Preliminary Results
SMG PLC
10 March 2004
Wednesday 10 March 2004
SMG plc
Preliminary Results
Year Ended 31 December 2003
Second half performance signals advertising-led recovery
HIGHLIGHTS
• Significant ITV settlement achieved
• Successful asset disposals
• Balance sheet issues resolved
• Advertising market recovery gaining momentum
• Dividend maintained
KEY FINANCIALS
• Group Turnover - cont. operations £188.2m (2002: £199.8m)
Group Turnover - total £209.2m (2002: £278.4m)
• Operating Profit* - cont. operations £38.6m (2002: £42.0m)
Operating Profit** - total £40.9m (2002: £53.7m)
• Statutory Profit - before net financing charges £44.4m (2002: £28.3m)
• Profit Before Tax*** £17.5m (2002: £24.2m)
• Statutory Profit Before Tax £0.2m (2002: £16.1m loss)
• Basic Earnings per Share**** 5.0 pence (2002: 5.6 pence)
• Dividend 2.5 pence (2002: 2.5 pence)
* Before goodwill amortisation of £18.6m (2002: £18.5m) and net exceptional
charges of £10.9m (2002: nil).
** Before goodwill amortisation of £18.6m (2002: £19.2m) and net exceptional
charges of 10.9m (2002: nil).
*** Before goodwill amortisation of £18.6m (2002: £19.2m) and net exceptional
income of £1.3m (2002: net charges of £21.1m).
**** Before goodwill amortisation of £18.6m (2002: £19.2m) and net exceptional
income of £4.9m (2002: net charges of £16.6m).
Andrew Flanagan, Chief Executive of SMG, said:
'Not only did 2003 appear to mark the end of the advertising downturn, but it
was also an important year for SMG as we reshaped and refocused the business in
preparation for the upturn. Reaching a settlement with ITV has materially
strengthened our position. The quality and consistency of bookings for the first
four months of 2004 are encouraging and we are seeing growth in each media
sector. With our balance sheet issues resolved we look forward with confidence
to the year ahead.'
For further information contact:
Andrew Flanagan Chief Executive 020 7882 1199
George Watt Group Finance Director (on day of release)
Callum Spreng Corporate Affairs Director 0141 300 3300
(thereafter)
James Hogan Brunswick Group 020 7404 5959
Ben Brewerton Brunswick Group 020 7404 5959
There will be a presentation for City analysts at 9.00am today at:
The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED
SMG plc
2003 Preliminary Results
CHAIRMAN'S STATEMENT
OVERVIEW
The end of 2003 seems to have marked the conclusion of one of the toughest
episodes in the history of UK advertising markets. For SMG, this was a period of
reshaping and refocusing as we prepared the Group to capitalise on the
advertising upturn and we have emerged stronger, fitter and confident about the
year ahead. All of the Group's businesses are strongly positioned in their
respective markets, in excellent health and well placed to take advantage of the
increased advertising activity.
Lower advertising revenues and the sale of our publishing business in April
contributed to a reduction in Group Turnover to £209.2m (2002: £278.4m).
Excluding the effect of the sale of our publishing business, like-for-like Group
Turnover from continuing operations fell by 6% to £188.2m (2002: £199.8m). This
converted into pre-tax profits, before exceptionals and goodwill amortisation,
of £17.5m (2002: £24.2m).
Throughout the downturn, each of SMG's businesses has remained profitable and
cash generative, but the weak markets, financing costs and exceptional items
pushed the Group into a loss in recent years. It is, therefore, pleasing to
report that in 2003, after taking into account exceptionals and goodwill
amortisation, we saw a welcome return to overall profitability for the Group,
with a pre-tax profit of £0.2m (2002: £16.1m loss) and earnings per share before
exceptionals and goodwill amortisation of 5.0p (2002: 5.6p).
At the time of the Group's Interim Results, we indicated that the Board would
take a view on a full year dividend at the year-end once we had better sight of
the sustainability of the advertising upturn. As this is now evident, we are
recommending that the dividend for 2003 be maintained at 2.5 pence per share
(2002: 2.5 pence). The Board's commitment to shareholders is clear, having
maintained a good level of dividend payments over the last three difficult
years.
Since the year-end we have disposed of our 28% stake in Scottish Radio Holdings
plc for £90.5m in cash. We acquired this shareholding three years ago as we
correctly anticipated that the new media ownership regulations would open up the
possibility of co-ownership of ITV franchises and local radio licences. Over
this period disposals by both companies resulted in less strategic fit and
following the implementation of the Communications Act we reviewed our options.
We believed that there remained clear benefits from a combination of the two
businesses, but we decided it would not be possible to conclude a satisfactory
transaction and we took the view that the interests of SMG's shareholders would
be better served by selling this asset and reducing the company's debt. The
£90.5m cash proceeds from the sale reduced the year-end net debt of £242.5m to a
more conventional level, providing increased flexibility and stability.
CORPORATE & BUSINESS DEVELOPMENT
2003 was a significant year for SMG as we repositioned the Group, better
equipping it to capitalise on the opportunities of the emerging advertising
upturn.
