Interim Results
SMG PLC
10 September 2003
Wednesday 10th September 2003
SMG plc
Interim Results
Six Months ended 30 June 2003
SMG Well-Positioned for Advertising Recovery
These results reflect the resilient nature of SMG's businesses, all of which
have remained profitable despite the continuation of the advertising downturn
during the first half of 2003. All of its businesses have held market share or
outperformed the competition.
The six months to 30 June 2003 was a period of transition for SMG. Action has
been taken to ensure that the businesses are in good shape to develop and
benefit from the recovery when it emerges, by completing some important
strategic tasks. The Group has a secure financial footing with the successful
completion of the £216m disposal of the publishing business. This reduced debt
by 40% to £246m and enabled the Group to refinance on much improved terms. In
addition, a positive outcome of the litigation proceedings initiated by Chris
Evans was achieved.
The continuation of the advertising downturn, which began three years ago, has
hit national advertising particularly hard. Turnover for continuing operations
reduced to £86.0m (2002: £91.9m) for the first six months of the year with
EBITDA for Continuing Operations at £19.0m before exceptionals and goodwill
amortisation (2002: £24.7m). Reduced airtime sales and increased marketing
spend at Virgin Radio contributed to a reduction in operating profit on
continuing operations before exceptionals and goodwill amortisation to £11.3m
(2002: £16.3m), despite £1m of cost savings achieved across the Group. The
impact of the publishing disposal and the lower interest costs from refinancing
the debt position mean that SMG posted a pre-tax profit, before exceptionals and
goodwill amortisation, of £5.5m (2002: £10.5m). After taking these items into
account, the Group's pre-tax profits grew to £5.9m (2002: £0.9m).
SMG's operating margins remained robust at 18% reflecting the strength of the
brands and management's focus on costs. The Group's operational gearing ensures
that revenue growth will deliver immediate profit improvement, and an upturn in
advertising markets will lead to a period of sustained growth.
The Group is now entirely focused on national advertising markets, which have
better growth prospects in the long-term as well as good short-term recovery
prospects. All of SMG's businesses have strong market positions, with clear
differentiation from the competition, and are backed by some of the industry's
most prominent brands.
Significant progress has been made in laying the groundwork for organic growth
and development through continued investment and innovation, harnessing digital
technologies across each of its businesses and exploiting opportunities for
interactivity wherever these are available. This was supplemented by the launch
earlier this month of SMG Access, an initiative designed to further capitalise
on the Group's multi-platform structure and capture increased market share.
Andrew Flanagan, Chief Executive of SMG, said:
'The early part of the summer saw a continuation of the weak advertising markets
that have been a feature of the first half, but we are cautiously optimistic
about the second half of the year where we are already detecting signs of
significant improvement in each of our businesses. However, we believe that it
is too early to take a view on whether or not this is the start of the sustained
upturn.
'Overall, we anticipate a satisfactory performance for SMG in the second half of
2003, outperforming the first half. As the UK advertising markets recover, SMG
will be well placed to generate faster growth.'
Key Financials
• Group Turnover - cont. operations £86.0m (2002: £91.9m)
Group Turnover - total £106.3m (2002: £131.1m)
• Operating Profits* - cont. operations £11.3m (2002: £16.3m)
Operating Profits* - total £13.8m (2002: £22.9m)
• Pre-tax Profits* £5.5m (2002: £10.5m)
• Earnings per Share* 1.6 pence (2002: 2.4 pence)
* Before exceptional items and goodwill amortisation
Enquiries:
Andrew Flanagan Chief Executive 020 7882 1111
George Watt Group Finance Director on day of release,
Callum Spreng Corporate Affairs Director 0141 300 3300
thereafter
James Hogan Brunswick 020 7404 5959
Ben Brewerton
There will be a presentation for City analysts at 9.30 a.m. today at:
ABN Amro, 250 Bishopsgate, London EC2.
