv) During 1991 and 1992, the Group invested £2.5m in taking a 20per cent shareholding in Good Morning Television Limited ('GMTV'), the licence holder for the Channel 3 breakfast television service. In 1993, the Group 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 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 the six months to 30 June 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 made to retain the investment in GMTV. Equity accounting for the Group's share of GMTV losses was suspended in 1995 when the original investment was fully written down. Due to the changed circumstances noted above, the Group will resume equity accounting for GMTV and a non-cash exceptional charge of £5.7m has been recognised in the period to 30 June 1999 relating to the Group's equity accounted share of losses before tax in the period from 1995 to 1998. The tax charge including exceptional items has been reduced by £0.9m reflecting the related tax credit on the equity accounted losses. In addition, as GMTV's ability to repay its borrowings has improved, the provision held against the GMTV loan stock has been released in the period to 30 June 1999 resulting in a non-cash exceptional profit of £3.0m. (v) Included in the six months and 1998 full year results was a net exceptional gain amounting to £3.5m in relation to the sale of the Company's interests in Ulster Television plc ('Ulster') on 23 February 1998. On 14 October 1998, the Company's interests in VCI plc ('VCI') were sold resulting in a net exceptional gain of £3.4m. This was included in the full year results for 1998. 4. Net interest payable Audited 6 months 6 months full year 1999 1998 1998 £m £m £m Interest receivable - 0.1 0.3 ______ ______ _______ Interest payable: Bank loans and overdrafts 0.6 0.3 1.1 Finance leases 0.1 0.1 0.1 Other interest 1.0 1.0 1.7 ______ ______ _______ Group interest payable 1.7 1.4 2.9 Share of associate 0.2 - - ______ ______ _______ Total interest payable 1.9 1.4 2.9 ______ ______ _______ Net interest payable (1.9) (1.3) (2.6) ______ ______ _______ 5. Taxation on profit on ordinary activities Audited 6 months 6 months full year 1999 1998 1998 £m £m £m The charge for taxation is comprised as follows: Charge for the period at 26.0per cent (1998: 29.7per cent) 6.3 7.0 13.7 Tax (credit)/charge on exceptional items (1.2) 1.1 1.6 ______ ______ _______ 5.1 8.1 15.3 ______ ______ _______ 6. Dividends Audited 6 months 6 months full year 1999 1998 1998 £m £m £m Ordinary: Interim of 8.8 pence per share (1998: 8.0 pence) 5.7 5.2 5.2 Final paid of 16.2 pence per share - - 10.5 ______ ______ _______ 5.7 5.2 15.7 ______ ______ _______ It is proposed to pay the interim dividend on 5 November 1999 to shareholders on the register at 15 October 1999. 7. Earnings per share Basic earnings per share (EPS) excluding exceptional items and the impact of FRS10 adjustments is calculated as follows: Audited 6 6 Full months months year 1999 1998 1998 Attributable profit for the financial period (£m) 17.7 16.5 32.3 Weighted average number of shares in issue (m) 65.0 64.7 64.8 Earnings per ordinary share (pence) 27.3p 25.5p 49.8p Basic EPS including exceptional items and after FRS10 adjustments in the 6 months to 30 June 1999 is 19.9p (6 months to 30 June 1998: 29.2p and audited full year 1998: 46.6p). Diluted EPS excluding exceptional items and the impact of FRS10 adjustments is calculated as follows: Audited 6 6 Full months months year 1999 1998 1998 Attributable profit for the financial period (£m) 18.3 17.0 33.4 Weighted average number of shares in issue (m) 68.2 67.8 67.9 Diluted EPS (pence) 26.8p 25.1p 49.2p Diluted EPS including exceptional items and after FRS10 adjustments in the 6 months to 30 June 1999 is 19.7p (6 months to 30 June 1998: 25.1p and audited full year 1998: 46.1p). 