Preliminary Results

SMG PLC 27 February 2001 SMG PLC PRELIMINARY RESULTS Preliminary Results For the Year Ended 31 December 2000 Financial Highlights - Turnover - up 24% to £300.5m - EBITDA* - up 31% to £82.8m - Operating Profit** - up 34% to £74.3m - Profit Before Tax** - up 18% to £59.0m - Earnings per Share** - up 7% to 15.0 pence - Dividend per Share - up 5% to 6.8 pence Operational Highlights - Record profits - reaching £59.0m** - Transforming acquisition of Ginger Media Group - Strategic radio investment - Successful Internet launch * Earnings before interest, tax, depreciation and amortisation and excluding exceptionals ** Excluding exceptionals and before the impact of goodwill amortisation under FRS10 Commenting on the results, Don Cruickshank, Chairman of SMG, said: 'The year 2000 was a transforming one for SMG, witnessing a period of significant development for the Group. We continued to expand, emerging as a significant player in UK media, touching the lives of millions of viewers, listeners and readers, and once again generated record pre-tax profits, reaching £59.0 million. We maintain a sharp focus on the future and are confident that we are well positioned to take advantage of any opportunities that we identify in the fast-changing world of communications, while continuing to satisfy the information and entertainment needs of our customers.' For further information, contact: Andrew Flanagan Chief Executive ) 020 7882 1088 George Watt Group Finance Director ) on day of release, and Callum Spreng Corporate Affairs Director ) 0141 300 3300 thereafter James Hogan Brunswick Group 020 7404 5959 There will be a presentation for City analysts at 10.00am today at ABN Amro, 250 Bishopsgate, EC2 SMG plc 2000 Full Year Results Preliminary Announcement Chairman's Statement The year 2000 was one of significant development for SMG as we continued to implement our strategy of expanding across UK media, while achieving a strong performance from our ongoing operations, generating record pre-tax profits of £59.0m. That this performance was accomplished against a background of variable trading conditions across our operations during the year, was a considerable achievement for the Group. We are now a significant provider of information and entertainment services to UK audiences, touching the lives of millions of viewers, listeners and readers every day. The headline financial results for 2000 are: 2000 1999 Increase Turnover £300.5m £242.7m 24% EBITDA* £82.8m £63.0m 31% Operating Profit** £74.3m £55.3m 34% Profit before Tax** £59.0m £50.0m 18% Earnings per Share** 15.0p 14.0p 7% Dividend per Share 6.8p 6.5p 5% * Earnings before interest, tax, depreciation, amortisation and excluding exceptionals ** Excluding exceptionals and before the impact of goodwill amortisation under FRS10 Turnover was up 24% at £300.5m, reflecting not only the 10 months' contribution from Ginger Media Group, acquired in March 2000, but also a solid performance from the Group's ongoing operations across Television, Publishing and Out of Home. We grew operating profits by 34% to £74.3m and, even once the increased interest costs of £15.3m (1999: £5.3m) primarily arising as a result of our acquisition programme are taken into account, pre-tax profit still increased by 18% to £59.0m. In such a transforming year for SMG, this underlines the commitment of the management team to focusing on the ongoing good health of the business in addition to its expansion plans. Earnings per share were 15.0 pence, a 7% increase reflecting the enlarged share base following the share placing and the rights issue carried out in 2000. The Board is recommending a final dividend of 4.5 pence which, when added to the interim dividend, provides a full year dividend of 6.8 pence - an increase of 5% over 1999. TELEVISION Our Television Division performed well in a year that saw unsustainable growth in ITV in the first six months which evaporated in the second half of the year. Total Television turnover increased by 14% to £159.4m in 2000, including a strong contribution from Ginger Television. Operating profits improved to £39.0m (1999: £36.4m) including full year losses of £2.1m on our digital television channel, S2 launched in 1999. Broadcasting Airtime sales across ITV encountered unusual market conditions during 2000. The exceptional growth experienced by some ITV broadcasters in the first half of the year was not seen in Scotland, as the dot.com companies, banks and telecoms sector continued to