stv group plc Preliminary Res

RNS Number : 9110N

STV Group PLC

26 February 2009

 



0700 hrs, 26 February 2009 

stv group plc Preliminary Results 2008

A transformed business with positive momentum

Financial Highlights

	stv (continuing)			Group
	2008	2007		2008	2007
Turnover	£111m	£120m	-8%	£145m	£185m
EBITDA	£15m	£13m	+19%	£17m	£22m
Operating profit*	£13m	£11m	+18%	£14m	£16m
Pre-tax profit*				£12m	£4m
Pre-tax profit pre IAS19 notional interest*				£10m	£1m
EPS*				24.8p	23.4p
EPS pre IAS 19 notional interest*				20.9p	8.5p

*Pre-exceptionals and IFRS5 benefits

Trading for the full year 2008 has met Board expectations, despite very challenging market conditions, and the business has delivered a strong performance in its KPIs.

 

·         10 out of 12 KPI targets achieved; five exceeded

·         EPS increased 6%

·         Operating margins improved

-     Broadcast margin increased to 11%

-     Content margin KPI target exceeded by eight percentage points

-     Ventures target margin of 10% delivered

·         Achieved 11% growth in regional television advertising market

·         Debt reduced by a further £11m; now at a normal, sustainable level

 

Strategic Developments

 

·         stv has been taking greater control of its schedule, using its strong regional brand to differentiate itself from ITV plc

·         Content business delivers strong growth

-     Alan Clements started as Director of Content in September

-     Achieved 80 produced hours, exceeding original target by 33%

·         Transformation of Ventures business

-     stv.tv website, video catch-up service and new classified online recruitment service launched

-     Visitor numbers to stv.tv hit over 30k per day, up from 8k per day in H2 2007

-     Setanta contract renewed for two years

·         Positive progress in influencing future regulatory landscape

-     PSB Review recommends no single ITV licence and introduction of contestable funding for news

·         Virgin Radio sold for gross proceeds of £53.2m to TIML

·         £30m return to shareholders by Tender Offer

·         Name change to stv group plc to reflect focus on TV business

 

Richard Findlay, Chairman, commented: 'In 2008, we set out to deliver both a strategic transformation of the business and a strong financial performance. I am delighted we have accomplished both, despite difficult market conditions. The group is now re-focused, restructured and refinanced, and in a financially sound position to tackle the advertising market challenges 2009 will bring.'

Rob Woodward, Chief Executive Officer, said: 'In 2008, 10 out of 12 KPI targets were achieved and 5 exceeded. We consolidated stv's position as Scotland's broadcaster of choice, growing our Regional Advertising, Ventures and Content businesses whilst improving TV margins. The combination of operational leanness and successful strategy execution gives us positive momentum for 2009, and for delivering on our KPI growth targets.'

26 February 2008

There will be a presentation for analysts at the offices of RBS Hoare Govett, 250 Bishopsgate, London EC2 today at 9am.

Investor and Analyst Enquiries:

stv group plc
George Watt, Chief Financial Officer	Tel: [phone]
Media Enquiries
stv group plc
Kirstin Stevenson, PR Manager	Tel: [phone]
Brunswick Group LLP
Simon Sporborg	Tel: [phone]

OPERATIONAL REVIEW

Overview

stv is a transformed business with momentum which is delivering on its promises. We have exceeded five and met five of our KPI's, indicating a solid underlying performance which stands us in good stead for the difficult 2009 market.  

Following the disposal of Virgin Radio and the completion of our tender offer, the business is in a stronger position and we were able to return cash to shareholders. The significant cost reduction activities undertaken in 2008 to de-risk our business and the impact of continuing efficiencies is demonstrated in our margin performance for 2008. We will continue to manage our cost base effectively in 2009.  

During H2 2008, the impact of the decline in advertising revenues began to affect national airtime revenue and we expect this to continue into 2009. Despite the current economic environment, we delivered an increase in our regional advertising revenues of 11%. The strength of our relationships with regional advertisers and our ability to offer innovative advertising solutions will continue to support our acquisition of greater share in this area. Our content division has successfully exceeded its targets in terms of margin and produced hours.

We took the decision to defer the launch of our classified business until February 2009 to ensure we had the necessary skilled team in place, and stvjobs.com is already winning share from competitors. With a newly developed platform and a better online product, we achieved our target visitor numbers for 2008 and we are confident of achieving our online advertising revenue target for 2009.

There is no doubt that the marketplace is challenging but stv is a restructured, financially sound business with positive momentum, and a clear and focussed strategy to build on our position as Scotland's broadcaster of choice.  

Business Performance

The continuing positive impacts from the group's restructuring were seen clearly in the financial results for the year. The disposal of Virgin Radio in June 2008 for gross proceeds of £53.2m enabled both a return to shareholders of £30.0m and further debt paydown to occur.

The actions taken to turnaround the television business resulted in significant margin improvement, despite tough advertising markets and the impact of CRR on national airtime revenues. Combined with lower interest charges as debt levels have reduced this led to profit before tax, before exceptional items and the benefit under IFRS 5 from not depreciating assets held for sale, increasing by £7.9m to £12.3m (2007: £4.4m). This was the same underlying basis reported in 2007.

We are also highlighting our profit before tax before exceptional items, IFRS 5 and IAS 19 notional non-cash interest in 2008. This is to reflect a measure that is more reflective of the cash profit in the business. On this basis, profit before tax increased to £10.4m (2007: £1.6m) an increase of 550%.

Earnings Per Share

EPS, pre-exceptional items and IFRS 5 impacts, increased by 6% to 24.8p (2007:23.4p), despite the higher number of shares in issue which resulted from the rights issue in 2007. EPS before exceptional items, IFRS 5 and IAS 19 notional interest amounted to 20.9p (2007: 8.5p). EPS on a statutory basis, including exceptional items and IFRS 5 benefits, was a loss of 61.3p (2007: 499.4p loss). The IFRS 5 benefit through not depreciating assets which are held for sale amounted to £0.5m (2007: £3.7m) reducing due to the completion of the sales of Primesight in October 2007 and Virgin Radio in June 2008.

