Interim Results
SMG PLC
13 September 2006
SMG plc
Interim Results 2006
PRESS RELEASE
Financial Highlights
+----------------------------------------+------------+------------+-----------+
| |2006 |2005 |Change |
+----------------------------------------+------------+------------+-----------+
|Turnover (Underlying)* |£88.6m |£90.7m |- 2% |
+----------------------------------------+------------+------------+-----------+
|Turnover (Statutory) |£88.6m |£94.9m |- 7% |
+----------------------------------------+------------+------------+-----------+
|Operating Profit (Underlying)* |£12.3m |£12.8m |- 4% |
+----------------------------------------+------------+------------+-----------+
|Operating Profit (Statutory) |£12.3m |£13.7m |- 10% |
+----------------------------------------+------------+------------+-----------+
|Profit Before Tax (Underlying)* |£8.0m |£5.8m |+ 38% |
+----------------------------------------+------------+------------+-----------+
|Profit Before Tax (Statutory) |£8.0m |£6.7m |+ 19% |
+----------------------------------------+------------+------------+-----------+
|Basic Earnings per Share (Underlying)* |2.0p |1.4p |+ 43% |
+----------------------------------------+------------+------------+-----------+
|Basic Earnings per Share (Statutory) |2.0p |1.7p |+ 18% |
+----------------------------------------+------------+------------+-----------+
|Interim Dividend |1.2p |1.2p |- |
+----------------------------------------+------------+------------+-----------+
* Underlying results exclude the impact of the former UGC Cinemas contract.
Operational Highlights
• Operational performance, cost savings and pension interest charge
movements bring a 38% increase in underlying PBT* and a 43% increase in
underlying EPS*
• Significant uplift in online activity with launch of stv.tv,
peopleschampion.com, virginradio.co.uk, pearlanddean.com
• Virgin Radio continues to outperform the market
Chris Masters, Chairman, said:
'We continue to make excellent progress in developing our strategically
important on-line presence aimed at creating new revenue streams. These
initiatives will become increasingly important as we move forward.'
Donald Emslie, Acting Chief Executive, said:
'SMG has made good progress in the first half of 2006 on many fronts. We have
grown pre-tax profits, despite unpredictable advertising markets, made headway
in lightening the impact of regulatory costs and taken significant steps in
creating new businesses and sustainable revenue streams, most notably in the
online environment.'
13 September 2006
Further enquiries:
SMG plc
Donald Emslie, Acting Chief Executive Tel: 020 7882 1199
George Watt, Group Finance Director
Callum Spreng, Group Communications Director
Brunswick Group LLP
James Hogan Tel: 020 7404 5959
Simon Sporborg
Ash Spiegelberg
SMG plc
Interim Results 2006
CHAIRMAN'S STATEMENT
Overview
The first half of 2006 held mixed fortunes for SMG. Revenue performance varied
across the Group while profits were lifted as a result of operational
performance, cost savings and a positive movement in pension interest charges.
We continue to make excellent progress in developing our strategically important
online presence aimed at creating new revenue streams. During the six months the
preparatory work on stv.tv, Peopleschampion.com and upgrading the
virginradio.co.uk website was completed and all have now been launched. These
initiatives will become increasingly important as we move forward.
Underlying Group Turnover was marginally down at £88.6m (2005: £90.7m) as sales
revenues in broadcast television were lower, partially offset by growth in radio
and outdoor. However, reduced costs in the areas of licence fees, staff and
pension interest charges saw underlying Pre-Tax Profits rise by 38% to £8.0m
(2005: £5.8m). Underlying results exclude the impact of the former UGC Cinemas
contract, which generated £4.2m in turnover and £0.9m of operating profit in
2005. Earnings per share (on the same underlying basis) grew by 43% to 2.0p
(2005: 1.4p).