An interview with Andrew Flanagan, Chief Executive, in video/audio and text is
available now on http://www.smg.plc.uk and on http://www.cantos.com
CHAIRMAN'S STATEMENT
OVERVIEW
The first six months of 2003 was a transitional period for SMG as we completed a
series of strategically important tasks, and advertising markets lost some of
the volatility they have displayed in recent times. It was punctuated by the
completion of the sale of our publishing business; its successful separation
from the remainder of the Group; the refinancing of the Group's debt; and the
positive outcome of the litigation initiated by Chris Evans.
SMG enjoys quality positions within each of its markets, increasing market share
in many areas. With a sound platform on which to build, we await only an upturn
in advertising markets to see a return to a period of sustained growth.
The persistence of the advertising downturn continued to take its toll in the
first half of 2003 however, affecting both turnover and profits for the Group,
with uncertainty surrounding the war in the early part of the year, and
continued economic concerns, impacting trading. The sale of our publishing
business in April, lower advertising revenues and the timing of programme
commissions, contributed to a reduction in Group turnover of 19% to £106.3m
(2002: £131.1m). However, turnover for Continuing Operations reduced by only 6%
to £86.0m (2002: £91.9m). This translated into pre-tax profits, before
exceptionals and goodwill amortisation, of £5.5m (2002: £10.5m). After taking
account of these items, pre-tax profits were £5.9m (2002: £0.9m). Earnings per
share before exceptionals and goodwill amortisation were 1.6 pence (2002: 2.4
pence).
As in 2002, the Board has decided to await the outcome of the year before
deciding on the level of dividend. The directors are cautiously optimistic
about a recovery in advertising markets, but the sustainability of the
short-term improvement has yet to be proven and the Board believes that this
course of action is both prudent and appropriate. The directors plan to
recommend a full-year dividend at the year-end.
GROWTH & DEVELOPMENT
SMG's businesses have once again outperformed our competition in many areas and
we continue to identify and invest in organic growth and development
opportunities.
Scottish and Grampian Television outperformed the ITV Network, with peak time
all adult audience growth of 4% and a 15% increase in the crucial 16 - 34 year
old category. We continued to invest in digital technology to bring
improvements in speed and quality and to reduce costs. SMG has recently
completed one of the most modern television studios in the world in Aberdeen,
financed by the sale of the old studio.
The departure of Chris Evans led to a root and branch review at Virgin Radio.
By the end of 2002 the major changes were complete and there is now a stable
line-up of quality presenters backed by the right music policy. The positive
results of this action were evident in the recent RAJAR listening figures and we
plan to sustain these improvements across the remainder of 2003.
Virgin Radio is uniquely placed to benefit from the growth of digital radio. It
already has a strong national brand compared to other radio operators and
digital radio will give a significant improvement in sound quality over the AM
network. The strength of the Virgin brand will also enhance SMG's position when
bidding for new radio licences. The Group is currently awaiting the outcome of
two licence bids and intends to continue to invest in a strong line-up of
licence opportunities in 2004.
Cinema advertising remains the fastest growing advertising medium. An improved
schedule of films is expected to have a positive effect on audience levels in
the next two years and cinema will also benefit from the introduction of digital
technology with its additional revenue streams, attendant flexibility and
potential for reduced costs. We are working with our exhibitor partners in
identifying and testing opportunities to capitalise on the early adoption of
this technology.
In outdoor advertising the fastest growth area has been in the six-sheet market,
where Primesight has outstripped the competition, doubling its panel estate in
just four years. Our specialism in six-sheets is significant, as advertisers
are now looking towards interactive panels that can deliver more information,
establish customer contact and increase dwell time. Six-sheet panels will be at
the forefront of the move towards interactivity, as they are generally located
in closer proximity to passers-by than larger format boards.
To optimise the performance of our businesses and enhance growth, the recent
launch of SMG Access is designed to bring our services together to exploit SMG's
multi-platform position by responding to an increasing demand from advertisers
for multi-faceted campaigns. SMG Access has an experienced team dedicated to
marketing and developing innovative solutions for clients advertising on more
than one of our media. Already 90% of our top 100 clients use two of the
Group's media, with nearly one third using all our services. We believe there
is good opportunity to increase the share of advertising we can attract from
this customer base.
