Interim Results

SMG PLC 08 September 2005 SMG plc Interim Results 2005 PRESS RELEASE •68% increase in underlying pre-tax profits •Underlying earnings per share up by 55% •SMG grows market share •20% increase in interim dividend 2005 2004 % change Turnover £94.9m £88.5m + 7% Operating Profit £13.7m £11.3m + 21% Profit Before Tax (Underlying)* £6.7m £4.0m + 68% Profit Before Tax (Statutory) £6.7m £8.6m - 22% Basic Earnings per Share (Underlying)* 1.7p 1.1p + 55% Basic Earnings per Share (Statutory) 1.7p 2.8p - 39% Interim Dividend 1.2p 1.0p + 20% * Underlying results exclude net associate contribution and exceptional items, and include CULS interest costs. Andrew Flanagan, Chief Executive, said: 'We have made significant progress across the Group in the first half of the year with improved margins, the benefit of positive regulatory decisions in television and strengthened development prospects.' Chris Masters, Chairman, said: 'This improvement in operational performance, coupled with the number of growth opportunities we have identified across our businesses, has underpinned our confidence in the longer term prospects of the Group.' 8 September, 2005 An analyst presentation will be held at 9.30am at ABN Amro, 250 Bishopsgate on Thursday 8 September 2005. Further enquiries: SMG plc Andrew Flanagan, Chief Executive Tel: 020 7882 1199 George Watt, Group Finance Director Callum Spreng, Corporate Affairs Director Brunswick Group LLP James Hogan/Simon Sporborg/Anisha Patel Tel: 020 7404 5959 SMG plc 2005 Interim Results CHAIRMAN'S STATEMENT OVERVIEW The first half of 2005 has been a period of profitable growth for SMG, aided by a strong first quarter for advertising and excellent regulatory settlements which resulted in lower licence fees and reduced public service broadcasting commitments. Turnover was up 7% to £94.9m (2004: £88.5m) resulting in a 68% increase in underlying pre-tax profits to £6.7m (2004: £4.0m). Conversion of turnover to profit was enhanced by a reduction in licence fees of some £2.0m. Underlying results exclude net associate contribution and exceptional items, and include CULS interest costs. Earnings per share (on the same underlying basis) increased by 55% to 1.7p (2004: 1.1p). Our businesses all outperformed the market during the first six months and we were able to grow market share across the Group as they continued to benefit from strong market positions and the shifting pattern of advertising spend. New business initiatives, including enhanced programme sales, the further expansion of our broadcast & event solutions business, the launch of new digital radio stations, new outdoor panels and cinema contracts, contributed well to this growth. Advertising markets remain short term and erratic and the anticipated slowdown in the second quarter, due to seasonal effects, the General Election and the absence of major sporting events, was exacerbated by concerns over consumer spending and the wider UK economy. These conditions have persisted through the summer, although we are now seeing some firming up of advertising spend. We have identified a number of growth opportunities across the businesses which, allied to the improvement in operational performance, have increased our confidence in the longer term prospects of the Group. The SMG Board has decided, therefore, to recommend a 20% increase in the Group's interim dividend to 1.2p (2004: 1.0p). TELEVISION The first half of 2005 saw turnover increase 7% to £62.2m (2004: £58.1m) and operating profits grow by 28% to £10.4m (2004: £8.1m). The operating margin of 17% was three percentage points up on the corresponding period in 2004. Although our advertising revenues were on a par with the first half of 2004, we have once again outperformed ITV1 as a whole, growing our NAR share to 6.7% (2004: 6.4%). This was achieved despite regional advertising revenues being 10% lower, primarily due to a significant cut in Scottish Executive spending. Our share of audience in peak time (the most important day-part in advertising terms) was 30% - one percentage point ahead of the ITV Network and seven percentage points more