Since the half year, SMG's Chief Executive, Andrew Flanagan, has left the Group
by mutual agreement. The Board is making good progress with regard to appointing
a successor and is considering both external and internal candidates with the
help of independent executive search consultants. An announcement will be made
once this process is complete. In the meantime Donald Emslie has taken over as
Acting Chief Executive.
Following our statement on 29th August regarding the approach from UTV plc, the
Board of SMG has now confirmed in writing to the Board of UTV that, while it
rejects UTV's proposal for a merger of the two businesses under which SMG
shareholders would receive only a 52% interest in the merged entity, it would be
willing to hold discussions with the Board of UTV on the basis of a proposal
which has regard to the relative market values of SMG and UTV, SMG's prospects
and the value of SMG's portfolio of assets. No formal response has, as yet, been
received from UTV. This statement is made without UTV's consent and there can be
no certainty that an offer will be made nor as to the terms on which any offer
might be made.
We have made significant progress in taking our strong media brands into the
online space, which is allowing us to transact directly with our consumers. Each
of our consumer-facing brands now has a compelling online presence, boosted by
significant, but low cost, promotion and we are confident that this initiative
will prove to be an important profit driver for SMG in the coming years.
In line with our future strategy, which is firmly based on strong television,
radio and online brands, exciting content and close connection with our
audiences, we have today announced the decision to dispose of the Group's cinema
and outdoor advertising businesses Pearl & Dean and Primesight. Although
excellent businesses in themselves, they are no longer core to the Group.
As far as advertising is concerned, markets have been mixed in the first six
months of 2006 and the hoped-for boost in television airtime revenues from the
World Cup failed to materialise. This weakness has continued across the summer
months, exacerbated by concerns over inflation, fuel prices and high levels of
consumer borrowing.
The Group's net pension deficit reduced to £32.4m - a 12% reduction from the
2005 year end and a significant improvement on the prior year (December 2005:
£36.7m; June 2005: £68.8m). The research that we have initiated among Scottish
companies to establish a clearer understanding of mortality rates among
occupational pension scheme members in Scotland will be concluded in the coming
months and will form the basis for the future funding of the Group's schemes.
The Group's steady performance, both financially and strategically, allied to
the uncertain climate in advertising markets for the remainder of the year, has
prompted the Board to adopt a cautious outlook and maintain the interim dividend
at 1.2 pence per share (2005: 1.2 pence).
Outlook
For the remainder of 2006, we expect our broadcast television business to
perform in line with ITV1 as a whole, given that it too is subject to the
effects that the Contract Rights Renewal (CRR) process has on ITV1 in an already
depressed TV market. In radio, we expect to continue to outperform the market as
Virgin Radio's schedule and music proposition build momentum. Cinema, on the
other hand, continues to be affected by the broadcast market overall and we
anticipate another tough year for Pearl & Dean. In outdoor, Primesight should
continue to outperform a growing market.
Advertising markets remain extremely difficult and there are no indications at
this stage of conditions improving markedly before the end of 2006. Whilst we
continue to make good progress in creating opportunities for generating revenues
from non-traditional sources, these are unlikely to make any significant profit
contribution before 2007 and, in common with other media companies, the Board
views the outlook for the remainder of the current year as challenging.
Chris Masters
Chairman
13 September 2006
CHIEF EXECUTIVE'S REVIEW
Divisional Performance
Television revenues, in common with ITV1 as a whole, fell by 7% to £57.9m in the
first six months of 2006 (2005: £62.2m), impacted by the negative effects of
CRR, a weak television market and the phasing of commissions in SMG Productions.
This was partially offset by growth in SMG Solutions, our facilities business.
Our share of ITV1's net advertising revenues (NAR) remained stable at 6.6%.
Although reduced regional programme costs, staff costs and licence fees helped
to partly offset the revenue fall, the operational gearing of this business
resulted in overall television profits falling by 4% to £9.0m (2005: £9.4m).