focus their marketing effort on southern England. By the summer, this advertising activity had reduced significantly as we had anticipated. Scottish and Grampian Television outperformed the Network in the second half of the year but we were unable to re-claim our share of Net Advertising Revenues (NAR), finishing the year at 5.88% (1999: 6.12%). In October we announced that our national airtime sales were to be handled by Carlton from 1 January, 2001, and we expect to return to our historic 6% level during 2001. S2, our pan-Scotland digital terrestrial channel, continues to occupy a valuable place on the digital spectrum and is now available in over 400,000 homes across Scotland. Losses at S2 were held at expected levels and we continue to view the channel as an important platform for the future. Audience ratings across Scotland held up exceedingly well during 2000, despite the increasing penetration of multi-channel television. Significantly, we held our share of the important peak-time audience at 37%, some 12% ahead of our nearest competitor BBC1 - evidence of the close affinity both Scottish and Grampian Television have with their viewers. We are currently awaiting the announcement of the new terms for the renewal of our broadcast licences for Scottish and Grampian Television for a further 10 years, and we expect these to be published shortly. Network Programme Production The addition of Ginger Television to our network programme production business has broadened not only the range of programmes we produce, but also the customer base of broadcasters to whom we provide programming. Our network programme sales improved significantly over 1999, growing by 87% as the benefits of the integration of Ginger Television and the re-structuring of our existing business took effect. We have already won a number of commissions which are currently in production or pre-production for delivery in 2001. These include two further 'Rebus' two-hour dramas starring John Hannah; 'Take Me', a six part drama series featuring Robson Green; and 20 further episodes of the Channel 4 light entertainment show, 'The Priory'. RADIO The acquisition of Virgin Radio, as part of Ginger Media Group, in March 2000 was a very significant development for SMG, and Virgin Radio's performance in 2000 exceeded our already high expectations. Turnover grew to £33.6m, up 22% on the same period the previous year and, with its industry leading margins, Virgin Radio converted this into £15.0m of operating profit, up 58% on a like- for-like basis. The nature of UK radio's RAJAR audience measurement system served to produce some volatile results over the period. However, Virgin Radio has continued to attract a consistently high quality audience, much valued by advertisers, and advertising sales grew by 22% compared with the radio industry average of 14%. Of this growth, 11% was attributable to traditional advertisers and not related to dot.com activity. Virgin Radio's continued success stems from the station staying in touch with its listeners' tastes. A review of the station's music choice has resulted in the fine-tuning of its music policy to build on its classic rock and pop offering and maintain a close affinity with its core audience. PUBLISHING Our Publishing Division comprises both newspapers and our magazines business, which continue to play a valuable role in the Group's activities. Publishing turnover increased to £78.8m, a rise of 4% over 1999, and we were able to convert this into a 7% increase in operating profits to £16.0m due to strong cost control and the operational gearing of the business. Our newspapers performed strongly in 2000. Advertising sales grew by 8% over the year, with particularly strong growth in employment and national display. The Sunday Herald, launched in 1999, saw advertising sales growth of 27% as it established itself in the market. This growth was achieved in one of the most crowded newspaper markets in the world. Despite price-cutting by competitors and the launch of new paid-for and free titles, circulation on both The Herald and Evening Times was resilient. We maintained the cover price on all our titles and held the resulting circulation fall on The Herald to 6%. The Evening Times slowed the rate of decline in its circulation to 5% in 2000, while the Sunday Herald continued to establish its place on the newsstands, achieving a first full year ABC of 55,000. OUT OF HOME The Out of Home division comprises our cinema and outdoor advertising businesses. Turnover