than our nearest rival, BBC1. The regulatory reviews that reached their conclusion during the first half of 2005, each recognised the changing environment for broadcasters as a result of new technology and multi-channel television. In the longer term, the outcome of the Public Service Broadcasting (PSB) review has provided a much more appropriate and flexible framework for our broadcasting business to compete in the digital world. Of more immediate benefit, the review of our financial terms has reduced our licence fees by around £4.5m across 2005. Our network programme production business, SMG Television Productions, enjoyed a successful start to 2005, with sales doubling over 2004. ITV increased commissions for our established programmes and ordered a number of new shows. We have also continued to widen our customer base, with new commissions from Five, Sky One and Discovery Health. SMG Broadcast & Event Solutions, our production facilities and channel management arm, saw revenues increase by two thirds over 2004, in part enhanced by the first full year of our contract with Setanta Sports, for whom we manage a number of Scottish football channels. Our facilities hire, commercial production and channel management revenues also showed good growth. RADIO Virgin Radio has gained considerable momentum in 2005 through its national positioning, strength of brand, singular focus and the rapidly evolving marketplace for digital radio services. Turnover grew by 4% to £10.6m (2004: £10.2m) significantly outperforming a radio market which declined by 3% in the first half of this year. Operating profits increased by 13% to £2.6m (2004: £2.3m) and the margin (after licence fees) was three percentage points up, at 25% (2004: 22%). To reduce volatility from the weaknesses in RAJAR's sampling we have moved our audience measurement onto a six monthly basis which has resulted in greater stability in our results. On a comparable basis, Virgin Radio's Quarter 2 2005 RAJAR's improved by 4%. Our established digital brands - Virgin Radio Classic Rock and Virgin Radio Groove - now boast more than 1.7m listening hours between them and these hours are now being sold alongside the main station as part of the Virgin Radio Network. Added to the improvement on the main service, we are now trading over two million listening hours more than the comparable period last year - an increase of 15%. Our plans for developing our digital services have made good progress. Virgin Radio Classic Rock introduced live daytime programming in June and this was further enhanced with the Alice Cooper Show in July. We also extended our digital distribution for Virgin Radio Classic Rock, launching on Sky in May, and we have just agreed cable carriage terms with Telewest. Introducing new formats to widen our audience base forms a key element of our digital strategy for radio and we have recently launched Virgin Radio Xtreme - online, on Sky and on DAB in London - aimed at a 16-34 year old audience. This launch brings our family of Virgin Radio stations to four, with more in the pipeline. We signed the critically acclaimed DJ Christian O'Connell to present the breakfast show from the beginning of next year. We have also strengthened the management team with the appointment of Fru Hazlitt, who joined the Group last month as Virgin Radio's new Chief Executive. OUT OF HOME The Out of Home Division grew sales by 9% to £22.1m (2004: £20.2m) aided by outdoor panel growth and contract wins in cinema. Continued investment in outdoor panel build and cinema minimum rental guarantees, combined with the patchiness of the market, held back growth in profits, which were maintained at £2.0m (2004: £2.0m). Primesight grew revenues by 15%, outperforming the overall outdoor market, and we now hold market-leading positions for the 6 sheet format in a number of important sectors, including: health clubs; garage forecourts and convenience stores. The expansion of our Backlight business continued with an additional 12 panels being constructed across the UK. With the recently announced marketing agreement with Cal Brown, we are now the leading