In Television, SMG's stations have been particularly successful in growing their
audience on the back of a resurgent ITV schedule, positioning us strongly to
capitalise on the recovering advertising markets. Following approval of the
Granada/Carlton merger, we were able to agree a number of major improvements to
our commercial arrangements. Importantly, this ITV settlement has resulted in
SMG's network costs being capped by inflation and our share of national
advertising revenues has effectively been underwritten at its current level.
This significant achievement for SMG, limiting cost inflation and protecting
revenues, secures the viability of an independent future for Scottish and
Grampian TV, working alongside the merged ITV. In addition, the prospect of an
early renewal of our ITV licences in 2005 presents an opportunity for us to have
the current high cost of these licences re-examined.
Audience growth was a feature of much of Virgin Radio's year too as the benefits
of a strong presenter line-up and a stable programme schedule came through. This
was underpinned by a high profile and successful marketing campaign in the first
half to reposition the station away from a single personality. It was also
gratifying that the company's actions over Chris Evans' departure were endorsed
by the successful outcome of the High Court litigation. We continue to build on
these successes by seeking ways to develop our radio business through licence
applications and we are encouraged by OFCOM's announcement of a wide range of
new opportunities in the months ahead.
The success of Pearl & Dean, still one of the strongest brands in UK
advertising, in securing the five-year Vue cinema contract in the face of stiff
opposition was a major achievement. This contract, when combined with their
existing exhibitor base, gives Pearl & Dean the highest percentage of UK
multiplex screens. Meanwhile we have further strengthened our position in the
fast growing six-sheet outdoor market, with Primesight now attaining double the
panel numbers since its acquisition in 1999 - a major milestone for Primesight,
the third largest six-sheet contractor in the UK.
SMG is a group of profitable, valuable, strongly branded media businesses that
enjoy powerful positions in their respective segments of the media sector in the
UK. With almost 80% of the Group's revenues coming from national advertisers,
these businesses are particularly complementary and one in three of our
advertisers now use all four of our media to reach their target markets. SMG
Access, created in 2003 to better target these shared customers, is now
well-established and has made significant progress in increasing advertisers'
awareness of the strengths and close fit of SMG's media. Increasingly all our
businesses use the same processes with easily transferable people skills.
Working together, we capitalise on our relationships with national advertisers
to build our market share.
As we move forward, we plan to focus sharply on the operational performance of
these core businesses, build on the improving advertising markets and restore
operating margins to historic levels. In doing so, we will continue to reduce
the Group's debt through strong free cash flow generation and low capital
requirements from these operations.
Advertising market recovery, our enhanced network television production profile,
the recently-announced range of new radio licences, forthcoming cinema
advertising contracts and our ongoing outdoor panel build programme provide much
potential for organic growth and we will take advantage of these opportunities
to further strengthen the positions of our respective businesses and the Group.
TELEVISION
The advertising downturn has hit free to air television hard over the last three
years and SMG's franchises of Scottish and Grampian TV - which are largely
reliant on national advertising markets - were no exception. In 2003, ITV as a
whole fell by 3%. For SMG, national revenues were slightly behind ITV and
regional revenues were impacted by a significant reduction in Scottish
Government spending, partly due to the Scottish Parliamentary elections,
resulting in total broadcast revenues falling by 5%. Combined with a decrease in
network production revenues, total television turnover reduced by 6% to £121.2m
(2002: £128.5m). Increased investment in the network programme budget to
strengthen audience levels, combined with the fall in revenue, were only
partially offset by cost savings, which resulted in television operating margins
reducing to 15% and operating profits to £18.0m (2002: £20.8m).
Audience performance is likely to have a much more direct impact on revenues as
a result of the ITV merger. To ensure we are well prepared for the expected
upturn in the advertising cycle much of management's focus went on securing and
strengthening the close affinity that both Scottish and Grampian TV have with
their audiences. Higher quality regional programming, facilitated by the
reduction in the volume of regional hours, and a stronger schedule of ITV
network programming, helped to boost audience levels beyond those of ITV1 and to
increase SMG's lead over our nearest rival, BBC1 Scotland, in peak-time audience
share. This now stands at 33%, 7% ahead of BBC1 Scotland and 1% higher than the
ITV Network.
Grampian TV seamlessly relocated to new, bespoke studios in Aberdeen, now one of
the most advanced television operations in Europe, and has delivered significant
on screen improvements for viewers while increasing efficiency behind the
scenes. With this successfully behind us, we are currently planning a similar
move for our Glasgow-based operations at Scottish TV.
During the course of 2003, we won a series of important concessions in the
Carlton/Granada merger undertakings, which will control the costs of our
broadcast television business and effectively underwrite our share of national
revenues. Network programme costs have been capped by inflation (excluding
'exceptional events') and SMG's share of national advertising revenues should be
maintained at least at its 2003 NAR share of 6.2%. To facilitate this agreement,
we will withdraw from our existing airtime sales contract with Carlton.The
onerous terms of the existing contract necessitated a £3.8m exceptional charge.
These new arrangements represent a very significant and positive outcome for SMG
in the new ITV environment and secure a strong future, free from the risks of an
over-dominant ITV.