increased by 9% to £28.7m. However, excluding the airports advertising business, which was sold during 2000, this represents an increase of 40% over 1999. Operating profit grew by a steady 8% to £4.3m. Outdoor Advertising Primesight, our outdoor advertising business specialising in the six sheet poster market, benefited from an accelerated panel build programme in 1999 and strong growth in the outdoor market overall. Primesight finished 2000 with profits ahead of last year and with a total inventory of 8,200 six sheet panels. With a number of planning applications awaiting approval, this business is well-placed for continued growth in 2001. Cinema Advertising A disappointing crop of film releases, with a notable shortage of big box office successes, alongside the unusual television advertising market, affected the whole cinema advertising market even though cinema admissions continued to grow. While Pearl & Dean had enjoyed a buoyant 1999, these factors combined to hold back its 2000 performance. However, Pearl & Dean continues to gain a disproportionate share of cinema advertising revenues and we look forward to the release of such films as 'Bridget Jones' Diary' and 'Pearl Harbour' helping to restore buoyancy to the cinema advertising market in 2001. ONLINE A significant amount of development work was carried out during 2000 in preparation for the unveiling of our first s1 website - s1jobs.com - which was launched to consumers last month after a period of live testing. An exceptional charge of £5.0m has been made to cover this pre-launch activity. This site is already Scotland's top recruitment website and received more than 120,000 visits in its first month of operation with job-seekers registering on the site at a rate of 280 a day. Further s1 sites, based on our television and newspaper content, will be launched during the remainder of 2001. Virginradio.co.uk continues to be one of the UK's leading radio websites, and generated revenues of £1.0m in the 10 months after the acquisition of Ginger Media Group. CORPORATE DEVELOPMENT The continued development of the Group, through both organic growth and acquisition, continues to be a priority for the management team. We have plans to grow the business across a range of media and are pursuing numerous value enhancing opportunities for the Group's development. Radio In December, we successfully built up a stake of 20.8% in Scottish Radio Holdings plc, which we supplemented with a further 4.1% holding earlier this month, at a total cost of £125.0m as part of our strategy of investing in the fastest growing areas of UK media. SRH, which operates across radio, newspapers and outdoor advertising, is an exceptionally complementary business to our own. We believe that there will be further consolidation and co- operation within the UK radio sector and that, by taking this step, we are well-positioned to explore any future opportunities. We also announced during 2000 that we intended to bid for new radio licences as and when they become available, and our application for the South and West Yorkshire FM licence is currently being considered by The Radio Authority. Our presence on the digital radio platform, both nationally and in London, also ensures that we are well placed to benefit once the take-up of digital sets accelerates. Corporate During 2000, we also moved to prepare the Group as a whole for future expansion and we re-branded to reflect the UK national scope of the business and alongside this, instituted a restructuring of the Group's legal framework. In August, we completed a successful institutional share placing designed to reduce the Group's net debt and increase our funding flexibility. We also re- organised our long-term debt and £140.0m of loan notes, with a 10 year maturity, were placed with institutional investors in the UK and US. This new finance has better balanced our interest rate exposure with some 50% of our year end debt now at fixed interest rates. BOARD, MANAGEMENT & STAFF Credit for SMG's continued success must go to the Group's staff and management for their continued enthusiasm, energy and creativity and I pay tribute to the hard work and effort that has created one of the UK's leading media players. The Board saw further evolution during 2000 with the resignations of group finance director, Gary Hughes, and non-executive director, Peter Cadbury. I would like to take this opportunity to thank them both for their significant contributions. I have also been pleased