Revenue

Total revenue, comprising both continuing and discontinued activities, was down £40.7m at £144.5m (2007: £185.3m). This reflected the disposals of Primesight and Virgin Radio and, adjusting for these, revenues were down £9.1m or 5%. A key feature of the year has been the strong regional sales performance in Broadcasting - up 11% - although this was offset by a fall in national revenues resulting in an overall decline of 7%. Content revenues fell by 11% to £16.1m (2007: £18.1m) as the change in mix of programmes delivered resulted in lower values per hour. In Ventures, new media revenues grew 15% while the exit from Outside Broadcasting led to the division's overall revenues being down 12%. Pearl & Dean saw broadly flat revenues of £22.0m (2007: £22.1m) due to a very weak cinema advertising market being offset by the impact from the new Showcase contract.

Operating Profit

Group operating profit, comprising both continuing and discontinued activities before exceptional items and IFRS 5, fell by £2.2m to £14.2m (2007: £16.4m) due mainly to the disposals. Adjusting for these, operating profit increased by 27% to £13.2m (2007:£10.4m).

Television operating profits increased by £2.1m to £13.2m (2007:£11.1m) as cost savings and performance improvements resulted in significant margin improvements. Broadcasting margins increased by 160 basis points to 11% while Ventures turned around the losses of £1.0m in 2007 to a profit of £0.6m in 2008.

Virgin Radio profits were included for the six month period to its sale completion date of 30 June 2008. It contributed £1.0m pre IFRS5 impacts (2007: £4.3m) in this six month period reflecting a 17% sales decline.

Pearl & Dean's result of breakeven (2007: £0.7m loss) is stated after the utilisation of £8.0m (2007: £3.5m) of the onerous Vue contract provision established last year.

Interest Costs

Net interest expenses decreased by £10.1m to £1.9m (2007: £12.0m) due to significantly lower average debt levels following asset disposals and the 2007 rights issue.

Exceptional Items

As expected, following the significant restructuring activity last year, there were far fewer exceptional items in 2008 which resulted in a lower net charge of £38.9m (2007: £91.9m). The principal items were the loss on sale of Virgin Radio (£17.5m) and an additional provision for losses on the onerous Vue cinema contract in Pearl&Dean (£15.0m)

The statutory loss for the year after tax and exceptional items and including IFRS 5 benefits amounted to £27.4m (2007: £84.6m).

Balance Sheet

The principal balance sheet movements in 2008 were the disposal of Virgin Radio, the £30.0m return to shareholders and an increase in the Group's pension deficit.

The latter increased on an IAS 19 basis to £27.0m (2007: £9.1m) reflecting the significant falls in asset values across the year. The next formal actuarial valuation will be prepared as at 1 January 2009.  

Cash Flow

Net debt reduced by £10.7m to £36.4m (2007: £47.1m) following the sale of Virgin Radio partly offset by the £30.0m return to shareholders.

Free cash flow conversion was at 80% for the continuing business in 2008 (2007: 130%) with a build up in Network and Content division stocks resulting in the percentage being below the 100% target. Other significant cash items in the year related to the cash losses of Pearl & Dean (£8.0m) pension deficit payments (£3.9m), reorganisation costs (£3.3m) and a corporation tax repayment (£1.9m).

Capital expenditure at £1.3m (2007: £2.7m) was at the low levels anticipated after significant levels of investment in prior years. We expect these lower levels to continue in 2009.  

Dividends

The Board has stated in previous periods that no dividends will be declared for 2008 and that dividends will only recommence when there is sustained evidence of the success of the Group's growth plan - a position we will revisit during 2009.

KPIs

Revenue growth is key in our three business divisions - Broadcasting, Content and Ventures - each of which is charged with exceeding their KPI targets. 

KPI	2007 Actual	2008 Target	2008 Actual		2009 Target
Broadcasting
1. Increase regional advertising market share	20%	21%	22%	Exceeded	23%
2. Grow sponsorship revenues	1.0x	1.3x	1.5x	Exceeded	1.4x
3. Increase broadcast margin	9.4%	11.0%	11.0%	Met	12.5%
Content
4. Grow produced hours	72hrs	70hrs	80hrs	Exceeded	90hrs
5. Exploit content library	1.0x	1.4x	1.4x	Met	1.5x
6. Grow rights exploitation business	1.0x	1.0x	1.2x	Exceeded	1.1x
7. Maintain margins	17.1%	10.0%	18.0%	Exceeded	10%
Ventures
8. Grow online visitors to stv.tv	8k/day	30k/day	30k/day	Met	90k/day
9. Increase online advertising revenue	£0.1m	£0.6m	£0.2m	Not achieved	£0.9m
10. Grow regional transaction revenues	£2.6m	£3.0m	£3.0m	Met	£4.5m
11.Expand into Scottish classified advertising market	0.1%	0.5%	0.1%	Not achieved	1.0%
12. Increase margins	(13.8%)	10.0%	10.0%	Met	15%

Broadcasting

stv is different to ITV and we have increasingly been implementing the terms of the Devolution Agreement embedded in the ITV Networking Arrangements by taking greater control of our schedule and delivering more homegrown content. stv continues to be the most popular peak time station in Scotland, with 3.5 million people tuning in to stv per week, and a share of 25.7% versus BBC1 at 21.9%. Commercial impacts were up 2% year on year, outperforming the ITV Network which was down 0.6%. 

In 2008, we opted out of the ITV1 Network where it was beneficial for both the business and our viewers to do so. Examples of this include the fully-funded quiz show Postcode Challenge, which regularly performed ahead of the Network, Scottish-made drama, Missing, and a successful one hour documentary on convicted murderer Peter Tobin.  We will continue this trend of inserting more home grown content into our schedule in 2009.