8. Intangible assets Intangible assets comprise of 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 (£68.6m) as summarised below. £m £m As at 31 December 1998 4.0 Acquisitions - Boxing News 0.6 - Primesight 35.2 - Baillie 6.6 - Pearl and Dean 22.5 - Delphic Interactive 0.5 65.4 ___ _____ 69.4 Amortisation for period to 30 June 1999 (0.8) _____ As at 30 June 1999 68.6 _____ 9. Acquisitions Acquisitions in the six month period to 30 June 1999 comprised Boxing News, Primesight, Baillie and Pearl and Dean, together with the remaining 49per cent of Delphic Interactive which the Group did not own which was acquired for £0.4m on 24 June 1999. The net assets acquired and related fair value adjustments are shown below: Prime Pearl Other Fair Value Total sight and Adjustments Dean £m £m £m £m £m Tangible fixed assets 8.7 0.3 0.2 (0.7) 8.5 Stock 0.1 - - (0.1) - Debtors 2.9 6.7 - (0.2) 9.4 Creditors (7.5) (3.2) (0.5) (1.7) (12.9) Deferred tax (0.5) - - - (0.5) Net debt acquired (1.5) (2.9) - - (4.4) ______ _____ _____ ___________ ______ Net assets acquired 2.2 0.9 (0.3) (2.7) 0.1 ______ _____ _____ ___________ ______ Fair value consideration Cash 57.7 Loan notes 5.1 Shares issued 0.4 Acquisition expenses 2.3 ______ Total consideration 65.5 ______ Goodwill arising (see note 8) 65.4 ====== 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 (£0.6m) and adjustments to bad debt and other provisions (£0.7m). 10. Investments The investment held at 30 June 1999 represents £3.0m of GMTV loan stock which is discussed in note 3 above. 11. Bank loans and overdrafts The Group had treasury facilities amounting to £215.0m at its disposal as at 30 June 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 30 June 1999, £151.1m of these facilities were available to be used for general corporate purposes. 12. Provisions for liabilities and charges Provisions for liabilities and charges comprise equity accounted losses on GMTV, as discussed at note 3, of £5.1m and deferred taxation amounting to £1.4m. The balances at 30 June 1998 and 31 December 1998 are comprised of deferred taxation balances amounting to £0.9m and £1.7m respectively. 13. Reconciliation of movements in equity shareholders' funds Audited 6 months 6 months full year 1999 1998 1998 £m £m £m Profit for the financial 12.9 18.9 30.2 period Dividends (5.7) (5.2) (15.7) ________ ________ ___________ 7.2 13.7 14.5 Shares issued 1.3 1.0 1.0 ________ ________ ___________ Net movement in shareholders' funds 8.5 14.7 15.5 Opening shareholders' funds 62.2 46.7 46.7 ________ ________ ___________ Closing equity shareholders' funds 70.7 61.4 62.2 ======== ======== =========== 14. Reconciliation of operating profit to operating cash flows Audited 6 months 6 months full year 1999 1998 1998 £m £m £m Continuing activities Operating profit (before exceptional items and FRS10) 26.0 24.8 48.6 Depreciation charges 3.2 2.5 5.9 Issue of shares re profit share scheme 0.3 0.5 0.6 (Increase)/Decrease in stock (1.8) 0.8 2.9 (Increase)/Decrease in debtors (2.9) 4.2 (2.0) Increase in creditors 0.5 1.2 2.6 Reorganisation costs (1.1) (1.7) (2.8) Sunday paper pre-launch costs (1.8) - (1.3) ________ ________ ___________ Net cash inflow from continuing operations 22.4 32.3 54.5 ======== ======== =========== 15. Post balance sheet events On 15 July 1999, the Group announced the acquisition of two magazine titles, Independent Community Pharmacist and Independent Electrical Retailer, for a total consideration of £3.1m. Both titles are established monthly trade journals which operate as franchises within their respective market segments. On 6 September 1999, the Group announced a strategic alliance with Heart of Midlothian plc ('Hearts'), one of the leading football clubs in Scotland. The Group has undertaken to subscribe for 19.9per cent of the ordinary share capital of Hearts and £4.5m of convertible loan stock, for an aggregate cash consideration of £8.0m. Full conversion of the loan stock would give the Group up to 37.4per cent of Hearts' enlarged share capital. The funds will be utilised by Hearts to strengthen the playing squad, develop the stadium and invest in the club's already successful youth development programme. The Group believes that it will be able to maximise the potential of, and benefit from, Hearts' existing media-related interests which are complementary to the Group's advertising and publishing operations. The transaction is subject to Hearts' shareholder approval and regulatory approval. 16. Year 2000 review During 1997 and 1998 the Group conducted a review of all main computer systems to ensure they were Year 2000 compliant. This review has not uncovered any material issues and where necessary hardware and operating systems are being replaced to ensure continuity of operations beyond 1999. 17. A copy of this statement is being sent to all shareholders on 14 September 1999 and will be available for inspection by members of the public at the Company's registered office at Cowcaddens, Glasgow.

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