to welcome as non-executive directors Steve Maine and Fiona Harrison, who joined the Board during 2000. I am also very pleased to confirm today the appointment of George Watt as Group Finance Director, a role which he has been performing very effectively in an acting capacity for some months. PROSPECTS The UK economy's fundamentals appear strong but the uncertainty of any collateral damage from a US slowdown and a UK general election is making many advertisers cautious. There is clear danger of talking ourselves into a downturn but as yet, there is no evidence of an across the board weakness in advertising. Television has started the year slowly but we still expect modest growth for the year and our businesses should achieve a NAR share of 6%. In Radio we expect another strong year but weighted towards the second half, and we are seeing some early growth against the tough comparatives of last year. Publishing has started the year well with recruitment advertising particularly strong and our national advertising sales holding up well. Newsprint price increases have been negotiated at around 11%. Cinema and Outdoor have also started 2001 strongly. Overall, our businesses are performing well in uncertain market conditions and the Group is in good shape. If economic uncertainty abates and advertising prospects are confirmed then we will make good progress in the year ahead. Don Cruickshank Chairman 27 February, 2001 Consolidated Profit and Loss Account for the year ended 31 December 2000 Excluding Total including exceptionals and exceptionals FRS10 and FRS10 Note 2000 1999 Growth* 2000 1999 £m £m £m £m Turnover Continuing operations 249.7 236.9 5% 249.7 236.9 Acquisitions 50.8 - 50.8 - Discontinued operations - 5.8 - 5.8 _______ _______ ______ _______ Total turnover 2 300.5 242.7 24% 300.5 242.7 Net operating expenses (228.4) (189.1) (242.3) (191.7) Reorganisation costs 3 - - (5.0) (2.5) Internet development 3 - - (5.0) - ======= ======= ======= ======= Net operating expenses (228.4) (189.1) (252.3) (194.2) Operating profit Continuing operations 55.6 53.6 41.6 48.5 Acquisitions 16.5 - 6.6 - ======= ======= ======= ======= Group operating profit 72.1 53.6 35% 48.2 48.5 Share of associate 2.2 1.7 2.2 1.7 Equity accounting reinstatement 3 - - - (5.7) ======= ======= ======= ======= Total operating profit 2 74.3 55.3 34% 50.4 44.5 Exceptional items Investment written back 3 - - - 3.0 _______ _______ _______ _______ Profit on ordinary activities before interest 74.3 55.3 34% 50.4 47.5 Net interest payable 4 (15.3) (5.3) (15.3) (5.3) ======= ======= ======= ======= Profit on ordinary activities before taxation 59.0 50.0 18% 35.1 42.2 Taxation on profit on ordinary activities 5 (15.3) (13.0) (13.5) (11.8) ======= ======= ======= ======= Profit on ordinary activities after taxation 43.7 37.0 21.6 30.4 Dividends 6 (21.0) (17.3) (21.0) (17.3) ======= ======= ======= ======= Profit transferred to reserves 22.7 19.7 0.6 13.1 ======= ======= ======= ======= Earnings per ordinary share - basic 7 15.0p 14.0p 7% 7.4p 11.5p ======= ======= ======= ======= - diluted 7 14.2p 13.7p 7.2p 11.4p ======= ======= ======= ======= Statement of Total Recognised Gains and Losses 2000 1999 For the year ended 31 December 2000 £m £m Profit for the financial year attributable to shareholders 21.6 30.4 Unrealised surplus on revaluation of properties 3.1 - ______ _____ Total recognised gains and losses for the financial year 24.7 30.4 ====== ===== * Growth is calculated excluding exceptionals and goodwill amortisation under FRS10 Consolidated Balance Sheet at 31 December 2000 Note 2000 1999 £m £m Fixed assets Intangible assets 8 356.5 126.0 Tangible assets 10 57.4 45.8 Investments 11 112.1 10.5 ========== =========== 526.0 182.3 __________ ___________ Current assets Stock 23.2 17.4 Debtors and prepayments 82.1 56.8 ========== =========== 105.3 74.2 __________ ___________ Creditors: amounts falling due within one year Creditors and accrued charges 69.2 41.9 Bank loans and overdrafts 12 134.2 77.3 Corporation tax 17.1 14.5 Proposed dividend 13.9 11.6 ========== =========== 234.4 145.3 __________ ___________ Net current liabilities (129.1) (71.1) __________ ___________ Total assets less current liabilities 396.9 111.2 __________ ___________ Creditors: amounts falling due after more than one year Creditors and accrued charges 3.1 2.2 Other loans 12 140.0 - Convertible unsecured loan stock 13 22.9 23.2 Secured loan notes 13 2.3 2.8 ========== =========== 168.3 28.2 ========== =========== Provisions