Increasing regional sales and sponsorship is of paramount importance for us and 2008 has been an outstanding year for our sales team. We have achieved or outperformed all three broadcasting KPIs for 2008 in the broadcasting division. 

We have continued to grow our regional position despite the current advertising market, achieving regional sales up 11% year on year, and out-performing the national trend.  Our target for Regional Advertising Market Share was 21% and I am pleased to report that we achieved 22% for the year, up from our 2007 level of 20%.

Sponsorship revenues were up by 50% year on year, meaning that we achieved our KPI target for 2010, two years ahead of schedule. In 2008 we increased our sponsorship opportunities and on any one day we can now offer 4 x 1 minute slots. The initiative has gained momentum throughout the year with 13 different advertisers taking advantage of this new commercial opportunity.

We successfully achieved our broadcasting margin KPI of 11%, partly due to the significant cost we removed from the business and the successful de-risking achieved in 2008. However, due to the severe pressure on advertising expenditure during 2009, we anticipate that it will be difficult to achieve our margin target of 12.5%.

Our audience share for our news service is 25% on average, consistently outperforming the BBC News at 6pm.  We are wholly committed to providing our valued news service going forward as a strong competitor to the BBC and are pleased that Ofcom has recommended the introduction of a competitive fund for regional news services from 2011. 

Content

In September 2008, Alan Clements joined the leadership team as Director of Content. This was a key appointment for the television business as content remains at the very heart of our plans for the future. Alan has built a strong team and has developed a strategy to create an exciting Scottish schedule and win valued commissions from other broadcasters. We also intend to work with other, internationally-based broadcasters on joint projects going forward. 

2008 was a successful year in terms of produced hours. At the half year point, we upgraded this KPI from 60 to 70 hours and at year end, we achieved 80 produced hours therefore exceeding our original target by 33%. We also exceeded our content margin target by 8 percentage points, achieving 18% against a target of 10%.  

2008 was a landmark year for our drama, Taggart as the show celebrated its 25th anniversary, filmed its 100th episode and went into production with its largest ever commission of 10 hour-long episodes for ITV.  Ten new episodes were broadcast this year and continued to be ratings winners for the ITV Network with the best performing episode attracting over 6m viewers and a 26% audience share.

Other key commissions for 2008 included a second series of DNA Stories with Sky Real Lives, hosted by Lorraine Kelly and a popular six-part series about the history of the Highlands with John Michie, which outperformed the Network by 39% on average. Ginger Productions won another commission of the successful brand Jack Osbourne Adrenaline Junkie and this celebrity version was the most successful Adrenaline Junkie series so far, with viewing figures up 8% year on year. ITV2 have recently commissioned a new series for 2009.

We have exceeded our 2008 KPI target in terms of Rights Exploitation Growth by some 20%, via our back-catalogue and an unprecedented year for international DVD sales. Our library, which is home to 200,000 hours of footage, is a valuable catalogue to be monetised and we achieved 40% growth in revenues, which is in line with our KPI for 2008.

Ventures

Our high growth business, Ventures, manages our online and resource based activities.  

During 2008 we have implemented our digital strategy which is based around developing capability, radically improving platforms and expanding content on www.stv.tv.  Our new sites have delivered strong growth: online visitor numbers have regularly hit 30,000 per day and continue to grow, keeping us on track with this KPI. Page views were also up 74% year on year, rising to 173% for the second half of the year, versus 2007.  Having achieved our target visitor numbers for 2008 we are confident of achieving our online advertising revenue target for 2009.

Key to the growth of stv.tv was the launch of our new video player (www.stv.tv/video), which utilises world class technology, in partnership with global online video platform company Brightcove. The successful launch of the video site saw 1.5m video plays in the last six months of the year with an average visitor duration of over 9 minutes.

stv.tv's bingo site continues to perform well in a very competitive market. Gross gaming revenues for bingo were up 19% on last year with over 5000 new funded players added. 

In February 2009, we launched our online classified advertising business, with the launch of our recruitment business, www.stvjobs.com. The launch plan incorporates a multi-million pound media campaign on stv, which will help to make it a major player in its field and achieve our target of 3% of the Scottish classified market in 2009.  We took the decision to defer the launch of our classified business until 2009 to ensure the right team was in place, and stvjobs.com is already winning share from competitors. 

Our daily on-screen competition for viewers, Watch To Win, has shown a strong performance in 2008. By simplifying the competition, utilising key slots, refreshing the graphics and focussing on large cash prizes, PRTS revenues are up 29% year on year against a 30% drop in Network PRTS revenues. We achieved regional transaction revenues of £3m, keeping us on target with this KPI.

We have refocused our Solutions business to a more nimble, freelance based, profitable model with a reduction in fixed costs. The new deal with Setanta provides studio, transmission and post production services from our headquarters in Glasgow which, together with our growing post-production business, is helping us achieve our targets in this part of the business.  

The Regulatory Environment and ITV

We broadly welcomed Ofcom's recommendations following its Review of PSB. However, in considering how stv continues to be the platform for current and potentially increased levels of Scottish content, we are in no doubt that the future sustainability of our business requires immediate and resolute regulatory engagement.

We are encouraging a debate about the future structure of the Channel 3 network. The current system is out-dated, overly complicated and the full value to ITV plc of network content, independently valued at £228m, is not reflected in the present cost sharing arrangements. We look forward to continuing our dialogue on these important topics with Ofcom, DCMS and both the Scottish and UK Parliaments.

Update on Non-core business, Pearl & Dean

Our cinema advertising business Pearl & Dean remains as our only non-core legacy business. Pearl & Dean is a strong brand and we will continue to seek opportunities to sell the business when the conditions are right.

In line with our target of growing market share, Pearl & Dean won an important contract with Showcase commencing in October 2008, increasing its cinema advertising market share by one third to 34%.  The loss-making contract we hold with Vue will expire in 2010 however, as a result of weakness in the cinema advertising market in 2008 we have taken an additional £15m provision to cover the last two years of the contract.