In radio, industry out-performance saw Virgin Radio's revenues grow by 5% to
£11.1m (2005: £10.6m). However, we invested in marketing to support the launch
of the Christian O'Connell Breakfast Show and this, combined with increased
costs for our new digital services, resulted in radio profits reducing to £2.0m
(2005: £2.5m). The breakfast show, which launched in late January, has performed
well and is in line with our expectations for a new show in this important slot.
In cinema, although the loss of the UGC contract impacted total revenues,
underlying revenues grew by 5% to £8.5m (2005: £8.1m). This, coupled with
reduced costs as a result of lower headcount, resulted in a flat underlying
profit performance with a loss of £0.3m (2005: £0.3m loss).
In our outdoor advertising business we made good progress in converting the
increased revenue, brought about by our investment in panel growth in recent
years, into profit. Revenues grew by 13% to £11.1m (2005: £9.8m) and, with
margins growing to 14.4% (2005: 12.2%), this converted into profit growth of 33%
to £1.6m (2005: £1.2m).
Connecting With Our Audiences
Our audiences are vitally important to the success of our business. We continue
to make strenuous efforts to grow these where possible, and enhance the affinity
that we enjoy with our viewers and listeners. Across the Group each year, our
consumer brands reach approximately 16 million people.
In television, 80% of the Scottish viewing public tunes into stv for an average
of 11 hours a week. We continue to be the most popular peak-time broadcaster in
Scotland with a peak-time share of 29% compared to our nearest rival, BBC1, at
22%, and more than three times the level of our nearest commercial rival C4
(9%). While the ongoing encroachment of multi-channel television will cause
audience erosion until digital switchover in 2010, our target is to retain a 29%
share of commercial impacts at digital switchover.
Virgin Radio reaches on average 2.3 million listeners a week, including 8% of
all 20-44-year-old men in the UK - a key target group for advertisers. Audiences
have shown a steady upward trend in recent times and, following a slight fall in
Q2 of 2006, we anticipate continued growth across the remainder of 2006.
Additionally, in July, Virgin Radio became available on Freeview, a move which
is set to boost the 28% of listeners already enjoying our output via digital
platforms. This compares with an industry average of under 13%, further
demonstrating the strength of Virgin Radio in the digital arena.
Content
Content drives audiences and we continue to focus closely on this aspect of our
business. In television, the ITV1 network schedule remains popular with the
Scottish audience and so far this year we have augmented ITV1's network output
with:
• Revamped regional news programmes, Scotland Today and North Tonight,
which are broadcast each weekday evening in the South and North regions of
the stv transmission area respectively. Scotland Today and North Tonight
together outperform the BBC's national news at 6 in terms of audience
figures.
• Refreshed Scotsport, the world's longest-running sports programme.
• More popular, yet targeted, local programming such as Jet Set (a look at
RAF pilot training at Lossiemouth) and The Woman Who Ate Scotland (a
culinary trip around the transmission area).
Content is also key to SMG Productions and the seven episodes of Taggart and
four episodes of Rebus produced across 2006 will begin airing this autumn.
Additionally, we have produced a second series of Jack Osbourne - Adrenaline
Junkie for ITV2 who have just commissioned a further 10 part series in the same
vein.
In radio, The Christian O'Connell Breakfast Show, launched in late January, has
performed in line with our expectations for a new show in this important slot.
With some of the country's most talented music programmers onboard, Virgin
Radio's proposition, 'The music we all love', is proving popular with listeners
attracted to a play list that features 15 of the artists responsible for the top
20 selling albums in the first six months of 2006.
Capitalising on Content
As a content producer we have access to a large back catalogue of recent and
historical material and, with the proliferation of content-hungry channels, we
have had considerable success in selling content to other broadcasters. In 2006
alone, ITV1 and ITV 3 will run 11 repeats of Taggart and we have sold 46
episodes of the detective series to UK Gold.
Later this year we plan to launch ScotlandonTV.tv, the first IPTV service for
Scotland, further capitalising on the value and heritage of our television
archive which has been built and protected over the last 50 years.