for liabilities and charges 14 2.8 5.8 __________ ___________ Net assets 225.8 77.2 ========== =========== Capital and reserves Called up share capital 7.7 6.5 Share premium account 44.5 101.1 Shares to be issued 27.8 - Merger reserve 173.4 - Revaluation reserve 3.1 - Profit and loss account (30.7) (30.4) __________ ___________ Equity shareholders' funds 15 225.8 77.2 ========== =========== Consolidated Cash Flow Statement for the year ended 31 December 2000 Note 2000 1999 £m £m Operating activities Net cash inflow from continuing operating activities 16 60.7 50.0 ======== ======== Returns on investments and servicing of finance Interest received 0.6 0.2 Interest paid (15.9) (4.6) Interest paid on finance leases (0.1) (0.1) ======== ======== (15.4) (4.5) ======== ======== Taxation UK corporation tax paid (including ACT) (13.9) (13.2) ________ ________ Capital expenditure and financial investment Purchase of tangible fixed assets (18.1) (10.8) Purchase of fixed asset investments (103.1) (8.5) Sale of tangible fixed assets 1.5 0.3 ======== ======== (119.7) (19.0) ======== ======== Acquisitions and disposals Purchase of subsidiary undertakings 9 (115.1) (63.0) Net debt acquired with subsidiary undertakings 9 (73.2) (4.4) Increased investment in associate undertaking (6.1) - Sale of subsidiary undertaking - 1.0 ======== ======== (194.4) (66.4) ======== ======== Equity dividends paid (18.8) (16.2) ======== ======== Cash outflow before financing (301.5) (69.3) ======== ======== Financing Net proceeds from debt placing 140.0 - Net proceeds from rights issue 59.3 - Net proceeds from share placing 42.3 - Share capital options exercised 1.9 0.1 Net repayment of loan notes 1.6 (1.5) Repayment of principal under finance (0.5) (0.4) leases ======== ======== 244.6 (1.8) ________ ________ Cash outflow in the period (56.9) (71.1) ======== ======== Movement in net debt 2000 1999 £m £m Opening net debt (104.8) (29.0) Cash outflow in the period (56.9) (71.1) Issue of loan notes - (5.1) Other movements (138.7) 0.4 ___________ __________ Closing net debt (300.4) (104.8) =========== ========== NOTES TO THE PRELIMINARY ANNOUNCEMENT for the year ended 31 December 2000 1. Basis of preparation The financial information for the years ended 31 December 2000 and 31 December 1999 is taken from, but does not constitute, the Group's statutory accounts for those years. The accounting policies set out in the financial statements for the year ended 31 December 1999 have been applied consistently to both years, with the exception that FRS15 'Tangible Fixed Assets' and FRS16 'Current Tax' came into effect during the period and have been adopted as required. The auditors have completed their audit of the financial information contained herein and have confirmed that they expect to give an unqualified opinion. The statutory accounts for the year ended 31 December 2000 will therefore be finalised on the basis of the financial information presented by the directors in this preliminary announcement. 2. Segmental analysis The results for the year ended 31 December 2000 include the post-acquisition turnover and operating profits from Ginger Media Group Ltd ('GMG') which was acquired on 14 March 2000. GMG comprises Virgin Radio (Radio), Ginger Online (Radio) and Ginger Television (Television) which have been consolidated as subsidiaries from the date of acquisition. The analysis of the Group's turnover and operating profit by operating division is set out below: 2000 1999 Growth £m £m Turnover Television 159.4 140.3 14% Publishing 78.8 76.1 4% Radio 33.6 - - Out of Home 28.7 26.3 9% __________ __________ Total turnover 300.5 242.7 24% ========== ========== Turnover in 2000 includes £1.1m (1999: £4.2m) of revenues from sources outside the UK. Turnover in 1999 includes £5.8m relating to discontinued activities. 2000 1999 Growth £m £m Operating profit Television 39.0 36.4 7% Publishing 16.0 14.9 7% Radio 15.0 - - Out of Home 4.3 4.0 8% ________ ________ ________ Total operating profit excluding exceptional items and FRS10 74.3 55.3 34% Exceptional items (note 3) (10.0) (8.2) - Goodwill amortisation (13.9) (2.6) - ________ ________ ________ Total operating profit (FRS3) 50.4 44.5 13% ======== ======== Operating profit in 2000 includes £0.6m (1999: £0.6m) arising outside the UK. Discontinued activities did not contribute to operating profit in 1999. 