Backlight contractor in London. Pearl & Dean grew cinema advertising sales by 5% over the period, again outperforming the market. However, increased minimum guarantees for cinema owners and the cinema market again being backweighted to the second half resulted in profits falling marginally. However, the second half of 2005 sees the release of a number of high profile movies - including Harry Potter, Narnia and War of the Worlds - and we anticipate audiences will increase during this period, with the potential for enhanced revenues. During the first half of 2005, Pearl & Dean made progress towards offsetting the loss of the UGC contract which takes effect at the beginning of 2006. We have increased our market share of independent cinema screens to 42% and added the Ster Century circuit following its acquisition by Vue cinemas. Overall, Pearl & Dean's market share of admissions currently stands at 41%. Winning the Ster Century and Edward cinema contracts have bolstered our position in Ireland and we have opened a Dublin office, also allowing Primesight to establish a 6 sheet operation in the rapidly growing Irish market. PROSPECTS Advertising across the summer has been subdued by continuing concerns over consumer spending and the London bombings. The markets have become short term, making forecasting more difficult. SMG's businesses have, however, held up well in these weaker markets and we continue to see growth opportunities across the Group. Although ITV1 as a whole is showing marginal decline, we continue to increase our market share. Virgin Radio is showing strong growth over relatively weak comparables in the prior year and our sponsorship and promotion revenues are performing particularly well. Outdoor and Cinema, where bookings tend to be made further in advance, are showing some signs of strengthening into the autumn. At this stage, therefore, we believe that the Board's expectations for business performance for the year as a whole can be achieved. Chris Masters Chairman SMG plc 8 September, 2005 Consolidated income statement for the six months ended 30 June 2005 6 months 6 months 31 December 2005 2004 2004 Note £m £m £m Continuing Operations Revenue 2 94.9 88.5 201.2 Net operating expenses (81.2) (77.2) (173.2) -------- -------- --------- Operating profit 13.7 11.3 28.0 Share of results of associates 2 - 1.6 2.4 -------- --------- ---------- Profit from operations 2 13.7 12.9 30.4 Gain on disposal of property 4 - - 1.0 Loss on disposal of subsidiary undertaking 4 - (2.5) (2.5) Gain on disposal of associate undertakings 4 - 9.9 30.8 -------- ------ ------- Profit before finance costs 13.7 20.3 59.7 Interest income 0.3 0.6 1.2 Finance costs 4,5 (7.3) (12.3) (23.3) ------- -------- --------- Profit before tax 6.7 8.6 37.6 Tax 6 (1.5) 0.1 0.2 ------- ------- -------- Profit attributable to equity holders 5.2 8.7 37.8 ------- ------- -------- Earnings per ordinary share - basic 8 1.7p 2.8p 12.0p - diluted 8 1.7p 2.8p 12.0p Underlying * Note Operating profit 13.7 11.3 28.0 Profit before tax 15 6.7 4.0 13.7 Earnings per share - basic 1.7p 1.1p 3.9p * Underlying results exclude net associate contribution and exceptional items, and include CULS interest costs. Consolidated statement of recognised income and expense Six months ended 30 June 2005 6 months 6 months 31 December 2005 2004 2004 £m £m £m Actuarial loss recognised in the pension schemes - - (8.6) Deferred tax arising thereon - - 2.6 ------ -------- --------- Net losses not recognised directly in income statement - - (6.0) Profit for the period 5.2 8.7 37.8 ----- ----- ------- Total recognised income for the period 5.2 8.7 31.8 ----- ----- ------ Consolidated balance sheet at 30 June 2005 Note 30 June 30 June 31 December 2005 2004 2004 £m £m £m ASSETS Non-current assets Goodwill 222.1 222.1 222.1 Property, plant and equipment 9 32.3 28.7 31.2 Financial assets - Available for sale investments 10 - 8.2 - Deferred tax asset 32.3 31.2 33.3 -------- --------- --------- 286.7 290.2 286.6 ------- --------- --------- Current assets Inventories 28.5 26.0 25.5 Trade and other receivables 69.0 55.3 58.8 Cash and cash equivalents 