Online Activities
Digital technology and the increasing range of new distribution platforms offer
significant advantages to SMG in that they allow our broadcast businesses to
operate without the constraints of the regulated environment. Drawing on the
strength of our brands to capitalise on the close relationships we have with our
audiences will allow us to transact directly with them, thus providing new
revenue streams while at the same time creating the opportunity to target new
audiences.
Significant progress in our online development was achieved in the first half of
2006:
• An extensive new stv.tv website was developed during the first half of
the year and launched in July, following the successful rebranding of
Scottish TV and Grampian TV to the single stv brand in May. This suite of
websites now provides Scottish consumers with news, sport, weather,
listings, competitions, dating and gaming services, many of which provide
direct revenues to SMG, while also offering an attractive new online
promotional opportunity for advertisers. These sites are each supported
through on-air promotion on stv. We plan to add genealogy, motoring and
betting to this portfolio before the end of the year. We are targeting to
reach 500,000 unique users and 4.0m page impressions per month on stv.tv by
the end of 2007.
• The acquisition of the price comparison site, peopleschampion.com, was
negotiated during the first half of the year and the site launched earlier
this month. Peopleschampion.com will be promoted across stv initially then
quickly rolled out across all our media and will generate revenues via
click-throughs, sales commissions and banner advertising. We anticipate the
business quickly reaching profitability since it is targeting to achieve
200,000 unique users and 1.3m page impressions per month by the end of 2007.
• Virginradio.co.uk has been refreshed and was relaunched earlier this
month. The site has generated significant traffic for many years and we plan
to capitalise on its popularity through online advertising. It already
achieves over 14 million page impressions per month and attracts 405,000
unique UK users and is targeted to achieve 30 million page impressions and 1
million unique users per month by the end of 2007. Virginradio.co.uk also
attracts significant email traffic from its 500,000 registered users, half
of whom receive emails from Virgin Radio once a week, creating a valuable
and up to date database.
• Pearlanddean.com was launched in February, giving this business its first
direct interaction with cinema-goers in its 50+ year history. The site now
offers news, reviews, listings for every cinema in the UK and Republic of
Ireland, dvd hire, movie memorabilia, film related ringtones and movie
ticket sales for all the UK's principal cinema chains.
Regulation
Whilst recognising our commitments as a public service broadcaster, regulation
still has a major influence on the performance of both stv and Virgin Radio.
Some 30% of ITV1's schedule remains as PSB and while it accounts for 20% of the
commissioning budget it only returns 11% of the ratings. Over time as we migrate
to digital this will be reviewed and we are continuing to work with our
regulator, Ofcom, to reduce the burden of regulation as and where appropriate.
We believe that we may have the opportunity to access the reduced licence terms
for Virgin Radio already announced by Ofcom earlier than May 2008. This could
amount to initial annualised savings of around £2m per annum.
Furthermore, there are ongoing discussions taking place with regulators in the
following key areas:
• ITV1 children's schedule
• Contract Rights Renewal
• Network Arrangements
• Product placement
• Regional programming
• Transmission
• Production in the nations and regions
Additionally, we expect that the proposed increase in external programming
commissions by the BBC as part of the WOCC, which we expect to be included in
their Charter renewal process, will benefit both our programme production and
facilities businesses as the demand for programming from the Nations will
increase.
Summary
SMG has made good progress in the first half of 2006 on many fronts. We have
grown pre-tax profits, despite unpredictable advertising markets, made headway
in lightening the impact of regulatory costs and taken significant steps in
creating new businesses and sustainable revenue streams, most notably in the
online environment.
We have a clear strategy going forward and, while trading in the remainder of
the year appears challenging, the management and staff are committed to building
on the progress achieved in the first six months and continuing to drive the
business forward.