TELEVISION
The impact of the advertising downturn continued to be felt in commercial
television and our TV airtime revenues fell by 5% in the first half of 2003, in
line with the ITV Network. This, alongside increases in the Network budget and
the weighting of our Network commissions towards the second half of the year,
saw Television operating profits reduce to £6.2m (2002: £8.6m) while we held our
share of ITV airtime revenues (NAR) at 6.1% (2002: 6.1%).
Much has been written about ITV's ability to attract audiences in the face of
the increasing penetration of multi-channel television and the ever-populist
BBC. However, Scottish and Grampian put in an excellent performance, stretching
their peak-time audience share lead over their main competitor, BBC Scotland, to
over 6%, at 32.6%, and illustrating our continued ability to attract, entertain
and inform Scottish viewers. Our performance was aided by a stronger range of
programming from the ITV Network, which also managed to reverse recent audience
declines, with growth of 0.1%.
This came on top of a period of considerable achievement for the Group's
Television Division, whose management have concentrated on improving their
product while controlling costs and improving efficiencies. Grampian TV
completed a seamless move to new studio facilities in Aberdeen with on-screen
improvements for viewers and advertisers, efficiency benefits and a considerably
enhanced working environment for staff. We are currently undertaking a
feasibility study of the available options for our studio complex in Glasgow to
deliver similar benefits.
Our network programme production business, SMG TV Productions, enjoyed some
major successes during the period, with Club Reps 2 - The Workers already
recommissioned for 2004, while factual stable mate Don't Drop the Coffin
regularly proved to be the nation's most popular documentary series, attracting
audiences of over 5 million viewers in its peak-time slot against strong
opposition. In addition, the factual team have won a prestigious commission for
BBC's Timewatch series and have collaborated with their regional production
colleagues in a joint regional and network production for ITV, Medics of the
Glen. The 2003 production and delivery schedules are heavily weighted towards
the second half of the year and, with this business now producing programmes for
all the UK's terrestrial channels, we expect the second half contribution to
result in a full year performance comparable to that of 2002.
RADIO
Virgin Radio, which celebrated its 10th birthday, had a high profile start to
2003. A £3m marketing campaign ensured that its revitalised music offering was
communicated to its target audience across the UK in January and February, while
the successful court case ensured that the station was never far from the news
pages across March and April. The continued downturn in national advertising
markets caused turnover at Virgin Radio to fall by 13% to £11.8m (2002: £13.6m),
although we gained market share among the national commercial radio stations.
Virgin Radio's operational gearing, coupled with the increased marketing costs,
resulted in operating profits reducing to £3.0m (2002: £6.0m).
Considerable progress was made at the station during the period. In addition to
the quality of our programming, we now have consistency in the schedule and
presenter line-up and internal research is indicating an enthusiastic reaction
from the station's core audience of 20-45 year olds who have responded well to
the station's marketing campaign. As a result, Virgin Radio grew its audience
by 3% in the Q2 RAJAR figures - the only national station in the UK to do so -
and increased its 20-45-year-old male listenership by over 10%.
It was an award-winning period for the station also, with Gold success in the
Sony Awards and nominations for both the sales team and the station's programme
director in the CRCA Radio Awards.
OUT OF HOME
Our Cinema and Outdoor businesses once again provided the bright spots in
otherwise tough markets, growing both turnover and profits. Turnover increased
by 2% to £20.2m (2002: £19.9m), primarily due to outdoor panel and yield growth
which more than covered the loss of the Showcase cinema contract. Most of these
increased revenues carried through to operating profit, which grew by 7% to
£3.2m (2002: £3.0m).
Revenue from Primesight's six-sheet panels increased 25% as the business
continued to develop its targeted packages for advertisers including its
Drivebuy pack of petrol station forecourt panels, which is attracting both FMCG
and motor manufacturers to the medium. The Group's high quality range of
London-based, large format Backlight panels is also growing quickly, as well as
featuring many prestige brands, and we now plan to roll out the format
nationwide.