Trading Outlook 2009

Advertising markets continue to offer only very short term visibility reflecting the difficult macro economic environment and we have seen weaker markets than anticipated in the first quarter of 2009. The national television broadcast market is expected to be down 17% year on year in Q1, with the ITV Network down 21% reflecting the additional impact of the CRR mechanism. stv national revenues are in line with the ITV Network performance. Our regional market is expected to perform slightly behind the overall ITV Network in Q1, due partly to the phasing of major advertisers' campaigns. As demonstrated during 2008, we continue to take actions to mitigate the revenue shortfall.

The Future

stv is committed to being a public service broadcaster, serving Scotland as part of a strong Channel 3 network.  There is no doubt that the marketplace is challenging but stv is a restructured, financially sound business with positive momentum and a clear and focussed strategy as Scotland's broadcaster of choice.  

stv has a strong brand and this year we will rejuvenate our on-screen appearance at the same time as we revitalise our schedule showcasing more Scottish content.

With our debt at a normal sustainable level, a revitalised content team, energised staff and a successful sales team, we go into 2009 confident that there is a key role for stv in the future digital broadcasting landscape.

We are in a robust position going forward and we will continue to do everything we can to manage through this unprecedented economic downturn and deliver value for shareholders.

Richard Findlay	Rob Woodward
Chairman	Chief Executive Officer

Consolidated income statement for the year ended 31 December 2008

		2008			2007
	Note	Underlying results	Exceptional items	Results for year	Underlying results	Exceptional items	Results for year
		£m	£m	£m	£m	£m	£m
CONTINUING OPERATIONS
Revenue	2	111.2	-	111.2	120.3	-	120.3
Net operating expenses before exceptional costs		(98.0)	-	(98.0)	(109.2)		(109.2)
Onerous lease contracts	3	-	(3.1)	(3.1)	-	(2.0)	(2.0)
Cost of change	3	-	(1.3)	(1.3)	-	(5.6)	(5.6)
Writedown of inventory	3	-	(2.0)	(2.0)	-	(2.2)	(2.2)
Goodwill impairment	3	-	-	-		(0.6)	(0.6)
Net operating expenses		(98.0)	(6.4)	(104.4)	(109.2)	(10.4)	(119.6)
Operating profit		13.2	(6.4)	6.8	11.1	(10.4)	0.7
Interest income		0.4	-	0.4	0.9	-	0.9
Finance costs	4	(2.3)	-	(2.3)	(12.9)	(11.4)	(24.3)
Profit/(loss) before tax		11.3	(6.4)	4.9	(0.9)	(21.8)	(22.7)
Tax (charge)/credit	5	(3.3)	-	(3.3)	1.8	0.5	2.3
Profit/(loss) for the year from continuing operations		8.0	(6.4)	1.6	0.9	(21.3)	(20.4)
DISCONTINUED OPERATIONS
Profit/(loss) for the year from discontinued operations	2,6	3.5	(32.5)	(29.0)	6.4	(70.6)	(64.2)
Profit/(loss) for the year		11.5	(38.9)	(27.4)	7.3	(91.9)	(84.6)
Attributable to:
Equity holders of the parent		11.5	(38.9)	(27.4)	7.5	(91.9)	(84.4)
Minority interest		-	-	-	(0.2)	-	(0.2)
		11.5	(38.9)	(27.4)	7.3	(91.9)	(84.6)
Earnings per ordinary share
- basic and diluted	8	25.7p		(61.3p)	44.4p		(499.4p)
Earnings per ordinary share from continuing operations
- basic and diluted	8	17.9p		3.6p	6.5p		(119.5p)
Underlying (pre IFRS 5 and IAS 19 notional non-cash interest credit) pre IFRS 5)
	Note
Operating profit	18	14.2			16.4
Profit before tax	18	10.4			1.6
Earnings per share - basic	18	20.9p			8.5p
Underlying (pre IFRS 5 only)
	Note
Operating profit	18	14.2			16.4
Profit before tax	18	12.3			4.4
Earnings per share - basic	18	24.8p			23.4p

Consolidated statement of recognised income and expense
for the year ended 31 December 2008
	2008	2007
	£m	£m
Loss for the year	(27.4)	(84.6)
Actuarial (loss)/gain recognised in the pension schemes	(30.2)	24.7
Deferred tax credit/(charge) to equity	8.1	(7.7)
Cash flow hedges	-	0.3
Net (loss)/profit recognised directly in equity	(22.1)	17.3
Total recognised expense for the year	(49.5)	(67.3)
Attributable to:
Equity holders of the parent	(49.5)	(67.1)
Minority interest	-	(0.2)
	(49.5)	(67.3)

Consolidated balance sheet
at 31 December 2008
	Note	2008	2007
		£m	£m
ASSETS
Non-current assets
Goodwill and other intangible assets	9	8.2	8.3
Property, plant and equipment	10	14.2	15.3
Deferred tax asset		12.3	4.9
		34.7	28.5
Current assets
Inventories		41.9	40.3
Trade and other receivables		24.0	35.7
Cash and cash equivalents		13.0	10.8
Short-term bank deposit	11	1.0	1.4
		79.9	88.2
Non-current assets classified as held for sale	6	18.8	79.6
Total assets		133.4	196.3
EQUITY
Capital and reserves attributable to the Company's equity holders
Share capital	12,13	18.0	23.8
Share premium	12,13	111.3	136.3
Merger reserve		173.4	173.4
Equity reserve		-	2.5
Other reserve	13	0.7	1.2
Minority interest	13	-	(0.2)
Retained losses	13	(320.5)	(273.3)
Total equity		(17.1)	63.7
LIABILITIES
Non-current liabilities
Borrowings		53.8	62.0
Trade and other payables		0.1	0.3
Provisions		3.9	2.2
Retirement benefit obligation	17	38.3	14.0
		96.1	78.5
Current liabilities
Trade and other payables		25.1	30.7
Current tax liabilities		5.9	-
Provisions		1.5	3.9
		32.5	34.6
Liabilities directly associated with total assets classified as held for sale	6	21.9	19.5
Total liabilities		150.5	132.6
Total equity and liabilities		133.4	196.3