Donald Emslie
Acting Chief Executive
13 September 2006
Consolidated income statement
for the six months ended 30 June 2006
6 months 6 months 31 December
2006 2005 2005
Note £m £m £m
CONTINUING OPERATIONS
Revenue 2 88.6 94.9 210.0
Net operating expenses before
reorganisation costs (76.3) (81.2) (178.8)
Reorganisation costs 4 - - (3.5)
------- ------- --------
Net operating expenses (76.3) (81.2) (182.3)
------- ------- --------
Operating profit 2 12.3 13.7 27.7
Gain on disposal of investment 4 - - 2.3
------- ------- --------
Profit before financing 12.3 13.7 30.0
Interest income 0.1 0.3 0.6
Finance costs 5 (4.4) (7.3) (11.8)
------- ------- --------
Profit before tax 8.0 6.7 18.8
Tax 6 (1.7) (1.5) (4.4)
------- ------- --------
Profit attributable to equity holders 6.3 5.2 14.4
------- ------- --------
Earnings per ordinary share - basic 8 2.0p 1.7p 4.6p
- diluted 8 2.0p 1.7p 4.6p
--------------------------------------------------------------------------------
Underlying (excludes exceptional items and former UGC
contract contribution)
Note
Revenue 88.6 90.7 200.7
Operating profit 12.3 12.8 30.7
Profit before tax 14 8.0 5.8 19.5
Earnings per share - basic 2.0p 1.4p 4.8p
--------------------------------------------------------------------------------
Consolidated statement of recognised income and expense
for the six months ended 30 June 2006
6 months 6 months 31 December
2006 2005 2005
£m £m £m
Profit for the period 6.3 5.2 14.4
Actuarial gain recognised in the pension schemes 6.1 - 45.0
Deferred tax charge to equity (1.8) - (14.8)
Application of IAS 32 and IAS 39 - - (0.5)
Recognition of equity component of CULS - - 2.5
------- ------- --------
Net profit recognised directly in equity 4.3 - 32.2
------- ------- --------
Total recognised income for the period 10.6 5.2 46.6
------- ------- --------
Consolidated balance sheet
at 30 June 2006
30 June 30 June 31 December
2006 2005 2005
Note £m £m £m
ASSETS
Non-current assets
Goodwill 222.1 222.1 222.1
Property, plant and equipment 37.7 32.3 36.0
Deferred tax asset 14.1 32.3 16.7
------- ------- --------
273.9 286.7 274.8
------- ------- --------
Current assets
Inventories 42.1 28.5 33.8
Trade and other receivables 65.8 69.0 56.2
Cash and cash equivalents 7.7 13.2 28.0
Short term bank deposit 2.5 5.0 5.0
------- ------- --------
118.1 115.7 123.0
------- ------- --------
Total assets 392.0 402.4 397.8
------- ------- --------
EQUITY
Capital and reserves attributable to the
Company's equity holders
Share capital 10 7.9 7.8 7.8
Share premium 10 59.5 58.8 59.0
Merger reserve 173.4 173.4 173.4
Equity reserve 2.5 2.5 2.5
Other reserve 5.3 5.2 5.3
Hedging reserve 11 - (0.8) (0.5)
Retained earnings 11 (120.2) (162.0) (125.1)
------- ------- --------
Total equity 128.4 84.9 122.4
------- ------- --------
LIABILITIES
Non-current liabilities
Financial liabilities
- Borrowings 139.2 139.0 149.1
- Convertible unsecured loan stock 22.4 22.1 22.2
- Derivative financial liability 9 - 0.8 0.5
- Other non-current liabilities 0.8 0.9 0.8
Retirement benefit obligation 13 46.0 99.0 53.0
------- ------- --------
208.4 261.8 225.6
------- ------- --------
Current Liabilities
Trade and other payables 42.2 41.8 36.5
Current tax liabilities 6.6 9.2 10.0
Provisions 1.0 - 3.3
Dividends payable 5.4 4.7 -
------- ------- --------
55.2 55.7 49.8
------- ------- --------
Total liabilities 263.6 317.5 275.4
Total equity and liabilities 392.0 402.4 397.8
------- ------- --------
Consolidated cash flow statement
for the six months ended 30 June 2006
6 months 6 months 31 December
2006 2005 2005
Note £m £m £m
OPERATING ACTIVITIES
Cash generated by operations 12 1.5 4.0 26.7
Income taxes paid (4.4) - -
Interest paid (5.2) (3.4) (9.0)