Pearl & Dean, celebrating its 50th anniversary in 2003, saw underlying revenue
growth of 17%. A better release schedule - including Terminator 3; Lord of the
Rings 3; and Matrix 3 - should help to encourage audience growth in the later
part of the year.
PROSPECTS
The Group will benefit in the second half from the cost reductions we have
achieved as a result of the Grampian studios move and from the full effect on
regional programme costs of the standardisation of regional television hours,
introduced in the fourth quarter of 2002. Virgin Radio's marketing costs will
return to more normalised levels and the Group will gain the full benefit of its
reduced interest costs, which applied from April of this year.
The summer months of July and August are traditionally the quietest months for
advertising revenue and continued the trend of the first half of the year.
However, the short-term advertising market has returned strongly for September
and October and there are encouraging signs of a strengthening of the market.
We expect such events as the Rugby World Cup and a more promising film release
pattern in cinema to have a positive impact on the fourth quarter. We believe
it is too early to take a view on whether or not this is the start of the
upturn, but we are cautiously optimistic about advertising markets.
Don Cruickshank
Chairman, SMG plc
Consolidated profit and loss account
for the six months ended 30 June 2003
Excluding exceptionals Total including
and FRS10 (see note 4) exceptionals and FRS10
Restated
Restated Restated Audited
6 months 6 months 6 months 6 months full year
2003 2002 2003 2002 2002
Note £m £m £m £m £m
Turnover
Continuing operations 86.0 91.9 86.0 91.9 199.8
Discontinued operations 20.3 39.2 20.3 39.2 78.6
------- ------- ------- ------- -------
Total turnover 2 106.3 131.1 106.3 131.1 278.4
------- ------- ------- ------- -------
Net operating expenses (92.5) (108.2) (99.9) (115.9) (247.5)
Reorganisation costs 3 - - (2.5) - -
Litigation matters 3 - - 3.0 - -
Development costs 3 - - (3.0) - -
------- ------- ------- ------- -------
Total operating expenses ( 92.5) (108.2) (102.4) (115.9) (247.5)
------- ------- ------- ------- -------
Operating profit
Continuing operations 11.3 16.3 1.4 8.9 19.6
Discontinued operations 2.5 6.6 2.5 6.3 11.3
------- ------- ------- ------- -------
Group operating profit 13.8 22.9 3.9 15.2 30.9
------- ------- ------- ------- -------
Share of associates 3 4.0 2.5 2.1 0.6 3.6
------- ------- ------- ------- -------
Total operating profit 2 17.8 25.4 6.0 15.8 34.5
Gain on disposal of subsidiary 3, 11 - - 33.0 - -
undertakings
Share of associate loss on sale of 3 - - - - (6.2)
subsidiary
------- ------- ------- ------- -------
Profit on ordinary activities before
financing charges 17.8 25.4 39.0 15.8 28.3
Net financing charges before 5 (12.3) (14.9) (12.3) (14.9) (29.5)
exceptionals
Exceptional financing charges 3,5 - - (20.8) - (14.9)
------- ------- ------- ------- -------
Net financing charges 5 (12.3) (14.9) (33.1) (14.9) (44.4)
------- ------- ------- ------- -------
Profit/(loss) on ordinary activities
before taxation 5.5 10.5 5.9 0.9 (16.1)
Tax on profit/(loss) on ordinary 6 (0.6) (2.8) 0.8 (2.8) (2.0)
activities
------- ------- ------- ------- -------
Profit/(loss) on ordinary activities
after taxation 4 4.9 7.7 6.7 (1.9) (18.1)
Dividends 7 - - - - (7.8)
------- ------- ------- ------- -------
Profit/(loss) transferred to reserves 4.9 7.7 6.7 (1.9) (25.9)
------- ------- ------- ------- -------
Earnings per ordinary share - basic 8 1.6p 2.4p 2.1p (0.6p) (5.8p)
Consolidated balance sheet
at 30 June 2003
Audited
Note 30 June 30 June 31 December
2003 2002 2002
£m £m £m
Fixed assets
Intangible assets 9 240.4 328.5 315.4
Tangible assets 35.4 82.9 80.5
Investments 10 89.1 91.5 89.6
------- ------- -------
364.9 502.9 485.5
------- ------- -------
Current assets