13.2 - 20.5 Short term bank deposit 5.0 7.5 7.5 ------- --------- --------- 115.7 88.8 112.3 ------- --------- --------- Total assets 402.4 379.0 398.9 ------- -------- ------- EQUITY Capital and reserves attributable to the Company's equity holders Called up share capital 7.8 7.8 7.8 Share premium 58.8 58.8 58.8 Merger reserve 173.4 173.4 173.4 Equity reserve 12 2.5 - - Other reserve 12 5.2 4.7 5.2 Hedging reserve 12 (0.8) - - Retained earnings 12 (162.0) (180.6) (160.6) --------- --------- --------- Total equity 84.9 64.1 84.6 -------- --------- --------- LIABILITIES Non-current liabilities Financial liabilities - Borrowings 139.0 144.5 139.0 - Convertible unsecured loan stock 22.1 22.8 22.8 - Derivative financial liability 11 0.8 - - - Other non-current liabilities 0.9 1.4 1.0 Retirement benefit obligation 14 99.0 90.1 100.2 ------ ------ ------- 261.8 258.8 263.0 ------- ------- ------- Current Liabilities Financial liabilities - Borrowings - 2.8 - Trade and other payables 41.8 37.3 39.3 Current tax liabilities 9.2 7.3 8.6 Provisions - 0.8 0.3 Dividends payable 4.7 7.9 3.1 ------- -------- ---------- 55.7 56.1 51.3 ------ ------- --------- Total liabilities 317.5 314.9 314.3 Total equity and liabilities 402.4 379.0 398.9 ------- --------- --------- Consolidated cash flow statement for the six months ended 30 June 2005 Note 6 months 6 months 31 December 2005 2004 2004 £m £m £m OPERATING ACTIVITIES Cash generated / (used) by operations 13 4.0 (4.9) 16.6 Income taxes (paid)/received - (0.2) 1.6 Interest paid (3.4) (6.4) (13.9) Pension deficit funding (2.8) (2.8) (2.8) -------- ------- ------- Net cash (used) / generated by operating activities (2.2) (14.3) 1.5 ------- ------- ------- INVESTING ACTIVITIES Interest received - 0.1 1.6 Dividends received from associate undertakings - 2.2 2.9 Disposal of associate undertakings - 89.0 118.7 Disposal of subsidiary undertaking - - (1.9) Proceeds from sale of property, plant and equipment - 5.1 4.0 Purchase of property, plant and equipment (4.4) (3.3) (7.4) ------- ------- -------- Net cash (used) / generated by investing activities (4.4) 93.1 117.9 ------- -------- ------- FINANCING ACTIVITIES Dividends paid (3.1) - (7.9) Repayment of existing bank borrowings - (83.9) (232.2) Net borrowings drawn - - 139.0 Release of cash on deposit 2.5 2.5 2.5 Net repayment of loan notes/stock (0.1) - (0.1) ------- -------- --------- Net cash used in financing activities (0.7) (81.4) (98.7) ------- -------- -------- Movement in cash and bank overdrafts (7.3) (2.6) 20.7 Net cash and bank overdrafts at beginning of period 20.5 (0.2) (0.2) ------- ------- -------- Net cash and bank overdrafts at end of period 13.2 (2.8) 20.5 -------- ------- -------- Reconciliation of movement in net debt 6 months 6 months 31 December 2005 2004 2004 £m £m £m Opening net debt (134.8) (242.5) (242.5) Non-cash bank arrangement fees written off - - (3.8) Movement in cash and bank overdrafts in the period (7.3) (2.6) 20.7 Net cash outflow from decrease in debt financing - 83.9 93.2 IFRS decrease in CULS liability 0.7 - - Movement in loan note liabilities 0.1 - 0.1 Net movement in Escrow cash (2.5) (2.5) (2.5) ------ ------- ------- Closing net debt (143.8) (163.7) (134.8) ------- ------- ------- Notes to the interim statement for the six months ended 30 June 2005 1. Basis of preparation The interim statement, which is unaudited, has been prepared on a basis that is consistent with the accounting policies and presentation expected to be used in the Group's annual report and financial statements for the year ending 31 December 2005, which will comply with International Financial Reporting Standards (IFRS) as required by IAS 1. These accounting policies are based on the IFRS issued by the International Accounting Standards Board (IASB) and as adopted or expected to be adopted by the European Union effective for 2005 year ends. The same principle accounting policies and methods of computation are followed in this interim statement as were published by the Company on 23 June 2005 (see below). In addition IAS 32 'Financial instruments: disclosure and presentation' and IAS 