Our network programme production business, SMG TV Productions continued to
strengthen its relationship with UK broadcasters. A further nine hours of
Taggart were delivered to the ITV network alongside 21 hours of Club Reps and
further commissions for both programmes have been secured for 2004. In addition,
the factual series, Don't Drop the Coffin, proved a ratings success for ITV and
Grampian's first network commission for some years - Medics of the Glen - was
broadcast both regionally, in peak-time, and nationally as part of the daytime
schedule. Our first BBC commission, for the highly regarded Timewatch series,
was well received and we are optimistic of receiving further, similar
commissions. In a further measure designed to protect us from the effects of the
ITV merger OFCOM has a responsibility to monitor ITV's commissioning of network
programming from the independent ITV franchises by genre, volume and value and
this development should safeguard our position as a network programme producer
in the new ITV.
RADIO
Virgin Radio began to see advertising pick up from the late summer but, as it is
dependent solely on national advertising revenues, it continued to be affected
by the advertising downturn for much of the year. Turnover at the station was
down for the year as a whole by 10% at £23.2m (2002: £25.9m), broadly in line
with the national commercial stations' average. However much of this was first
half related and we saw modest growth from September with the fourth quarter up
2%. A substantial investment in a successful marketing campaign in the first
half to reintroduce Virgin Radio to listeners, along with reduced airtime
revenues, led to a 27% fall in operating profits to £7.3m (2002: £10.0m).
Virgin Radio's audience - the driver for advertising sales - continued to
improve across the first three quarters of the year, as a result not only of the
£3m marketing campaign but of the increasing popularity of its weekday programme
schedule, anchored by the Pete & Geoff Breakfast Show. RAJAR's quarterly
audience statistics are notoriously volatile and undersampling issues have
created an unexplained set of listening figures for Q4 2003. We are now working
with RAJAR who have undertaken to address the issue. Our own internal research
and other confirmatory sources of data indicate that progress in rebuilding
audience is continuing.
Virgin Radio's early adopter approach to digital radio, and its strong presence
on the Digital 1 national multiplex and in London, stands us in good stead to
take advantage of the increasing popularity of digital radio in the UK. Virgin
Radio will benefit disproportionately because of the uplift in sound quality
from the station's national AM signal. Its strong brand and well-established
national presence gives Virgin Radio a real competitive advantage and will
ensure that we can outpace other digital stations, as is evident from our
outstanding success on the Internet.
OUT OF HOME
2003 was an excellent year for outdoor advertising and Primesight showed growth
across the year as a whole. Cinema audiences were the second highest since the
1970's but reduced from their record levels in 2003. This left cinema
advertising revenues subdued while we also felt the impact of the loss of the
Showcase cinema contract from October 2002. As a result, Out of Home turnover
reduced by 4% across the year to £43.8m (2002: £45.4m) leading to an 11% drop in
operating profits for the division as a whole to £5.5m (2002: £6.2m).
Primesight, the third largest operator in the expanding six-sheet market,
continued to grow its revenues in the second half of the year and showed growth
of 17% across 2003. Partly this came from the continuing expansion of its
six-sheet portfolio, reaching 11,500 panels towards the end of the year - double
its level upon acquisition. Our new high quality large format Backlight panels
are also attracting additional revenues and are now being extended beyond
London.
Pearl & Dean relies on cinema audiences to generate income from advertisers and
the warm summer weather served to discourage some from visiting cinemas across
the UK for much of the summer. In addition, 2003's movies didn't live up to
cinemagoers' expectations in the second half, and as a result, cinema audiences
fell for the first time in six years and underlying revenues were down 2%.
Overall revenues were down 13% due to the loss of the Showcase contract in late
2002.
However, Pearl & Dean successfully pitched for the key Vue contract - a
combination of its existing Warner Village and SBC contracts. In addition to
underpinning Pearl & Dean's market share of nearly 40%, this has secured this
important contract for a further 5 years. Pearl & Dean now has the most stable,
yet dynamic, exhibitors in its stable and we are confident of being able to
build market share further as the ownership of many non Pearl & Dean exhibitors
is uncertain.
The very popular Lord of the Rings III was released in December 2003 and will
feature in 2004's results. Meanwhile the forthcoming releases of Harry Potter
III, Bridget Jones Diary II, Shrek II and Spiderman II should return cinema
audiences to record levels in the coming months.
PROSPECTS
All the evidence and market intelligence points to the advertising downturn
being behind us and for SMG the key question is the speed and rate of the
recovery, as our business benefits greatly from high operational gearing,
resulting in high profit conversion from advertising revenue growth. Our
confidence in the recovery being sustained is based on the quality and
consistency of advertising bookings as well as the level of activity of
advertisers and agencies. Each of our businesses is well placed in its market
and in excellent shape and with stable and improving audiences we are
particularly well placed to take advantage of this upturn.
In 2004, the market remains relatively short term, partly as a consequence of
the Contract Rights Renewal remedy imposed on ITV, and this is impacting on our
ability to measure the strength of growth levels much beyond Easter. However,
the first four months of this year look promising and we are seeing revenue
growth in our Television business of some 5% and in Radio of 7%. In Out of Home,
Outdoor is benefiting from a particularly strong start to the year with growth
of around 20% but overall is being held back by Cinema where the better films
are being released from the second quarter onwards rather than in the first
quarter as in 2003. However, we expect Cinema to perform satisfactorily over the
first half of 2004.