Stock 27.0 24.2 22.6
Debtors and prepayments 53.1 68.4 60.2
Cash at bank and in hand 11 10.0 - -
------- ------- -------
90.1 92.6 82.8
------- ------- -------
Creditors: amounts falling due within one year
Creditors and accrued (27.8) (49.7) (39.7)
charges
Bank loans and overdrafts (11.2) (237.5) (239.8)
Other loans - (140.0) (134.9)
Corporation tax (8.0) (10.5) (3.3)
Proposed dividend (7.8) (4.7) (7.8)
------- ------- -------
(54.8) (442.4) (425.5)
------- ------- -------
Net current assets/(liabilities) 35.3 (349.8) (342.7)
------- ------- -------
Total assets less current liabilities 400.2 153.1 142.8
------- ------- -------
Creditors: amounts falling due after more than one year
Bank loans (220.5) - -
Creditors and accrued charges (2.4) (2.2) (2.5)
Convertible unsecured loan stock (22.8) (22.8) (22.8)
Secured loan stock (0.9) (1.0) (0.9)
------- ------- -------
(246.6) (26.0) (26.2)
------- ------- -------
Provisions for liabilities and charges 12 (4.1) (9.7) (25.2)
------- ------- -------
Net assets excluding pension liability 149.5 117.4 91.4
Pension liability (52.0) (22.0) (58.3)
------- ------- -------
Net assets including pension liability 97.5 95.4 33.1
------- ------- -------
Capital and reserves
Called up share capital 7.8 7.8 7.8
Share premium account 58.8 59.2 58.8
Revaluation reserve 3.1 3.1 3.1
Merger reserve 173.4 173.4 173.4
Profit and loss account (145.6) (148.1) (210.0)
------- ------- -------
Equity shareholders' funds 13 97.5 95.4 33.1
------- ------- -------
Consolidated cash flow statement
for the six months ended 30 June 2003
Audited
Note 6 months 6 months Full Year
2003 2002 2002
£m £m £m
Operating activities
Net cash inflow from operating activities 14 1.6 12.0 41.5
------- ------- -------
Dividends received from associates 1.2 1.7 1.7
------- ------- -------
Returns on investments and servicing of finance
Interest received 0.1 0.2 0.1
Interest paid (14.2) (13.7) (34.2)
Debt restructuring costs (41.0) - (8.2)
------- ------- -------
(55.1) (13.5) (42.3)
------- ------- -------
Taxation
UK corporation tax received/(paid) 3.7 (0.4) (1.0)
------- ------- -------
Capital expenditure and financial investment
Purchase of tangible fixed assets (9.4) (8.2) (13.5)
Sale of tangible fixed assets 0.4 2.7 6.2
------- ------- -------
(9.0) (5.5) (7.3)
------- ------- -------
Acquisitions and disposals
Disposal of subsidiary undertakings 11 211.0 - -
------- ------- -------
211.0 - -
------- ------- -------
Equity dividends paid - - (4.7)
------- ------- -------
Cash inflow/(outflow) before financing 153.4 (5.7) (12.1)
------- ------- -------
Financing
Cash gain on closure of swap - - 3.7
Net repayment of loan notes/stock (0.2) (2.3) (1.8)
------- ------- -------
(0.2) (2.3) 1.9
------- ------- -------
Cash inflow/(outflow) in the period 153.2 (8.0) (10.2)
------- ------- -------
Movement in net debt Audited
6 months 6 months Full Year
2003 2002 2002
£m £m £m
Opening net debt (398.9) (393.8) (393.8)
Cash inflow/(outflow) in the period 153.2 (8.0) (10.2)
Swap translation gain - - 5.1
------- ------- -------
Closing net debt (245.7) (401.8) (398.9)
------- ------- -------
Notes to the interim statement
for the six months ended 30 June 2003
1. Basis of preparation of the interim statement
The interim statement, which is unaudited, has been prepared on a basis that is
consistent with the accounting policies and practices adopted for the Group for
the year ended 31 December 2002. The balance sheet at 31 December 2002 and the
results for the year then ended have been extracted from the Group's annual
report and financial statements, which have been filed with the Registrar of
Companies. The auditors' opinion on the financial statements was unqualified and
did not include a statement under section 237(2) or (3) of the Companies Act
1985. 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.