Pension deficit funding - (2.8) (2.8)
------- ------- --------
Net cash (used)/ generated by operating
activities (8.1) (2.2) 14.9
------- ------- --------
INVESTING ACTIVITIES
Interest received 0.1 - 0.3
Disposal of investment - - 2.7
Purchase of property, plant and equipment (4.9) (4.4) (11.2)
------- ------- --------
Net cash used by investing activities (4.8) (4.4) (8.2)
------- ------- --------
FINANCING ACTIVITIES
Dividends paid - (3.1) (11.6)
Net borrowings (repaid)/ drawn (9.9) - 10.1
Release of cash on deposit 2.5 2.5 2.5
Net repayment of loan notes/stock - (0.1) (0.2)
------- ------- --------
Net cash (used in)/ generated by financing
activities (7.4) (0.7) 0.8
------- ------- --------
Movement in cash and bank overdrafts (20.3) (7.3) 7.5
Net cash and bank overdrafts at beginning of
period 28.0 20.5 20.5
------- ------- --------
Net cash and bank overdrafts at end of period 7.7 13.2 28.0
------- ------- --------
Reconciliation of movement in net debt
6 months 6 months 31 December
2006 2005 2005
£m £m £m
Opening net debt (139.1) (134.8) (134.8)
Movement in cash and bank overdrafts in the
period (20.3) (7.3) 7.5
Net cash outflow/ (inflow) from decrease/
(increase) in debt financing 9.9 - (10.1)
IFRS (increase)/ decrease in CULS liability (0.2) 0.7 0.6
Movement in loan note liabilities - 0.1 0.2
Net movement in Escrow cash (2.5) (2.5) (2.5)
------- ------- --------
Closing net debt (152.2) (143.8) (139.1)
------- ------- --------
Notes to the interim statement
for the six months ended 30 June 2006
1. Basis of preparation
This financial information comprises the consolidated balance sheets as of 30
June 2006 and 30 June 2005 and related consolidated interim statements of income
and cash flows for the six months then ended (hereinafter referred to as
'financial information').
This financial information has been prepared in accordance with the Listing
Rules of the Financial Services Authority. In preparing this financial
information management has used the principal accounting policies as set out in
the group's annual financial statements for the year ended 31 December 2005.
The group has chosen not to fully adopt IAS 34, 'Interim financial statements',
in preparing its 2006 interim statements and, therefore, this interim financial
information is not in compliance with IFRS.
The information for the year ended 31 December 2005 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 four operating
divisions - Television, Radio, Cinema and Outdoor. 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.
Cinema - the provision of advertising space within cinema complexes.
Outdoor - the provision of advertising solutions across various outdoor
media.
Segment information about these businesses is presented below.
Six months ended 30 June 2006 Television Radio Cinema Outdoor Group
£m £m £m £m £m
REVENUE
External sales 57.9 11.1 8.5 11.1 88.6
------- ------ ------ ------ -------
PROFIT
Segment result 9.0 2.0 (0.3) 1.6 12.3
------- ------ ------ ------ -------
Financing (4.3)
-------
Profit before tax 8.0
Tax (1.7)
-------
Profit after tax 6.3
-------
Six months ended 30 June 2005 Television Radio Cinema Outdoor Group
£m £m £m £m £m
REVENUE
Underlying external sales 62.2 10.6 8.1 9.8 90.7
Former UGC contract - - 4.2 - 4.2
------- ------ ------ ------ -------
External sales 62.2 10.6 12.3 9.8 94.9
------- ------ ------ ------ -------
PROFIT
Underlying segment result 9.4 2.5 (0.3) 1.2 12.8
Former UGC contract - - 0.9 - 0.9
------- ------ ------ ------ -------
Segment result 9.4 2.5 0.6 1.2 13.7
------- ------ ------ ------ -------
Financing (7.0)
-------
Profit before tax 6.7
Tax (1.5)
-------
Profit after tax 5.2
-------
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 2006.