SMG looks forward with confidence to reaping the benefits of the upturn in the
advertising cycle. All our businesses are in good shape bolstered, in
particular, by the beneficial settlement for our TV business following the ITV
merger and also by better audiences and good contract wins.
Don Cruickshank
Chairman
SMG plc
Consolidated profit and loss
account
for the year
ended 31
December
2003
2003 2002 restated
Pre Exceptionals Results for Pre Exceptionals Results
exceptionals and FRS10 year Exceptionals and FRS10 for
and FRS10 and FRS10 year
£m £m £m £m £m £m
Turnover
Continuing
operations 188.2 - 188.2 199.8 - 199.8
Discontinued
operations 21.0 - 21.0 78.6 - 78.6
------ --- ------ ------ --- ------
Total turnover 2 209.2 - 209.2 278.4 - 278.4
Net operating
expenses (177.9) (15.9) (193.8) (232.1) (15.4) (247.5)
Reorganisation
costs 3 - (2.5) (2.5) - - -
Litigation
matters 3 - 3.0 3.0 - - -
Development
costs 3 - (3.0) (3.0) - - -
Provision for
onerous
contracts 3 - (3.8) (3.8) - - -
Writedown of
investments 3 - (3.5) (3.5) - - -
--- ------- ------- --- --- ---
Total
operating
expenses (177.9) (25.7) (203.6) (232.1) (15.4) (247.5)
Operating
profit
Continuing
operations 29.0 (25.7) 3.3 34.6 (14.7) 19.9
Discontinued
operations 2.3 - 2.3 11.7 (0.7) 11.0
----- --- ----- ------ ------- ------
Group
operating
profit 31.3 (25.7) 5.6 46.3 (15.4) 30.9
Share of
associates 3 9.6 (3.8) 5.8 7.4 (3.8) 3.6
----- ------- ----- ----- ------- -----
--- --- --- --- --- ---
Total
operating
profit 2 40.9 (29.5) 11.4 53.7 (19.2) 34.5
Gain on
sale
of subsidiary
undertaking 3,12 - 33.0 33.0 - - -
Share of
associate loss
on sale of
subsidiary 3 - - - - (6.2) (6.2)
--- --- --- --- ------- -------
--- --- --- --- --- ---
Profit on
ordinary
activities
before
financing
charges 40.9 3.5 44.4 53.7 (25.4) 28.3
--- --- --- --- --- ---
Net financing 3,4 (23.4) (20.8) (44.2) (29.5) (14.9) (44.4)
charges -------- -------- -------- -------- -------- --------
Profit /(loss)
on ordinary
activities
before
taxation 17.5 (17.3) 0.2 24.2 (40.3) (16.1)
Tax on
profit/(loss)
on ordinary
activities 5 (1.7) 3.6 1.9 (6.5) 4.5 (2.0)
------- ----- ----- ------- ----- -------
Profit/(loss)
on ordinary
activities
after taxation 15.8 (13.7) 2.1 17.7 (35.8) (18.1)
Dividends 6 (7.9) - (7.9) (7.8) - (7.8)
------- --- ------- ------- --- -------
Profit/(loss)
transferred to
reserves 14 7.9 (13.7) (5.8) 9.9 (35.8) (25.9)
===== ======== ======= ===== ======== ========
Earnings per
ordinary share
- basic 7 5.0p 0.7p 5.6p (5.8p)
====== ====== ====== ========
Consolidated statement of total recognised gains and losses
for the year ended 31 December 2003
2003 2002
£m £m
Profit/(loss) for the financial year attributable to
shareholders 2.1 (18.1)
Actuarial loss recognised in the pension schemes (15.5) (52.8)
Deferred tax arising thereon 4.6 15.7
Provision for impairment charged against revaluation reserve (3.1) -
Share of associate actuarial loss recognised - (0.7)
--- -------
Total recognised losses (11.9) (55.9)
======== ========
Consolidated balance sheet
at 31 December 2003
Restated
Note 2003 2002
£m £m
Fixed assets
Intangible assets 8 233.0 315.4
Tangible assets 9 34.8 80.5
Investments 10 87.3 89.6
------ ------
355.1 485.5
------- -------
Current assets
Deferred tax asset 3.2 -
Stock 22.7 22.6
Debtors and prepayments 49.3 58.6
Cash at bank and in hand 10.0 -
------ ------
85.2 81.2
------ ------
Creditors: amounts falling due within one year
Creditors and accrued charges (35.4) (39.5)
Bank loans and overdrafts (30.2) (239.8)
Other loans - (134.9)
Corporation tax (9.1) (3.3)
Proposed dividend (7.9) (7.8)
------- -------
(82.6) (425.3)
-------- --------
Net current assets/ 2.6 (344.1)
(liabilities) ----- -----
Total assets less current liabilities 357.7 141.4
------- -------
Creditors: amounts falling due after more than one year
Bank loans (198.4) -
Creditors and (1.3) (2.5)
accrued charges
Convertible unsecured loan 11 (22.8) (22.8)
stock
Secured loan notes 11 (0.8) (0.9)
------- -------
(223.3) (26.2)
--------- --------
Provisions for liabilities 13 (2.0) (25.2)
and charges ------- -------
Net assets excluding pension liability 132.4 90.0
Pension liability 16 (62.8) (58.3)
-------- -------
Net assets including pension liability 69.6 31.7
====== ======