The Group accounts for pension costs and retirement benefits in line with FRS17.
This requires an annual actuarial assessment of the defined benefit schemes,
which is carried out by the Group's independent actuarial advisers. In the six
months ended 30 June 2003 the Group has accounted for these schemes on the basis
of the 2002 actuarial assessment. This will be updated during the second half
of the year and any actuarial gains and losses arising will be shown in the
statement of total recognised gains and losses for 2003.
2. Segmental analysis
The analysis of the Group's turnover and operating profit by operating division
is set out below:
Restated Restated
6 months 2003 6 months 2002 Audited full year 2002
Continuing Discontinued Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total operations operations Total
£m £m £m £m £m £m £m £m £m
Turnover
Television 54.0 - 54.0 58.4 - 58.4 128.5 - 128.5
Publishing - 20.0 20.0 - 38.8 38.8 - 77.5 77.5
Radio 11.8 - 11.8 13.6 - 13.6 25.9 - 25.9
Out of Home 20.2 - 20.2 19.9 - 19.9 45.4 - 45.4
Online activities - 0.3 0.3 - 0.4 0.4 - 1.1 1.1
------ ------ ------ ------ ------ ------ ------ ------ ------
Total turnover 86.0 20.3 106.3 91.9 39.2 131.1 199.8 78.6 278.4
------ ------ ------ ------ ------ ------ ------ ------ ------
Turnover in the first six months of 2003 includes £0.8m (2002: £2.2m) of
revenues from sources outside the UK. The audited full year results for 2002
included £3.7m of revenues from outside the UK.
Restated Restated
6 months 2003 6 months 2002 Audited full year 2002
Continuing Discontinued Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total operations operations Total
£m £m £m £m £m £m £m £m £m
Operating profit
Television 6.2 - 6.2 8.6 - 8.6 20.8 - 20.8
Publishing - 3.6 3.6 - 8.5 8.5 - 15.0 15.0
Radio 3.0 - 3.0 6.0 - 6.0 10.0 - 10.0
Out of Home 3.2 - 3.2 3.0 - 3.0 6.2 - 6.2
Online activities - (0.6) (0.6) - (1.0) (1.0) - (1.8) (1.8)
Associates 4.0 - 4.0 2.5 - 2.5 7.4 - 7.4
Pension costs (1.1) (0.5) (1.6) (1.3) (0.9) (2.2) (2.4) (1.5) (3.9)
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
profit* 15.3 2.5 17.8 18.8 6.6 25.4 42.0 11.7 53.7
Exceptional items (2.5) - (2.5) - - - - - -
Goodwill
amortisation (9.3) - (9.3) (9.3) (0.3) (9.6) (18.5) (0.7) (19.2)
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating profit
(FRS3) 3.5 2.5 6.0 9.5 6.3 15.8 23.5 11.0 34.5
----- ----- ----- ----- ----- ----- ----- ----- -----
* Excluding exceptional items and FRS10.
Operating profit in the first six months of 2003 includes £0.5m (2002: £1.1m)
arising outside the UK. The audited full year results for 2002 included £1.3m
of operating profits from outside the UK.
FRS17 pension costs are incurred in Television £0.9m (2002: £1.1m), Publishing
£0.5m (2002: £0.9m), Radio £0.1m (2002: £0.1m) and Out of Home £0.1m (2002:
£0.1m). The audited full year results for 2002 included FRS 17 costs of £2.1m
in Television, £1.5m in Publishing, £0.1m in Radio and £0.2m in Out of Home.