Consolidated cash flow statement
for the year ended 31 December 2008
	Note	2008	2007
		£m	£m
OPERATING ACTIVITIES
Cash generated by operations	15	2.1	11.7
Taxes received		1.9	0.6
Interest paid		(4.0)	(30.0)
Pension deficit funding		(3.9)	(5.8)
Net cash used by operating activities		(3.9)	(23.5)
INVESTING ACTIVITIES
Interest received		0.2	1.9
Net disposal of discontinued operations	14	46.9	47.3
Purchase of property, plant and equipment		(1.3)	(2.7)
Net cash generated by investing activities		45.8	46.5
FINANCING ACTIVITIES
Capital return		(30.8)	-
Net borrowings (repaid)/drawn		(8.2)	62.0
Net release of cash on deposit		-	1.1
Dividends paid		-	(3.8)
Net proceeds from rights issue		-	91.0
Repayment of existing borrowings		-	(149.3)
Repayment of CULS and loan notes		-	(23.6)
Net cash used by financing activities		(39.0)	(22.6)
Movement in cash and cash equivalents		2.9	0.4
Net cash and cash equivalents at beginning of year		13.5	13.1
Net cash and cash equivalents at end of year	16	16.4	13.5
Reconciliation of movement in net debt
for the year ended 31 December 2008
	Note	2008	2007
		£m	£m
Opening net debt		(47.1)	(157.3)
Movement in cash and cash equivalents in the year		2.9	0.4
Decrease in debt financing		8.2	87.3
Repayment of CULS and loan note liabilities		-	23.6
Net movement in Escrow cash		(0.4)	(1.1)
Closing net debt	16	(36.4)	(47.1)

Notes to the preliminary announcement

for the year ended 31 December 2006

1.	Basis of preparation

The financial information set out in the preliminary announcement does not constitute the Group's statutory accounts within the meaning of Section 240 of the Companies Act 1985 and has been extracted from the full accounts for the years ended 31 December 2008 and 31 December 2007 respectively. The information for the year ended 31 December 2007 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. The statutory financial statements for the year ended 31 December 2008 have yet to be signed. They 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 adopted in the preparation of the preliminary announcement are consistent with those applied in the preparation of the Group's statutory accounts for the year ended 31 December 2007.

2.	Business segments

During the year, for management purposes the Group was organised into three operating divisions - Television, Cinema and Radio. These divisions are the basis on which the Group reports its primary segment information with the exception of Television which is further broken down in Broadcasting, Content and Venture segments.

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.

The Group put its Cinema and Radio businesses up for sale on 13 September 2006 and 12 April 2007 respectively. Cinema continues to meet all the conditions to be classified as held for sale and is therefore classed as discontinued operations. The completion of the Radio disposal occurred on 30 June 2008.

The sale of the Outdoor division whose principal activity was the provision of advertising solutions across various outdoor media, completed on 30 October 2007.  

Segment information about these businesses is presented as follows:

SEGMENT REVENUES

					External sales
					2008	2007
					£m	£m
Continuing operations
Broadcasting					89.0	95.3
Content					16.1	18.1
Ventures					6.1	6.9
Television					111.2	120.3
Discontinued operations
Radio					11.3	24.0
Cinema					22.0	22.1
Outdoor					-	18.9
					33.3	65.0
					144.5	185.3

The revenue for Ventures has been restated for 2007 to account for PRTS revenue gross. The impact has been to increase revenue in the year to 31 December 2007 by £1.3m to £6.9m and to increase net operating expenses by £1.3m to £7.9m.

Independent Television Commission ('ITC') qualifying revenue was £88.0m (2007: £94.0m)

Turnover in 2007 includes £1.1 m of revenues from sources outside the UK (2007: £1.8m).

2.	Business segments (cont'd)

SEGMENT RESULTS

	Underlying segment result		Exceptional items		Segment result
	2008	2007	2008	2007	2008	2007
	£m	£m	£m	£m	£m	£m
Continuing operations
Broadcasting	9.7	9.0	(2.0)	(5.8)	7.7	3.2
Content	2.9	3.1	-	(0.6)	2.9	2.5
Ventures	0.6	(1.0)	(1.3)	(3.2)	(0.7)	(4.2)
Television	13.2	11.1	(3.3)	(9.6)	9.9	1.5
Onerous lease provision attributable to Group					(3.1)	-
Cost of change costs attributable to Group					-	(0.8)
Operating profit					6.8	0.7
Financing					(1.9)	(12.0)
Exceptional financing costs					-	(11.4)
Profit/(loss) before tax					4.9	(22.7)
Tax (charge)/credit					(3.3)	2.3
Profit/(loss) for the year from continuing operations					1.6	(20.4)
Discontinued operations
Radio	1.4	4.9	-	(49.2)	1.4	(44.3)
Cinema	0.1	(0.5)	(15.0)	(15.7)	(14.9)	(16.2)
Outdoor	-	4.6	-	-	-	4.6
	1.5	9.0	(15.0)	(64.9)	(13.5)	(55.9)
Attributable tax credit/(charge)	2.0	(2.6)	-	-	2.0	(2.6)
	3.5	6.4	(15.0)	(64.9)	(11.5)	(58.5)
Loss on disposal of discontinued operations					(17.5)	(5.7)
Loss for the year from discontinued operations					(29.0)	(64.2)
Net loss attributable to equity shareholders					(27.4)	(84.6)

Operating profit in 2008 includes £0.6m arising outside the UK (2007: £1.0m).

The above result of discontinued operations for 2008 includes an IFRS 5 adjustment relating to depreciation of £0.5m (2007: £3.7m) which ceased to be charged when the businesses were classified as held for sale.