Capital and
reserves
Called up share capital 7.8 7.8
Share premium account 58.8 58.8
Merger reserve 173.4 173.4
Revaluation reserve - 3.1
Profit and loss account (170.4) (211.4)
------- -------
Equity shareholders' funds 14 69.6 31.7
====== ======
Consolidated cash flow statement
For the year ended 31
December 2003
Note 2003 2002
£m £m
Operating activities
Net cash inflow from operating activities 15 21.1 41.5
------ ------
Dividends received from associates 1.8 1.7
----- -----
Returns on investments and servicing of
finance
Debt restructuring costs (41.0) (8.2)
Interest received 0.1 0.1
Interest paid (23.3) (34.2)
-------- --------
(64.2) (42.3)
-------- --------
Taxation
UK corporation tax received/(paid) 7.1 (1.0)
----- -------
Capital expenditure and financial
investment
Purchase of tangible fixed (13.1) (13.5)
assets
Sale of tangible fixed 0.4 6.2
assets ----- -----
(12.7) (7.3)
-------- -------
Acquisitions and
disposals
Disposal of subsidiary 12 211.0 -
undertaking ------- ---
211.0 -
------- ---
Equity dividends paid (7.8) (4.7)
------- -------
Cash inflow/(outflow) before financing 156.3 (12.1)
------- --------
Financing
Cash gain on closure of swap - 3.7
Net repayment of loan notes/stock (0.3) (1.8)
------- -------
(0.3) 1.9
------- -----
Cash inflow/(outflow) in the period 156.0 (10.2)
------- --------
Movement in net debt 2003 2002
£m £m
Opening net debt (398.9) (393.8)
Cash inflow/(outflow) in the period 156.0 (10.2)
Currency translation gain 0.4 -
Swap translation gain - 5.1
----- -----
Closing net debt (242.5) (398.9)
========= =========
--------------------- ------------ ----------- ------ --------- --------
Notes to the preliminary announcement
for the year ended 31 December 2003
1. Basis of preparation
The financial information for the year ended 31 December 2002 is derived from
the statutory financial statements for that year which have been delivered to
the Registrar of Companies. The statutory financial statements for the year
ended 31 December 2003 will be finalised on the basis of the financial
information presented by the directors in this preliminary announcement and will
be delivered to the Registrar of Companies in due course. The accounting
policies set out in the financial statements for the year ended 31 December 2002
have been applied consistently to both years, with the exception that UITF 37
'Purchases and sales of own shares' has been adopted during the year. The 2002
results have been restated to split out the discontinued activities resulting
from the disposal on 4 April 2003 of the Group's Publishing division.
2. Segmental analysis
The analysis of the Group's turnover and operating profit by operating division
is set out below:
2003 2002 restated
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
£m £m £m £m £m £m
Turnover
Television 121.2 - 121.2 128.5 - 128.5
Radio 23.2 - 23.2 25.9 - 25.9
Out of 43.8 - 43.8 45.4 - 45.4
Home
Publishing - 20.7 20.7 - 77.5 77.5
Online - 0.3 0.3 - 1.1 1.1
----------- ----------- --------- ----------- -------- ---------
Total 188.2 21.0 209.2 199.8 78.6 278.4
turnover ======= ====== ======= ======= ======= =======
Turnover in 2003 includes £1.6m (2002: £3.7m) of revenues from sources outside
the UK.
ITC qualifying revenue was £103.1m (2002: £108.5m).
2003 2002 restated
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
£m £m £m £m £m £m
Operating
profit
Television 18.0 - 18.0 20.8 - 20.8
Radio 7.3 - 7.3 10.0 - 10.0
Out of 5.5 - 5.5 6.2 - 6.2
Home
Publishing - 3.4 3.4 - 15.0 15.0
Online - (0.6) (0.6) - (1.8) (1.8)
Associates 9.6 - 9.6 7.4 - 7.4
Pension
costs (FRS17) (1.8) (0.5) (2.3) (2.4) (1.5) (3.9)
------- ------- ------- ------- ------- -------
Total
operating
profit
excluding
exceptional
items and
FRS10 38.6 2.3 40.9 42.0 11.7 53.7
---
Exceptional
items (10.9) - (10.9) - - -
Goodwill
amortisation (18.6) - (18.6) (18.5) (0.7) (19.2)
-------- --- -------- -------- ------- --------
Total
operating
profit 9.1 2.3 11.4 23.5 11.0 34.5
(FRS3) ===== ===== ====== ====== ====== ======
Operating profit in 2003 includes £1.2m (2002: £1.3m) arising outside the UK.
FRS17 pension costs are incurred in Television £1.5m (2002: £2.1m), Publishing
£0.5m (2002: £1.5m), Radio £0.1m (2002: £0.1m) and Out of Home £0.2m (2002:
£0.2m).