3. Exceptional items
i) Gain on disposal of subsidiary undertakings
The disposal of the Company's Publishing division on 4 April 2003 resulted
in a provisional gain on sale of £33.0m (see note 11).
ii) 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 additional 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. In
addition, a foreign exchange translation gain of £5.1m resulted from
favourable £/$ exchange rate movements between the initial borrowing
of US$ Notes and the 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.
iii) 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.
iv) 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 announced that it had reached a full and final
settlement with Chris Evans, which would result in the Group receiving
£6.7m covering all costs and damages.
This settlement has been recognised in the six months to 30 June 2003 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.
Settlement will take place in the second half of the Group's financial
year.
v) Development costs
The Group is committed to developing its radio business and has to date
applied for 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 in
bidding for these licences.
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 £1.9m (six months to 30 June 2002:
£1.9m and audited full year 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.
4. Reconciliation of profit/(loss) excluding and including exceptionals and FRS10
Audited
6 months 6 months full year
2003 2002 2002
£m £m £m
Profit/(loss) on ordinary activities after taxation:
Excluding exceptionals and FRS10 4.9 7.7 17.7
Goodwill amortisation (9.3) (9.6) (19.2)
Reorganisation costs (2.5) - -
Litigation matters 3.0 - -
Development costs (3.0) - -
Gain on disposal of subsidiary undertakings 33.0 - -
Share of associate loss on sale of - - (6.2)
subsidiary
Exceptional finance costs (20.8) - (23.7)
Swap gain - - 3.7
Foreign exchange translation gain - - 5.1
Tax credit on exceptionals 1.4 - 4.5
------ ------ ------
Including exceptionals and FRS10 6.7 (1.9) (18.1)
------ ------ ------
5. Net financing charges
Audited
6 months 6 months full year
2003 2002 2002
£m £m £m
Interest payable:
Bank loans and overdrafts 10.1 11.9 23.3
CULS and loan note interest 0.7 0.7 1.6
------ ------ ------
Group interest payable before penalty interest 10.8 12.6 24.9
Penalty interest margin 1.5 2.5 6.0
------ ------ ------
Group interest payable 12.3 15.1 30.9
Share of associates 0.3 0.1 0.6
------ ------ ------
Total interest payable 12.6 15.2 31.5
Interest receivable (0.2) (0.2) (0.3)
------ ------ ------
Net interest payable 12.4 15.0 31.2
Capitalisation of finance costs - - (1.5)
Pension finance credit (0.1) (0.1) (0.2)
------ ------ ------
Net financing charges excluding exceptional items 12.3 14.9 29.5
Exceptional financing costs (see note 3) 20.8 - 14.9
------ ------ ------
Net financing charges 33.1 14.9 44.4
------ ------ ------
6. Tax on profit/(loss) on ordinary activities Restated
Restated Audited
6 months 6 months full year
2003 2002 2002
£m £m £m
The (credit)/charge for taxation is as follows:
(Credit)/charge for the period excluding exceptional items and FRS10 (0.5) 2.1 4.6
Share of taxation of associated undertakings 1.1 0.7 1.9
------ ------ ------
Tax on profit/(loss) on ordinary activities excluding exceptional items
and FRS10 at 10% (2002: 27%) 0.6 2.8 6.5
Tax credit on exceptional items (1.4) - (4.5)
------ ------ ------
(0.8) 2.8 2.0
------ ------ ------
7. Dividends
Audited
6 months 6 months full year
2003 2002 2002
£m £m £m
2002 final proposed of 2.5p per share - - 7.8
------ ------ ------
- - 7.8
------ ------ ------
8. Earnings per share
Basic earnings per share (EPS), excluding exceptional items and the impact of
goodwill amortisation under FRS10, is calculated as follows:
Restated Audited
6 months 6 months full year
2003 2002 2002
Attributable profit for the financial period (£m) 4.9 7.7 19.0
Weighted average number of shares in issue (m) 314.2 313.1 314.2
Earnings per ordinary share (pence) 1.6 2.4 6.1
------ ------ ------
Basic EPS, inclusive of exceptional items and after goodwill amortisation under
FRS10, in the six months to 30 June 2003 is 2.1p (six months to 30 June 2002:
(0.6p) and audited full year 2002: (5.8p)).