3. Exceptional items (i) A provision for exceptional costs, amounting to £5.0m has been made to cover planned reorganisation initiatives within the Group's Television and Publishing operations. In 1999 an amount of £2.5m was provided to cover post acquisition reorganisation initiatives following the acquisition of Primesight, Baillie and Pearl & Dean and the consequent consolidation of the Group's London based property requirements. (ii) A provision for exceptional costs amounting to £5.0m has been made to cover the pre-launch costs of s1, the Group's family of Scottish based content and e-commerce internet sites. (iii) During 1999, the Group recommenced equity accounting for GMTV Limited ('GMTV'), the licence holder for the Channel 3 breakfast television service, and a non-cash exceptional charge of £5.7m was recognised relating to the Group's equity accounted share of losses before tax for the period 1995 through to 1998. In addition, a provision held against GMTV loan stock was released in 1999 resulting in a non-cash exceptional profit of £3.0m. 4. Net interest payable 2000 1999 £m £m Interest payable: Bank loans and overdrafts 14.3 3.4 CULS and loan note interest 1.6 1.6 Finance leases 0.1 0.1 ________ _______ Group interest payable 16.0 5.1 Share of associate (GMTV) 0.3 0.4 ________ _______ Total interest payable 16.3 5.5 Interest receivable (1.0) (0.2) ________ _______ Net interest payable 15.3 5.3 ======== ======= 5. Taxation on profit on ordinary activities 2000 1999 £m £m The charge for taxation is as follows: Charge for the year at 26% (1999:26%) 15.3 13.0 Tax credit on exceptional items (1.8) (1.2) ________ _______ 13.5 11.8 ======== ======= 6. Dividends 2000 1999 £m £m Interim paid of 2.3p per share (1999: 2.2p) 7.1 5.7 Proposed final of 4.5p per share (1999: 4.3p) 13.9 11.6 ________ _______ 21.0 17.3 ======== ======= It is proposed to pay the final dividend on 22 May 2001 to shareholders on the register at 27 April 2001. 7. Earnings per share Basic earnings per share (EPS), excluding exceptional items and the impact of goodwill amortisation under FRS10, is calculated as follows: 2000 1999 Attributable profit for the financial period (£m) 43.7 37.0 Weighted average number of shares in issue (m) 291.4 264.4 Earnings per ordinary share (pence) 15.0p 14.0p Basic EPS, inclusive of exceptional items and after goodwill amortisation under FRS10, for the year was 7.4p (1999: 11.5p). Diluted EPS, excluding exceptional items and the impact of goodwill amortisation under FRS10, is calculated as follows: 2000 1999 Attributable profit for the financial period (£m) 44.8 38.1 Weighted average number of shares in issue (m) 315.2 277.2 Diluted earnings per ordinary share (pence) 14.2p 13.7p Diluted EPS, inclusive of exceptional items and after goodwill amortisation under FRS10 for the year was 7.2p (1999: 11.4p). 8. Intangible assets Intangible assets comprise the masthead values ascribed to the Group's two principal newspaper titles on acquisition, being The Herald (£50.0m) and the Evening Times (£6.0m), and capitalised goodwill on acquisitions completed since 1 January 1998. Mastheads are not subject to annual amortisation, but are reviewed annually for any permanent diminution. Capitalised goodwill is being amortised on a straight line basis over 20 years as summarised below. Goodwill £m Cost At 1 January 2000 72.8 Acquisitions - GMG 238.2 Acquisitions - GMTV 6.2 ======== At 31 December 2000 317.2 ======== Amortisation At 1 January 2000 2.8 Charge for the period 13.9 ======== At 31 December 2000 16.7 ======== Net book value at 31 December 2000 300.5 ======== Net book value at 31 December 1999 70.0 ======== 9. Acquisitions On 14 March 2000, the company declared its offer for GMG unconditional and the results have been consolidated from this date using the acquisition accounting method. The book values of the assets and liabilities of GMG immediately prior to the acquisition and the fair value adjustments required in recognition of the change of ownership are as follows: Book Value Accounting Fair value Fair prior to policy Adjustments value acquisition adjustments £m £m £m £m Tangible fixed assets 0.7 - (0.3) 0.4 Intangible fixed assets 3.8 (3.8) - - Stock - 4.5 - 4.5 Debtors 15.2 (2.1) (0.3) 12.8 Cash 12.1 - - 12.1 Borrowings (85.3) - - (85.3) Creditors (18.9) 0.6 (4.5) (22.8) Provisions (3.9) - - (3.9) =========== =========== =========== ====== Net liabilities acquired (76.3) (0.8) (5.1) (82.2) ___________ ___________ ___________ ______ Fair value consideration Cash 107.9 Shares 40.9 Acquisition expenses 7.2 ====== Total consideration 156.0 ______ Goodwill arising (see