In 2008, the exceptional item in Ventures £1.3m relates to a cost of change provision which saw all remaining balances of Peopleschampion.com and Smartycars.com being written off (2007: £2.6m cost of change provision and £0.6m for goodwill impairment). In 2008, the exceptional item in Broadcasting relates to £2.0m stock writedown (2007: £2.2m stock writedown, £1.6m cost of change provision and £2.0m of onerous lease provisions) and in 2007 in Content the exceptional item relates to £0.6m for cost of change provision.

In 2008, the exceptional item in Cinema division £15.0m relates to the Vue onerous contract provision (2007: £15.4m Vue onerous contract provision and £0.3m cost of change provision). The exceptional items in the Radio division in 2007 relate to a goodwill impairment and asset writedown loss of £49.2m.

The loss on disposal of discontinued operations relates to the sale of Virgin Radio in 2008 and Primesight in 2007 (see note 6).

3.	Exceptional items

i)	Onerous lease contracts

A provision of £3.1m has been provided in the year in respect of a shortfall on a sub-lease of surplus property at the Group's Pacific Quay, Glasgow premises.  The space has become surplus to operational requirements following headcount reductions over the last 18 months.

A provision of £2.0m was provided in 2007 in respect of the leases on two non-core properties.

ii)	Cost of change

A provision of £1.3m has been recognised in the year in relation to restructuring within Ventures division with all remaining balances relating to Peopleschampion.com and Smartycars.com being written off.

A provision of £5.6m was provided in 2007 following the announcement of restructuring plans principally across all areas of the Group's Television business in relation to the execution of the new turnaround strategy.

iii)	Writedown of inventory

 A stock writedown of £2.0m has been recognised in the year in relation to ITV1 network stock write offs. In 2007 a stock writedown of 
£2.2m was provided, £2.1m relating to ITV1 network stock write offs and the remaining £0.1m relating to regional drama stock.

iv)	Goodwill impairment

            A goodwill impairment loss of £0.6m was recognised in 2007 in accordance with IAS36 on the carrying value of Peopleschampion.

v)	Financing costs

Exceptional fees and costs of £11.4m incurred as a result of the amended banking agreement dated April 2007 and the costs of the CULS replacement facility entered into in September 2007 were written off in 2007.

4.	Finance costs

	2008	2007
	£m	£m
Interest expense:
Bank borrowings	4.2	14.6
CULS and loan note interest	-	1.1
	4.2	15.7
Pension finance credit	(1.9)	(2.8)
Finance costs excluding exceptional items	2.3	12.9
Exceptional financing costs (note 3)	-	11.4
Finance costs	2.3	24.3

5.

Tax

	2008	2007
	£m	£m
The charge/(credit) for tax on continuing operations is as follows:
Tax on profit on ordinary activities excluding exceptional items at 29% (2007: 200% credit)	3.3	(1.8)
Tax effect of exceptional items	-	(0.5)
	3.3	(2.3)

The effective tax rate for the Group (continuing and discontinued operations) excluding exceptional items is 10% (2007: 10%). The tax charge is lower than the standard rate of 28% due to adjustments for prior year provisions and certain tax planning initiatives.

6.	Discontinued operations

On 30 June 2008, the disposal of the Group's Radio business, Virgin Radio was completed.

	2008	2007
	£m	£m
Post tax results from discontinued operations (see note 2)	(29.0)	(64.2)

Exceptional items included within the results are as follows:

Cost of change provision

A provision of £0.3m was provided in 2007 within Cinema division.

Onerous contract provision

A provision of £15.4m was made in 2007 to cover future losses expected from the Vue contract within Cinema division.  A further £15.0m provision has been recognised during the year.

Goodwill impairment and asset writedown

A £49.2m goodwill impairment and asset writedown loss was recognised in 2007 on the carrying value of Virgin Radio to reflect the current market value.

Loss on disposal of discontinued operations

On 30 June 2008, the Group completed the sale of its Radio business, Virgin Radio, to TIML Golden Square Ltd ('TIML') for a gross cash consideration of £53.2 million resulting in a loss on disposal of £17.5m. 

On 30 October 2007, the Group completed the sale of its Outdoor business, Primesight, to GMT Communications Partners ('GMT') for a gross consideration of £62.0m. The consideration was made up of £52.0m cash and two £5.0m loan notes payable at the earlier of five years from Completion or an exit from the business by GMT. One of the loan notes was contingent on the 2007 results of Primesight and as the performance triggers were not reached this amount will not now be received. The remaining deferred loan note has a discounted value of £3.6m resulting in a net consideration of £55.6m and a loss on disposal of £5.7m.

Cash flows from discontinued operations

	2008	2007
	£m	£m
Net cash flows from operating activities	0.3	3.9
Net cash flows from investing activities	-	1.2
	0.3	5.1

The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:

	2008	2007
	£m	£m
Goodwill	-	55.8
Property, plant and equipment	0.1	3.6
Trade and other receivables	11.6	17.5
Cash and cash equivalents	3.4	2.7
Tax	3.7	-
Total assets classified as held for sale	18.8	79.6
Trade and other payables	5.8	9.2
Provisions for liabilities and charges	16.1	10.3
Total liabilities associated with assets classified as held for sale	21.9	19.5
Net (liabilities)/assets of disposal group	(3.1)	60.1

7.

Dividends

	2008	2007
	£m	£m
Amounts recognised as distributions to equity holders in the period:
Interim dividend for the year ended 31 December 2006 of 1.2p	-	3.8

No dividend is proposed by the Board for the years ended 31 December 2007 and 2008.