3. Exceptional items
(i) Reorganisation costs
A provision for exceptional costs amounting to £2.5m has been made in 2003 to
cover reorganisation initiatives, primarily in the Group's television operations
following the move of the Aberdeen studios to new state of the art digital
studios.
(ii) Litigation matters
As was disclosed in our 2002 annual report, the Group had previously received a
legal claim from Chris Evans, one of the former shareholders in Ginger Media
Group Limited, pursuing the final tranche of share-based consideration which
would have been payable had all of his contractual terms been met. The Group
vigorously defended this matter and submitted a substantial counter-claim for
damages.
On 26 June 2003 the court ruled that Chris Evans had broken the terms of his
contract and that the Group acted properly in terminating his contract. Mr
Justice Lightman concluded that Chris Evans was not entitled to any of the
share-based consideration he was claiming and dismissed his own claim for
damages. The judge also ruled that the Group was entitled to seek costs and
damages from Chris Evans.
On 28 July 2003 the Group reached a full and final settlement with Chris Evans,
which resulted in the Group receiving £6.7m covering all costs and damages in
September 2003.
This settlement was recognised as follows:
• the exceptional write off of legal and other costs incurred by the Group
directly in defence of the claim of £3.7m; and
• the recognition of an offsetting exceptional credit of the recovery of
these costs and associated damages of £6.7m.
(iii) Development costs
The Group is committed to developing its radio business and has to date applied
for a number of new FM regional radio licences offered by the Radio Authority as
part of its remit to increase the number of analogue local licences. An
exceptional charge of £3.0m has been made to cover costs incurred bidding for
radio licences.
(iv) Provision for onerous contracts
A provision of £3.8m has been made during the year with respect to an onerous
sales contract covering bonus payments on sales of television airtime. This
contract has been reviewed following the merger of Carlton and Granada airtime
sales houses and will be replaced on more beneficial terms.
(v) Writedown of investments
A provision of £3.5m has been made against the investment in Heart of Midlothian
plc ('Hearts') to write off the remaining carrying value of the investment.
(vi) Associates
Share of associates contribution includes the equity accounted results of GMTV
Limited ('GMTV') and Scottish Radio Holdings plc ('SRH'), including related
amortisation of goodwill of £3.8m (2002: £3.8m). During its financial year ended
30 September 2002, SRH recognised an exceptional loss on the disposal of its
Outdoor advertising operations with the Group's equity accounted share being
£6.2m.
(vii) Gain on sale of subsidiary undertakings
The disposal of the Group's Publishing division on 4 April 2003 resulted in a
provisional gain on sale of £33.0m (see note 12).
(viii) Provision for impairment of fixed assets
An exceptional fixed asset provision amounting to £1.1m has been made to cover
an impairment in the value of the Group's property at Cowcaddens. This reflects
the Group's plans to relocate the Scottish Television business to a new purpose
built facility. The total impairment to fixed assets is £4.2m (see note 9),
however, £3.1m has been charged to revaluation reserve as it represents a
reversal of the studio property revaluation uplift in 2000.
(ix) Financing costs
a) In 2003, the Group made a payment of £35.8m to United States and United
Kingdom note-holders in relation to exiting early from the high fixed rate
interest charges on this debt. An exceptional provision of £15.0m was made in
2002 and the remaining exceptional cost of £20.8m has been included in net
financing charges during the period.
b) A provision for £3.6m was made in 2002 to cover costs and charges
relating to renegotiating debt facility terms with the Group's lenders.
c) In 2002, following the early termination of the Group's 10 year
currency and interest rate swap arrangements, a £3.7m gain resulted due to
favourable movements in UK and US interest rates. Also in 2002, a foreign
exchange translation gain of £5.1m resulted from the £/$ exchange rate movements
from the initial borrowing of US$ Notes until entering into new swap
arrangements.
d) A provision for an exceptional loss of £5.1m was made in 2002 in
respect of the onerous nature of the back end fee in relation to the borrowings
noted above.
4. Net financing charges
2003 2002
£m £m
Interest payable:
Bank loans and overdrafts 18.5 21.8
CULS and loan note interest 1.5 1.6
------- -------
Group interest payable before 20.0 23.4
penalty interest
Penalty interest margin 1.5 6.0
------- -------
Group interest payable 21.5 29.4
Share of associates 0.7 0.6
------- -------
Total interest payable 22.2 30.0
Interest receivable (0.8) (0.3)
------- -------
Net interest payable 21.4 29.7
--- ---
Pension finance charge/(credit ) 2.0 (0.2)
----- -------
Net financing charges excluding exceptional items 23.4 29.5
--- ---
Exceptional financing costs 20.8 14.9
(see note 3(ix)) ------ ------
=== ===
Net financing charges 44.2 44.4
====== ======
5. Tax on profit/(loss) on ordinary 2003 2002
activities
£m £m
The (credit)/charge for taxation is as
follows:
(Credit)/charge for the year excluding exceptional
items and FRS10 (0.4) 4.6
Share of taxation of associated undertakings 2.1 1.9
----- ------
Tax on profit/(loss) on ordinary activities
excluding exceptional items and FRS10 at 10% (2002:
27%) 1.7 6.5
Tax credit on exceptional items (3.6) (4.5)
------- -------
(1.9) 2.0
======= =====
6. Dividends 2003 2002
£m £m
Proposed final of 2.5p per share (2002: 2.5p) 7.9 7.8
===== =====
7. Earnings per share
Basic earnings per share (EPS), excluding exceptional items and the impact of
goodwill amortisation under FRS10, is calculated as follows:
Restated
2003 2002
Attributable profit for the financial period (£m) 15.8 17.7
Weighted average number of shares in issue (m) 314.2 314.2
Earnings per ordinary share (pence) 5.0 5.6
Basic EPS, inclusive of exceptional items and after goodwill amortisation under
FRS10, for the year was 0.7p (2002: loss of 5.8p).