39 'Financial instruments: recognition and measurement' have been adopted in the period. The Group has elected to apply policies based on the amendment to IAS 19 issued in December 2004, which permits actuarial gains and losses to be recognised outside the Income Statement in the Statement of Recognised Income and Expense. It is expected that the amendment will be endorsed by the EU in time for adoption in the Group's 2005 annual report and financial statements. The reconciliations of equity at 1 January 2004, 30 June 2004 and 31 December 2004 and the reconciliation of profit for the six months ended 30 June 2004 and year ended 31 December 2004, as required by IFRS 1, including the significant accounting policies and full notes to 31 December 2004, have been published on the company's website www.smg.plc.uk on 23 June 2005. The information for the year ended 31 December 2004 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on the financial statements was unqualified and did not include a statement under section 237(2) or (3) of the Companies Act 1985. 2. Business segments For management purposes the Group is currently organised into three operating divisions - Television, Out of Home and Radio. These divisions are the basis on which the Group reports its primary segment information. Principal activities are as follows: Television - the production and broadcasting of television programmes and associated enterprises. Radio - the operation of commercial radio in the UK. Out of Home - the provision of advertising solutions across various out of home media. Segment information about these businesses is presented below. Six months ended Television Radio Out of Home Group 30 June 2005 £m £m £m £m REVENUE External sales 62.2 10.6 22.1 94.9 ------ ------ ------ ------ PROFIT Segment result 10.4 2.6 2.0 15.0 ------ ------ ------ ------ Unallocated pension costs (1.3) ------ Profit from operations 13.7 Finance costs (7.0) ------ Profit before tax 6.7 Tax (1.5) ------ Profit after tax 5.2 ------ Six months ended Television Radio Out of Home Group 30 June 2004 £m £m £m £m REVENUE External sales 58.1 10.2 20.2 88.5 ------ ------ ------ ------ PROFIT Segment result 8.1 2.3 2.0 12.4 ----- ----- ----- ------ Unallocated pension costs (1.1) Share of associates (i) (ii) 1.6 ------ Profit from operations 12.9 Loss on disposal of subsidiary undertaking (iii) (2.5) Gain on disposal of associate undertaking (iv) 9.9 Finance costs (11.7) ------ Profit before tax 8.6 Tax 0.1 ------ Profit after tax 8.7 ------ i) Attributable to Television segment ii) Share of associate's results are reported net of tax charge of £0.1m (31 December 2004: £1.1m). iii) Publishing division discontinued in 2003 iv) Attributable to Radio segment 3. Operations in the interim period In line with the UK advertising market as a whole, the Autumn season provides the Group with the highest level of business and largest element of annual revenue, and as a result the full year results are expected to be more heavily weighted towards the second half of 2005. 4. Exceptional items i) Gain on disposal of property In 2004, the Group's property at Cowcaddens was sold resulting in a gain of £1.0m. 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 was reached with Gannet in July 2004 on the completion account's net assets. This resulted in a net payment due to Gannet and the provisional gain on sale was adjusted by £2.5m during the first half of 2004. iii) Gain on disposal of associate undertakings The disposal of the Company's investment in Scottish Radio Holdings ('SRH') on 16 January 2004 resulted in a gain on disposal of £9.9m at 30 June 2004 and £10.3m at 31 December 2004. GMTV Limited ('GMTV') was disposed of on 12 October 2004 resulting in a gain of £20.5m (see note 10). iv) Finance costs In 2004, £6.7m (£3.6m at 30 June 2004) of unamortised bank facility arrangement fees were written off. The remaining unamortised balance was also written off following the replacement in November 2004 of existing bank facilities with a new £158.0m five year revolving credit and overdraft bank facility on improved terms. 