note 8) 238.2 ====== The £115.1m of consideration met in cash excludes the assumption of GMG's indebtedness and preference shares amounting to £73.2m. The £40.9m of consideration met in shares is in the form of ordinary and deferred shares in SMG (Jersey) Ltd. The shares can be exchanged into SMG plc ordinary shares in three separate tranches, the first at completion and the following two anniversaries. As at 31 December 2000, the deferred consideration remaining to be paid amounts to £27.8m based on the fulfilment of certain contractual obligations. Accounting policy adjustments The main adjustments are as follows: (i) In accordance with FRS10, an adjustment has been made to write off the intangible asset (£3.8m) and related debtors (£0.4m) and creditors (£4.2m) in respect of Virgin Radio's radio licences. (ii) Adjustments to stock (£4.5m), debtors (£1.6m) and creditors (£3.3m) have been made in order to align income recognition on television programme production with the Group's existing accounting policies. Fair value adjustments The fair value of fixed assets has reduced by £0.3m to reflect the write down of certain assets, which are due for replacement. Debtors have decreased by £0.3m in respect of potential bad debts and creditors have increased by £4.5m to cover potential liabilities arising from certain contractual arrangements entered into prior to the acquisition. Analysis of net cash outflow in respect of the acquisition of GMG £m Cash consideration 107.9 Borrowings 85.3 Cash balances acquired (12.1) Acquisition expenses 7.2 ========== Net cash outflow 188.3 ========== 10. Tangible fixed assets Plant and Land and buildings technical Leasehold Freehold Equipment Total £m £m £m £m Cost or valuation At 1 January 2000 2.2 18.1 75.6 95.9 Revaluation - (1.8) - (1.8) Acquisitions - - 0.4 0.4 Additions - 0.1 18.0 18.1 Disposals (1.5) - - (1.5) ========== ========= ========= ======= At 31 December 2000 0.7 16.4 94.0 111.1 __________ _________ _________ _______ Depreciation At 1 January 2000 0.3 5.2 44.6 50.1 Revaluation - (4.9) - (4.9) Charge for year - 0.4 8.1 8.5 ========== ========= ========= ======= At 31 December 2000 0.3 0.7 52.7 53.7 __________ _________ _________ _______ Net book value At 31 December 2000 0.4 15.7 41.3 57.4 ========== ========= ========= ======= Net book value At 31 December 1999 1.9 12.9 31.0 45.8 ========== ========= ========= ======= a) Freehold land & buildings comprise: 2000 1999 £m £m At valuation 13.9 - At cost 2.5 18.1 __________ __________ 16.4 18.1 ========== ========== Professional valuations were carried out by NAI Gooch Webster, Chartered Surveyors, on the Group's studio properties at 30 June 2000. The valuations were prepared on the basis of open market value and in accordance with the RICS Appraisal and Valuation Manual. b) Historical cost figures for freehold buildings are: 2000 1999 £m £m Cost 18.2 18.1 Depreciation (5.6) (5.2) _________ _________ 12.6 12.9 ========= ========= 11. Investments The investments held at 31 December 2000 represents £8.5m in Heart of Midlothian plc ('Hearts'), comprising £3.5m of ordinary share capital and £4.5m of secured convertible loan stock along with capitalised acquisition costs and £103.1m in Scottish Radio Holdings plc ('SRH'), comprising 20.8% of the ordinary share capital. The Group's investment in associated undertakings relates to GMTV and was increased on 5 January 2000 from 20% to 25% for a cash consideration of £5.6m and the assumption of a further £0.5m of GMTV loan stock increasing the investment in GMTV loan stock to £2.5m. £2.0m of this loan stock was repaid during the year, leaving a balance of £0.5m at December 2000. Goodwill in relation to GMTV is shown at note 8. 12. Bank loans and overdrafts The Group had treasury facilities amounting to £375.0m at its disposal as at 31 December 2000, including a £140.0m 10-year private placement and a £200.0m 3-year revolving credit facility. At 31 December 2000, £100.8m of these facilities were available to be used for general corporate purposes. 13. Loan stock The convertible unsecured loan stock ('CULS') as at 31 December 2000 is convertible on 30 April in each of the years 1999 to 2007 inclusive. The CULS are convertible into new SMG shares on the basis of 50.2808 SMG shares per £100 nominal of SMG CULS. The CULS are unsecured obligations of SMG and bear interest at a rate of 6.5% per annum. On 30 April 2000, £0.3m of CULS were converted. Secured loan notes dated October 2007 amounting to £5.1m was issued to fund the acquisition of Primesight. The loan notes bear interest at a rate of one and a half percent below LIBOR and are redeemable on 1 April and 1 October each year. During 2000, £0.5m of loan notes were redeemed. 