There is no difference between basic and diluted EPS because neither the share
options nor CULS are dilutive in the year.
8. Intangible assets
Publishing Goodwill Total
titles
£m £m £m
Cost
At 1 January 2003 56.0 306.7 362.7
Disposal of subsidiary undertakings (56.0) (13.7) (69.7)
-------- ---------- --------
At 31 December 2003 - 293.0 293.0
-------- -------- -------
Amortisation
At 1 January 2003 - 47.3 47.3
Charge for the period - 14.8 14.8
Disposal of subsidiary undertakings - (2.1) (2.1)
-------- ------- -------
At 31 December 2003 - 60.0 60.0
-------- ------ ------
Net book value at 31 December 2003 - 233.0 233.0
========== ======= =======
Net book value at 31 December 2002 56.0 259.4 315.4
====== ======= =======
Goodwill comprises capitalised goodwill on acquisitions completed since 1
January 1998 and is being amortised on a straight-line basis over 20 years. Net
goodwill of £11.6m was written off as part of the Publishing division sale (see
note 12).
Publishing titles comprising 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), were disposed of as part of the Publishing division sale
(see note 12).
9. Tangible fixed assets Plant and
Land and buildings technical
Leasehold Freehold equipment Total
£m £m £m £m
Cost or valuation
At 1 January 2003 0.7 10.0 131.8 142.5
Additions - - 17.5 17.5
Disposals - - (79.0) (79.0)
Provision for impairment (see note
3 (viii)) - (4.2) - (4.2)
--- ------- --- -------
At 31 December 2003 0.7 5.8 70.3 76.8
----- ----- ------ ------
Depreciation
At 1 January 2003 0.3 0.3 61.4 62.0
Charge for year - 0.4 6.3 6.7
Disposals - - (26.7) (26.7)
--- --- -------- --------
At 31 December 2003 0.3 0.7 41.0 42.0
----- ----- ------ ------
Net book value at 31 December 2003 0.4 5.1 29.3 34.8
===== ===== ====== ======
Net book value at 31 December 2002 0.4 9.7 70.4 80.5
===== ===== ====== ======
a) Freehold land & buildings comprise: 2003 2002
£m £m
At valuation less provision for impairment 5.2 9.4
At cost 0.6 0.6
----- -----
5.8 10.0
===== ======
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 existing use basis and in accordance with the RICS Appraisal and
Valuation Manual.
b) Historical cost figures for freehold buildings are: 2003 2002
£m £m
Cost 11.2 11.2
Depreciation (5.0) (4.6)
------- -------
6.2 6.6
===== =====
10. Investments
Associated Associated Other Total
undertakings undertakings investments
goodwill share of net
assets
£m £m £m £m
At 1 January
2003 67.6 18.5 3.5 89.6
Share of
associated
undertakings - 6.8 - 6.8
Dividend
received from
associated
undertaking - (1.8) - (1.8)
Writedown of
investments
(see note 3
(v)) - - (3.5) (3.5)
Goodwill
amortisation (3.8) - - (3.8)
------- --- --- -------
At 31 December
2003 63.8 23.5 - 87.3
====== ====== === ======
11. Loan stock and loan notes
The convertible unsecured loan stock ('CULS') as at 31 December 2003 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. An immaterial amount of CULS was converted on 30
April 2003 (2002: nil).
Secured loan notes dated October 2007 amounting to £5.1m were issued to fund the
acquisition of Primesight. The loan notes bear interest at a rate of 1.5% below
LIBOR and are redeemable on 1 April and 1 October each year. During 2003, £0.1m
of loan notes were redeemed, leaving an outstanding balance of £0.8m at 31
December 2003.
12. Disposal of subsidiary undertakings
On 4 April 2003 the Group sold its 100% interest in the ordinary shares of those
subsidiary undertakings forming the Publishing division. The total operating
profit (after pension costs) of the Publishing division up to the date of
disposal was £2.3m, and for its last full financial year (2002) was £11.7m.