5. Finance costs 6 months 6 months Full year 2005 2004 2004 £m £m £m Interest expense: Bank borrowings 4.8 6.7 12.5 CULS and loan note interest 1.0 0.8 1.4 ----- ----- ----- 5.8 7.5 13.9 Pension finance cost 1.5 1.2 2.7 ----- ------ ----- Finance costs excluding exceptional items 7.3 8.7 16.6 Exceptional finance costs (note 4(iv)) - 3.6 6.7 ------ ------- ------- Finance costs 7.3 12.3 23.3 ------ ------ ------- 6. Tax 6 months 6 months Full year 2005 2004 2004 £m £m £m The charge for tax is as follows: Tax on profit on ordinary activities excluding exceptional items at 23% (2004: 10%) 1.5 0.4 0.3 Tax credit on exceptional items - (0.5) (0.5) ------ ------ ------ 1.5 (0.1) (0.2) ------ ------ ------ 7. Dividends 6 months 6 months Full year 2005 2004 2004 £m £m £m Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 December 2003 of 2.5p (2002: 2.5p) - 7.9 7.9 Proposed interim dividend for the year ended 31 December 2004 of 1.0p (2003: nil) - - 3.1 Final dividend for the year ended 31 December 2004 of 1.5p (2003: 2.5p) 4.7 - - ----- ------ ------ 4.7 7.9 11.0 ----- ----- ------ The proposed interim dividend of 1.2p per share to be paid on 24 November 2005 was approved by the Board on 2 September 2005 and has not been included as a liability as at 30 June 2005. It is proposed to pay the interim dividend to shareholders on the register at 21 October 2005. 8. Earnings per share Basic earnings per share (EPS), excluding exceptional items is calculated as follows: 6 months 6 months Full year 2005 2004 2004 £m £m £m Attributable profit for the financial period (including exceptional items) 5.2 8.7 37.8 Effect of exceptionals - (4.3) (23.1) ----- ------- ------- Attributable profit for the financial period 5.2 4.4 14.7 ----- ----- ------ Weighted average number of shares in issue 314.3m 314.3m 314.3m Earnings per ordinary share 1.7p 1.4p 4.7p ------ ------ ------ Basic EPS, inclusive of exceptional items in the six months to 30 June 2005 is 1.7p (six months to 30 June 2004: 2.8p and full year 2004: 12.0p). There is no difference between basic and diluted EPS as there is no material impact from dilutive share options. 9. Property, plant and equipment During the six months to 30 June 2005, the Group has incurred expenditure of £4.4m on fixed assets (£3.3m to 30 June 2004,£7.6m to 31 December 2004), primarily consisting of outdoor panel development (£2.8m) and new IT equipment (£0.5m). At 30 June 2005 the Group had no commitments outstanding in respect of contracted capital expenditure (nil at 30 June 2004 and 31 December 2004). 10. Available for sale investments On 16 January 2004 the Group sold its 27.8% shareholding in 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 £10.3m after disposal costs of £1.6m. On 12 October 2004, the Group announced the sale of its 25% shareholding in GMTV to ITV plc for £31.0m cash less a dividend of £0.7m, resulting in a gain on disposal of £20.5m after disposal costs of £0.5m. 11. Derivative financial liability The derivative financial liability of £0.8m has arisen as a result of an interest rate swap. The notional principal amount of the outstanding interest rate swap contract at 30 June 2005 was £60m. At 30 June 2005 the fixed interest rates are 4.94% and floating rates are 4.86% (3 month LIBOR). Any net gain or loss deferred in equity will reverse during the next three years, being the life of the swap. 12. Statement of changes in shareholders' equity Equity Other Hedging Retained reserve reserve reserve earnings £m £m £m £m At 1 January 2004 - 4.3 - (181.4) IFRS 2 charge for share-based payments - 0.4 - - Net profit - - - 8.7 Dividends - - - (7.9) ------ ------ ------ ------- At 30 June 2004 - 4.7 - (180.6) ------ ------ ------ ------- IFRS 2 charge for share-based payments - 0.5 - - Net profit - - - 29.1 Dividends - - - (3.1) Movement in actuarial loss - - - (8.6) Deferred tax on movement in actuarial loss - - - 2.6 ------ ------ ------ ------- At 31 December 2004 - 5.2 - (160.6) ------ ----- ------ ------- Net profit - - - 5.2 Dividends - - - (4.7) Equity portion of CULS created under IAS 32 2.5 - - (1.9) Fair value loss on interest rate swaps - - (0.8) - ------ ------- ------- ------ At 30 June 2005 2.5 5.2 (0.8) (162.0) ------ ------- ------- ------- There have been no movements in the share capital, share premium and merger reserves during the six months ended 30 June 2005. 