4. Exceptional items
i) Reorganisation costs
In December 2005, the Group announced plans to reorganise the Television
business in light of reduced Public Service Broadcasting licence requirements
and the impact of new technology which will arise from the move of STV to new
premises in Pacific Quay, Glasgow. In the same month, the Group committed to a
reorganisation of the structure of the Out of Home division, resulting in the
creation of separate Outdoor and Cinema divisions. Both decisions culminated in
a reduction in headcount within the organisation, resulting in the creation of a
provision for exceptional costs of £3.5m.
ii) Gain on disposal of investment
On 20 October 2005, the Group announced the sale of its 19.9% stake in Heart of
Midlothian plc ('Hearts') to Heart of Midlothian 2005 Limited, a company wholly
owned by UAB Ukio Banko Investicine Grupe ('UBIG') at a consideration of £0.9m,
or 35 pence per share. The Group also entered into an agreement for the disposal
of its entire holding of convertible loan stock in Hearts to UBIG for a
consideration of £1.8m plus accrued interest. The disposal resulted in a net
gain of £2.3m to the Group after disposal costs of £0.4m.
5. Finance costs
6 months 6 months Full year
2006 2005 2005
£m £m £m
Interest expense:
Bank borrowings 4.5 4.8 9.3
CULS and loan note interest 0.9 1.0 1.7
-------- -------- --------
5.4 5.8 11.0
Pension finance (credit)/ cost (1.0) 1.5 0.8
-------- -------- --------
Finance costs 4.4 7.3 11.8
-------- -------- --------
6. Tax
6 months 6 months Full year
2006 2005 2005
£m £m £m
The charge for tax is as follows:
Tax on profit on ordinary activities excluding 1.7 1.5 4.2
exceptional items at 21% (2005: 23%)
Tax charge on exceptional items - - 0.2
------- -------- --------
1.7 1.5 4.4
------- -------- --------
The charge is lower than the standard rate of 30% due to adjustments for prior
year over provisions and certain tax planning initiatives.
7. Dividends
6 months 6 months Full year
2006 2005 2005
£m £m £m
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 December
2004 of 1.5p - 4.7 4.7
Interim dividend for the year ended 31 December
2005 of 1.2p - - 3.8
Final dividend for the year ended 31 December
2005 of 1.7p 5.4 - -
------- -------- --------
5.4 4.7 8.5
------- -------- --------
The proposed interim dividend of 1.2p per share to be paid on 19 January 2007
was approved by the Board on 8 September 2006 and has not been included as a
liability as at 30 June 2006.
It is proposed to pay the interim dividend to shareholders on the register at 8
December 2006.
8. Earnings per share
6 months 6 months Full year
2006 2005 2005
£m £m £m
EPS including exceptional items:
Basic EPS
Attributable profit for the financial period
(including exceptional items and former UGC
contract) 6.3 5.2 14.4
--------- -------- --------
Weighted average number of shares in issue 314.8m 314.3m 314.5m
EPS 2.0p 1.7p 4.6p
---------- -------- --------
Underlying EPS:
Basic EPS
Attributable profit for the financial period
(including exceptional items and former UGC
contract) 6.3 5.2 14.4
Impact of exceptional items and former UGC
contract - (0.7) 0.6
--------- -------- --------
Attributable profit for the financial period 6.3 4.5 15.0
--------- -------- --------
Weighted average number of shares in issue 314.8m 314.3m 314.5m
Underlying EPS 2.0p 1.4p 4.8p
---------- -------- --------
There is no difference between basic and diluted EPS as there is no material
impact from dilutive share options.