8.	Earnings per share

	Earnings £m	2008 Weighted average number of shares (m)	Per share Pence	Earnings £m	Restated 2007 Weighted average number of shares (m)	Restated Per  share Pence
Basic underlying EPS
Earnings attributable to ordinary shareholders	11.5	44.7	25.7p	7.5	16.9	44.4p
Earnings per share from continuing operations
Basic EPS	11.5	44.7	25.7p	7.5	16.9	44.4p
Pre tax (profit) from discontinued operations	(1.5)		(3.3p)	(9.0)		(53.3p)
Tax relating to discontinued operations	(2.0)		(4.5p)	2.6		15.4p
Basic underlying EPS from continuing operations	8.0	44.7	17.9p	1.1	16.9	6.5p
Basic EPS
Earnings attributable to ordinary shareholders (including exceptional items)	(27.4)	44.7	(61.3p)	(84.4)	16.9	(499.4p)
Earnings per share from continuing operations
Basic EPS	(27.4)		(61.3p)	(84.4)	16.9	(499.4p)
Pre tax loss from discontinued operations	31.0		69.4p	61.6		364.5p
Tax relating to discontinued operations	(2.0)		(4.5p)	2.6		15.4p
Basic EPS from continuing operations	1.6	44.7	3.6p	(20.2)	16.9	(119.5p)
Earnings per share from discontinued operations
Basic EPS
Pre tax (loss) from discontinued operations	(31.0)	44.7	(69.4p)	(61.6)	16.9	(364.5p)
Tax relating to discontinued operations	2.0		4.5p	(2.6)		(15.4p)
Basic EPS from discontinued operations	(29.0)	44.7	(64.9p)	(64.2)	16.9	(379.9p)

There is no difference between basic and diluted EPS as there is no material impact from dilutive share options.

The 2007 figures have been restated to take account of the 1 for 20 share consolidation (note 12).

9.	Goodwill and other intangible assets

	Goodwill	Other	Total
	£m	£m	£m
Cost
At 1 January 2008	10.6	0.4	11.0
Written off	-	(0.1)	(0.1)
At 31 December 2008	10.6	0.3	(10.9)
Accumulated amortisation
At  1 January and 31 December 2008	2.7	-	2.7
Net book amount at 31 December 2008	7.9	0.3	8.2
Net book amount at 31 December 2007	7.9	0.4	8.3

Goodwill comprises capitalised goodwill on acquisitions completed since 1 January 1998.  Other intangible assets of £0.3m (2007: £0.4m) relate to capitalised software costs. 

10.	Property, plant and equipment

	Land and buildings leasehold £m	Plant, technical equipment and other £m	Total £m
Cost
At 1 January 2008	0.4	53.8	54.2
Additions	-	1.3	1.3
Disposals	-	(0.3)	(0.3)
At 31 December 2008	0.4	54.8	55.2
Accumulated depreciation and impairment
At 1 January 2008	0.1	38.8	38.9
Charge for year	0.2	2.4	2.6
Disposals	-	(0.5)	(0.5)
At 31 December 2008	0.3	40.7	41.0
Net book value at 31 December 2008	0.1	14.1	14.2
Net book value at 31 December 2007	0.3	15.0	15.3

Part of the disposals relates to fair value adjustments in relation to Virgin Radio.

11.	Short-term bank deposit

The short term bank deposit relates to £1.0m (2007: £1.4m) placed in Escrow for use by GMT in relation to certain planning consents currently being sought by Primesight.

12.	Share capital

	Number of shares (thousands)	Ordinary shares £m	Share  premium £m	Total £m
At 1 January 2008	950,853	23.8	136.3	160.1
Issued during the year	820	-	-	-
Share buy back	(522)	-	-	-
Tender offer - return of capital	(230,769)	(5.8)	(25.0)	(30.8)
	720,382	18.0	111.3	129.3
Share consolidation (1 for 20)	(684,363)	-	-	-
At 31 December 2008	36,019	18.0	111.3	129.3

Tender offer

The Tender offer which received shareholder approval at a General Meeting of the Company on 23 September 2008 closed at 1.00pm on 25 September 2008 with a strike price of 13.0p per SMG share. All valid tenders of each shareholder's first 10,000 SMG shares or less which were submitted as strike price tenders or at prices below the strike price were accepted in full. All other valid tenders which were submitted at a price below the strike price were also accepted in full, whilst tenders submitted at the strike price were accepted, subject to pro rata scale back so that approximately 48.7% of such ordinary shares were repurchased. Tenders at prices above 13.0p were not accepted.

The Tender resulted in 230,769,197 SMG shares (representing approximately 24.3% of the issued share capital of SMG) being repurchased at a total cost (including purchase expenses) of £30.8m. All SMG shares repurchased were cancelled. Following this cancellation, the number of SMG shares in issue was 720,382,690.

Share consolidation

Also as a result of the shareholder approval obtained on 23 September, the Company effected a share consolidation whereby SMG shareholders received 1 new SMG share for every 20 existing SMG shares registered in their name. Following the Share consolidation, the number of ordinary shares in issue was 36,019,135.

Following the completion of the tender offer and share consolidation process, the Company changed its name to stv group plc.

13.	Statement of changes in shareholders' equity

	Share Capital	Share Premium	Other  reserve	Equity reserve	Minority  interest	Retained earnings
	£m	£m	£m	£m	£m	£m
1 January 2008	23.8	136.3	1.2	2.5	(0.2)	(273.3)
Net loss	-	-	-	-	-	(27.4)
Capital return (see note 12)	(5.8)	(25.0)	-	-	-	-
Movement in IFRS 2 reserve	-	-	(0.5)	-	-	-
Movement in own shares	-	-	-	-	-	0.1
Equity reserve release	-	-	-	(2.5)	-	2.5
Actuarial loss	-	-	-	-	-	(30.2)
Deferred tax thereon	-	-	-	-	-	8.1
Minority interest written off	-	-	-	-	0.2	-
Release of hedging reserve	-	-	-	-	-	(0.3)
At 31 December 2008	18.0	111.3	0.7	-	-	(320.5)

There has been no movement in the merger reserve during the years ended 31 December 2008 and 31 December 2007.

14.	Disposal of discontinued operations

As referred to in note 6, on 30 June 2008 the Group disposed of its interest in Virgin Radio.  