13. Notes to cash flow statement 6 months 6 months Full year 2005 2004 2004 £m £m £m Operating profit (before exceptional items) 13.7 11.3 28.0 Depreciation and other non-cash items 3.4 3.8 6.4 ------- ----- ----- Operating cash flows before movements in working capital 17.1 15.1 34.4 Increase in inventories (3.0) (4.0) (7.6) Increase in trade and other receivables (8.5) (12.1) (14.2) (Decrease)/ increase in trade and other payables (1.3) (2.8) 5.7 Development and reorganisation costs (0.3) (1.1) (1.7) ------- ------- ------- Cash generated / (used) by operations 4.0 (4.9) 16.6 ------ ------- ------ 14. Retirement benefit schemes The fair value of the assets in the schemes, the present value of the liabilities in the schemes and the expected rate of return at each balance sheet date was: At 30 June At 30 June At 31 December 2005 2004 2004 £m £m £m Equities 7.6% 137.0 7.3% 133.8 7.4% 131.8 Bonds 4.5% 93.9 4.5% 85.1 4.3% 90.1 ------ ------ ------ Fair value of schemes' assets 230.9 218.9 221.9 Present value of defined benefit obligations (329.9) (309.0) (322.1) --------- -------- -------- Deficit in the schemes (99.0) (90.1) (100.2) -------- -------- -------- A related offsetting deferred tax asset of £30.2m is shown under non-current assets. Therefore the net pension scheme deficit amounts to £68.8m at 30 June 2005 (£62.1m at 30 June 2004; £69.2m at 31 December 2004). 15. Calculation of underlying profit before tax 6 months 6 months Full year 2005 2004 2004 £m £m £m Statutory profit before tax 6.7 8.6 37.6 Less exceptionals - (3.8) (22.6) -------- ------- -------- Statutory profit before tax and exceptionals 6.7 4.8 15.0 Adjusted for: Interest effect of GMTV disposal - 1.0 1.5 Share of associate's contribution - (1.6) (2.4) CULS interest cost* - (0.2) (0.4) -------- ------- -------- Underlying profit before tax 6.7 4.0 13.7 ------- ------- ------- * As IAS 39 has only been adopted from 1 January 2005, the current period's interest cost has been included within the income statement. 16. Mailing A copy of this statement is being sent to all shareholders on 29 September 2005 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 for the six months ended 30 June 2005 which comprises summarised income statement, statement of total gains and losses, summarised balance sheet information as at 30 June 2005, summarised cash flow statement, comparative figures and associated 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. As disclosed in note 1, the next annual financial statements of the group will be prepared in accordance with accounting standards adopted for use in the European Union. This interim report has been prepared in accordance with the basis set out in Note 1. The accounting policies are consistent with those that the directors intend to use in the next annual financial statements. As explained in note 1, there is, however, a possibility that the directors may determine that some changes are necessary when preparing the full annual financial statements for the first time in accordance with accounting standards adopted for use in the European Union. The IFRS standards and IFRIC interpretations that will be applicable and adopted for use in the European Union at 31 December 2005 are not known with certainty at the time of preparing this interim financial information. Review work performed We conducted our review in accordance with 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 management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the disclosed accounting policies have been applied. 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 and therefore provides a lower level of assurance. 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 2005. PricewaterhouseCoopers LLP Chartered Accountants Glasgow 8 September 2005 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

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