14. Provisions for liabilities and charges 2000 1999 £m £m Deferred taxation 0.9 2.3 Equity accounted losses 1.9 3.5 _____________ _____________ 2.8 5.8 ============= ============= Equity accounted losses represents the equity accounted losses on GMTV. 15. Reconciliation of movements in equity shareholders' funds 2000 1999 £m £m Profit for the year 21.6 30.4 Dividends (21.0) (17.3) ____________ ____________ 0.6 13.1 Increase in share premium 116.8 - Shares issued 1.2 1.9 Shares to be issued 27.8 - Revaluation of freehold properties 3.1 - Amount deducted in respect of shares issued to QUEST (0.9) - ____________ ____________ Net movement in shareholders' funds 148.6 15.0 Opening shareholders' funds 77.2 62.2 ____________ ____________ Closing equity shareholders' funds 225.8 77.2 ============ ============ The ordinary share capital, share premium and reserves have moved as follows: Called Share Reva- Shares Merger Profit 2000 1999 up Pre- luat- to be Res- and Total Total Share mium ion issued erve loss Capit- Rese- acc- al rve ount £m £m £m £m £m £m £m £m At 1 January 6.5 101.1 - - - (30.4) 77.2 62.2 1-for-10 rights issue 0.7 58.6 - - - - 59.3 - Share placing 0.4 41.9 - - - - 42.3 - Shares to be issued - - - 27.8 - - 27.8 - GMG consideration 0.1 12.9 - - - - 13.0 - Conversion of 6.5% CULS - 0.3 - - - - 0.3 - Group share option and profit share schemes - 3.1 - - - - 3.1 1.9 Profit for financial year - - - - - 21.6 21.6 30.4 Dividends paid and proposed - - - - - (21.0) (21.0)(17.3) Revaluation of freehold buildings - - 3.1 - - - 3.1 - Amount deducted in respect of shares issued to QUEST - - - - - (0.9) (0.9) - Transfer to merger reserve - (173.4) - - 173.4 - - - ______ _______ _____ ______ ______ ______ ______ _____ At 31 December 7.7 44.5 3.1 27.8 173.4 (30.7) 225.8 77.2 ====== ======= ===== ====== ====== ====== ====== ===== On 26 June 2000, a Scheme of Arrangement between SMG plc and its shareholders under section 425 of the Companies Act 1985 was implemented. This was sanctioned by the Court of Session on 23 June 2000 and all issued shares in Scottish Media Group plc were then cancelled. Following the cancellation, the share capital of Scottish Media Group plc was restored to its former nominal amount and the credit arising as a result of the cancellation was applied in paying up in full new Scottish Media Group plc shares equal in nominal value to the shares cancelled. The new Scottish Media Group plc shares were issued to SMG plc, which, as a result, became the new holding company of the Group. As part of the capital reorganisation, SMG plc issued 49,998 redeemable shares of £1 each. These non-equity shares were redeemed at par on 30 November 2000. On 26 June 2000 the new ordinary shares in SMG plc were admitted to the Official List of the London Stock Exchange. A 4-for-1 share split took place on the same date. The application of merger accounting principles to the consolidation of the new holding company results in the share capital of the Group in prior years being equivalent to the share capital of Scottish Media Group plc. As at 31 December 2000, the ultimate parent company had sufficient distributable reserves to make dividend payments at current levels for the foreseeable future. Shares to be issued represent £27.8m deferred consideration remaining to be paid to GMG shareholders as discussed in note 9. 16. Reconciliation of operating profit to operating cash flows 2000 1999 £m £m Continuing activities Group operating profit (before exceptional items and FRS10) 72.1 53.6 Depreciation and other non-cash items 9.7 6.7 Increase in stock (1.3) (3.1) Increase in debtors (9.8) (4.7) (Decrease)/increase in creditors (3.7) 1.0 Reorganisation costs (5.3) (1.4) Internet development costs (1.0) - Sunday paper pre-launch costs - (2.1) ______________ ______________ Net cash inflow from continuing operations 60.7 50.0 ============== ============== 17. Post Balance Sheet Events In February, 2001, the Group increased its investment in SRH by 4.1% to 24.9%, at a cost of £22.0m. 18. A copy of the annual report is being sent to all shareholders on 8 March 2001 and will be available for inspection by members of the public at the Company's registered office at 200 Renfield Street, Glasgow.

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