The assets of Virgin Radio at the date of disposal and at 31 December 2007 were as follows: 

	30 June 2008	2007
	£m	£m
Property, plant and equipment	3.2	3.2
Investments	0.1	-
Trade and other receivables	10.8	6.8
Cash and cash equivalents	1.1	1.6
Trade and other payables	(5.4)	(4.7)
Tax liabilities	(0.1)	-
Attributable goodwill	55.8	55.8
Working capital adjustment agreed as part of disposal	(0.2)	-
	65.3	62.7
Disposal expenses	5.4
Loss on disposal	(17.5)
Total consideration	53.2
Satisfied by:
Cash	53.2
Net cash inflow arising on disposal:
Cash consideration	46.9

The Group disposed of its interest in Primesight on 30 October 2007. The assets of Primesight at the date of disposal were as follows: 

	30 October 2007
	£m
Property, plant and equipment	19.6
Inventories	0.2
Trade and other receivables	5.8
Cash and cash equivalents	(0.3)
Trade and other payables	(0.4)
Tax liabilities	(1.8)
Attributable goodwill	32.4
Working capital adjustment agreed as part of disposal	1.1
	56.6
Disposal expenses	3.3
Loss on disposal	(5.7)
Total consideration	54.2
Satisfied by:
Cash	52.0
Funds placed in Escrow	(1.4)
Deferred consideration (discounted £5.0m deferred loan note)	3.6
	54.2
Net cash inflow arising on disposal:
Cash consideration	47.3

15.	Cash flow from operating activities

		Restated
	2008	2007
	£m	£m
Continuing operations
Operating profit (before exceptional items)	13.2	11.1
Depreciation and other non-cash items	1.7	1.4
Operating cash flows before movements in working capital	14.9	12.5
Increase in inventories	(3.6)	(5.6)
Decrease in trade and other receivables	1.7	6.5
(Decrease)/increase in trade and other payables	(1.4)	2.4
	11.6	15.8
Cost of change costs	(3.3)	(4.1)
Onerous property costs	(1.4)	-
Cash generated by continuing operations	6.9	11.7
Discontinued operations
Operating profit (before exceptional items)	1.5	9.0
Depreciation and other non-cash items	(1.2)	(1.6)
Operating cash flows before movements in working capital	0.3	7.4
Decrease/(increase)/in trade and other receivables	5.9	(2.2)
Decrease in trade and other payables	(3.0)	(1.7)
	3.2	3.5
Onerous contract costs	(8.0)	(3.5)
Cash flow for discontinued operations	(4.8)	-
Cash generated by operations	2.1	11.7

The 2007 discontinued depreciation and other non-cash items and onerous contract costs totalling £5.1m have been restated to split out the non-cash interest of £1.6m and cash spend of £3.5m.  

16.	Analysis of movements in net debt

	At  1 January 2008	Cash flow	At  31 December 2008
	£m	£m	£m
Cash and cash equivalents	10.8	2.2	13.0
Cash and cash equivalents included in the disposal groups held for sale (note 6)	2.7	0.7	3.4
	13.5	2.9	16.4
Bank borrowings	(62.0)	8.2	(53.8)
Short-term deposits	1.4	(0.4)	1.0
Net debt	(47.1)	10.7	(36.4)

17.	Retirement benefit schemes

The Group operates two defined benefit pension schemes. 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 2006 and updated to 31 December 2008 by a qualified independent actuary. The major assumptions used by the actuary were:

	At 31 December  2008		At 31 December 2007
Rate of increase in salaries		3.3%		3.6%
Rate of increase of pensions in payment		2.8%		3.1%
Discount rate		6.6%		6.0%
Inflation		2.8%		3.1%

Assumptions regarding future mortality experience are set based on advice, published statistics and experience in each territory.

The average life expectancy in years of a pensioner retiring at age 65 on the balance sheet date is as follows:

	At 31 December  2008		At 31 December 2007
		Years		Years
Male		15.0		15.0
Female		17.9		17.9

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 2008	At 31 December 2007	At 31 December 2006	At 31 December  2005
	£m	£m	£m	£m
Equities	108.6	143.2	145.9	146.2
Bonds	106.7	121.9	114.7	109.6
Fair value of schemes' assets	215.3	265.1	260.6	255.8
Present value of defined benefit obligations	(253.6)	(279.1)	(307.3)	(308.8)
Deficit in the schemes	(38.3)	(14.0)	(46.7)	(53.0)
Equities	8.0%	8.0%	8.4%	8.0%
Bonds	3.7%-6.6%	4.4%-6.1%	4.6%-5.2%	4.1%-4.9%

A related offsetting deferred tax asset of £11.3m (2007: £4.9m) is shown under non-current assets. Therefore the net pension scheme deficit amounts to £27.0m at 31 December 2008 (£9.1m at 31 December 2007).

18.	Reconciliation of underlying results (pre IFRS 5 and IAS 19 notional non-cash interest credit)

  Pre IFRS 5 and IAS 19 notional non-cash interest credit:

	Continuing		Discontinued		Group underlying results
	2008	2007	2008	2007	2008	2007
	£m	£m	£m	£m	£m	£m
Operating profit	13.2	8.3	1.0	5.3	14.2	13.6
Profit/(loss) before tax	9.4	(3.7)	1.0	5.3	10.4	1.6

  Pre IFRS 5 only:

	Continuing		Discontinued		Group underlying results
	2008	2007	2008	2007	2008	2007
	£m	£m	£m	£m	£m	£m
Operating profit	13.2	11.1	1.0	5.3	14.2	16.4
Profit/(loss) before tax	11.3	(0.9)	1.0	5.3	12.3	4.4

EPS is calculated based on profit adjusted for tax at 10% (2007: 10%) using the weighted average number of shares in issue per note 8.  The 2007 EPS figures have been adjusted to take account of the 1 for 20 share consolidation.

19.

Mailing

A copy of the annual report is being sent to all shareholders on 20 March 2009 and will be available for inspection by members of the public at the Company's registered office at Pacific Quay, Glasgow, G51 1PQ.

 

END

 

 

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