The net assets disposed of and the related sales proceeds were as follows:
Book and
fair value
£m
Tangible assets 52.3
Intangible assets - mastheads 56.0
Net current liabilities (0.7)
FRS17 curtailment costs 1.1
-----
Net assets 108.7
Related goodwill:
Written off balance sheet 11.6
Previously written off to reserves 57.7
Provisional gain on disposal 33.0
------
Consideration (net of expenses) 211.0
=======
Satisfied by net cash inflows of:
Cash and intercompany debt repayment 216.0
Disposal expenses (5.0)
-------
211.0
=======
£10.0m of the cash consideration received at completion was placed in Escrow for
4 years (reducing by £2.5m in each year) in respect of certain of SMG's pension
related indemnity obligations given under the sale and purchase agreement. The
net assets disposed of are subject to agreement between the parties in line with
the sale and purchase agreement, with the gain shown above being provisional
pending this agreement.
13. Provisions for liabilities and charges
2003 2002
£m £m
Deferred taxation - 5.0
Other provisions 2.0 20.2
----- ------
2.0 25.2
===== ======
14. Reconciliation of movements in equity shareholders' funds
2003 Restated
£m 2002
£m
Profit/(loss) for the year 2.1 (18.1)
Dividends (7.9) (7.8)
------- -------
Retained loss for the year (5.8) (25.9)
Increase in share premium - 0.3
Goodwill previously written off included in
retained profit for the period 57.7 -
Movement in shares to be issued - (1.3)
Reversal of revaluation reserve (3.1) -
Actuarial loss recognised (15.5) (52.8)
Deferred tax thereon 4.6 15.7
Share of associate actuarial loss recognised - (0.7)
--- -------
Net movement in shareholders' funds 37.9 (64.7)
------ --------
Opening shareholders' funds as previously
stated 31.7 97.8
Prior year adjustment - (1.4)
--- -------
Opening shareholders' funds restated 31.7 96.4
------ ------
Closing equity shareholders' funds 69.6 31.7
====== ======
The prior year adjustment relates to the implementation of UITF 37 'Purchases
and sales of own shares'.
15. Reconciliation of operating profit to operating cash flows
2003 2002
£m £m
Group operating profit (before exceptional items
and FRS10) 31.3 46.3
Depreciation and other non-cash items 6.8 7.5
(Increase)/decrease in stock (0.5) 0.9
(Increase)/decrease in debtors (2.3) 2.0
Decrease in creditors (6.3) (10.0)
Net Chris Evans settlement 4.6 -
Development costs and onerous contracts (1.1) -
Reorganisation costs (1.4) (5.2)
------- --------
Net cash inflow before pension payment 31.1 41.5
--- ---
Payment to Caledonian Pension Scheme (10.0) -
-------- ---------
Net cash inflow from operating activities 21.1 41.5
====== =======
Net cash inflow from operating activities before
pension payment comprises:
Continuing operating activities 27.4 23.4
Discontinued operating activities 3.7 18.1
-------- ------
31.1 41.5
====== ======
16. Pension costs
The Group operates two (2002: three) defined benefit pension schemes (during the
year the Scottish Television Retirement Benefit Scheme and the Grampian
Television Retirement and Death Benefit Scheme were combined to form one
scheme). The schemes are trustee administered and the schemes' assets are held
independently of the Group's finances. Pension costs are assessed in accordance
with the advice of an independent professionally qualified actuary.
The schemes are the Scottish and Grampian Television Retirement Benefit Scheme
and the Caledonian Publishing Pension Scheme. They are closed schemes and
therefore under the projected unit method the current service cost will increase
as the members of the scheme approach retirement.
A full actuarial valuation of the schemes was carried out at 1 January 2003 and
updated to 31 December 2003 by a qualified independent actuary. The major
assumptions used by the actuary were:
At 31 December At 31 December
2003 2002
Rate of increase in salaries 3.30% 2.75%
Rate of increase of pensions in payment 2.80% 2.25%
Discount rate 5.40% 5.50%
Inflation 2.80% 2.25%
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 31 December At 31 December
2003 2002
£m £m
Equities 7.30% 133.8 7.00% 112.3
Bonds 4.90% 70.3 6.00% 61.1
------ ------
Total market value of assets 204.1 173.4
Present value of schemes' liabilities (295.8) (256.7)
--------- ---------
Deficit in the schemes (91.7) (83.3)
Related deferred tax asset 28.9 25.0
------ ------
Net pension liability (62.8) (58.3)
======== ========
Analysis of the amount charged to operating profit
2003 2002
£m £m
Defined benefit - current service cost 1.9 3.2
Money purchase 0.4 0.7
----- -----
Total operating profit charge 2.3 3.9
===== =====
17. Post balance sheet events
On 16 January 2004, the Group announced the sale of its 27.8% shareholding in
Scottish Radio Holdings plc ('SRH') to Emap plc. The sale of 9,729,361 ordinary
shares in SRH realised cash proceeds of £90.5m or 930p per share and is expected
to result in a provisional gain of approximately £10.0m. Unamortised bank
arrangement fees and disposal costs will partly offset this gain following the
reduction of the Group's bank debt from the proceeds of this sale, resulting in
an expected 2004 net gain in the region of £6.5m.
18. Mailing
A copy of the annual report is being sent to all shareholders on 7 May 2004 and
will be available for inspection by members of the public at the Company's
registered office at 200 Renfield Street, Glasgow.
This information is provided by RNS
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Friday, 22nd November 2024
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