9. Derivative financial liability
The derivative financial liability at 30 June 2006 is £nil (£0.8m at 30 June
2005; £0.5m at 31 December 2005) and has arisen as a result of an interest rate
swap. The Group uses interest rate swaps to manage its exposure to interest rate
movements on its bank borrowings.
The notional principal amount of the outstanding interest rate swap contract at
30 June 2006 was £60.0m. At 30 June 2006 the fixed interest rates are 4.94%
(fixed until 2007) and floating rates are 4.75% (3 month LIBOR). Any net gain or
loss deferred in equity will reverse during the next three years, being the
life of the swap.
10. Share capital
During the six months to 30 June 2006, the Group has issued new ordinary shares
of 2.5p each relating to the exercise of share option awards, which has resulted
in a £0.1m increase in share capital and a £0.5m increase in share premium.
11. Statement of changes in reserves
Hedging Retained
reserve earnings
£m £m
At 1 January 2006 (0.5) (125.1)
Net profit - 6.3
Dividends - (5.4)
Allotment of own shares - (0.3)
Actuarial gain - 6.1
Deferred tax - (1.8)
Movement in hedging reserve 0.5 -
-------- --------
At 30 June 2006 - (120.2)
-------- --------
There have been no movements in the merger reserve, equity reserve and other
reserve during the six months ended 30 June 2006.
12. Notes to cash flow statement
6 months 6 months Full year
2006 2005 2005
£m £m £m
Operating profit (before reorganisation costs) 12.3 13.7 31.2
Depreciation and other non-cash items 3.7 3.4 6.6
-------- -------- --------
Operating cash flows before movements in working
capital 16.0 17.1 37.8
Increase in inventories (8.3) (3.0) (8.3)
(Increase)/ decrease in trade and other
receivables (10.6) (8.5) 1.7
Increase/ (decrease) in trade and other payables 6.9 (1.3) (4.0)
-------- -------- --------
4.0 4.3 27.2
Reorganisation costs (2.5) (0.3) (0.5)
-------- -------- --------
Cash generated by operations 1.5 4.0 26.7
-------- -------- --------
13. 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
2006 2005 2005
£m £m £m
Equities 8.0% 140.0 7.6% 137.0 8.0% 146.2
Bonds 4.1- 4.9% 111.0 4.1 - 4.9% 93.9 4.1- 4.9% 109.6
------ ------ ------
Fair value of schemes' assets 251.0 230.9 255.8
Present value of defined benefit
obligations (297.0) (329.9) (308.8)
------ ------ ------
Deficit in the schemes (46.0) (99.0) (53.0)
------ ------ ------
A related offsetting deferred tax asset of £13.6m is shown under non-current
assets. Therefore the net pension scheme deficit amounts to £32.4m at 30 June
2006 (£68.8m at 30 June 2005; £36.7m at 31 December 2005).
14. Calculation of underlying profit before tax
6 months 6 months Full year
2006 2005 2005
£m £m £m
Profit before tax 8.0 6.7 18.8
Adjusted for:
Former UGC contract contribution - (0.9) (0.5)
Reorganisation provision - - 3.5
Gain on disposal of investments - - (2.3)
-------- -------- --------
Underlying profit before tax 8.0 5.8 19.5
-------- -------- --------
15. Mailing
A copy of this statement is being sent to all shareholders on 4 October 2006 and
will be available for inspection by members of the public at the Company's
registered office at Pacific Quay, Glasgow, G51 1PQ.
Independent auditors' 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 2006 which comprises the consolidated income
statement, consolidated statement of total gains and losses, consolidated
balance sheet, consolidated cash flow statement 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 Listing Rules
of the London Stock Exchange 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.
This interim report has been prepared in accordance with the basis set out in
Note 1.
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 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
Glasgow
13 September 2006
Notes:
(a) The maintenance and integrity of the SMG plc web site 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 web site.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
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