There is no difference between basic and diluted EPS because neither the share
options nor CULS are dilutive in the period.
9. Intangible assets
Publishing titles Goodwill Total
£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 30 June 2003 - 293.0 293.0
------- ------- -------
Amortisation
At 1 January 2003 - 47.3 47.3
Charge for the period - 7.4 7.4
Disposal of subsidiary undertakings - (2.1) (2.1)
------- ------- -------
At 30 June 2003 - 52.6 52.6
------- ------- -------
Net book value at 30 June 2003 - 240.4 240.4
------- ------- -------
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 11).
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 11).
10. Investments
Associated Associated
undertakings undertakings Other
goodwill share of net investments Total
assets
£m £m £m £m
At 1 January 2003 67.6 18.5 3.5 89.6
Share of associated undertakings - 2.6 - 2.6
Dividend received from associated undertaking - (1.2) - (1.2)
Goodwill amortisation (1.9) - - (1.9)
------- ------- ------- -------
At 30 June 2003 65.7 19.9 3.5 89.1
------- ------- ------- -------
11. 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 £2.5m, 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 50.4
Intangible assets - mastheads 56.0
Net current assets 1.2
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.
12. Provisions for liabilities and charges
Audited
6 months 6 months full year
2003 2002 2002
£m £m £m
Deferred taxation - 1.4 5.0
Equity accounted losses - 1.0 -
Other provisions 4.1 7.3 20.2
------- ------- -------
4.1 9.7 25.2
------- ------- -------
Equity accounted losses relating to GMTV were transferred to associated
undertakings share of net assets at note 10 in the second half of 2002.
13. Reconciliation of movements in equity shareholders' funds
Audited
6 months 6 months full year
2003 2002 2002
£m £m £m
Profit/(loss) for the period 6.7 (1.9) (18.1)
Dividends - - (7.8)
------- ------- -------
Retained profit/(loss) for the period 6.7 (1.9) (25.9)
Increase in share premium - 0.7 0.3
Goodwill previously written off included in retained profit for 57.7 - -
the period
Movement in shares to be issued - (1.3) (1.3)
Actuarial profit/(loss) recognised - 0.1 (52.8)
Deferred tax thereon - - 15.7
Share of associate actuarial loss recognised - - (0.7)
------- ------- -------
Net movement in shareholders' funds 64.4 (2.4) (64.7)
------- ------- -------
Opening shareholders' funds 33.1 97.8 97.8
------- ------- -------
Closing equity shareholders' funds 97.5 95.4 33.1
------- ------- -------
14. Reconciliation of operating profit to operating cash flow
Restated
Restated Audited
6 months 6 months full year
2003 2002 2002
£m £m £m
Group operating profit (before exceptional items and FRS10) 13.8 22.9 46.3
Depreciation and other non-cash items 4.9 2.9 7.5
(Increase)/decrease in stock (4.8) (0.7) 0.9
(Increase)/decrease in debtors (0.4) (6.2) 2.0
Decrease in creditors (1.6) (1.8) (10.0)
Reorganisation costs (0.3) (5.1) (5.2)
------- ------- -------
Net cash inflow before pension payment 11.6 12.0 41.5
Payment to Caledonian Pension Scheme (10.0) - -
------- ------- -------
Net cash inflow from operating activities 1.6 12.0 41.5
------- ------- -------
Net cash inflow from operating activities before pension payment
comprises:
Continuing operating activities 7.9 3.7 23.4
Discontinued operating activities 3.7 8.3 18.1
------- ------- -------
11.6 12.0 41.5
------- ------- -------
15. Mailing
A copy of this statement is being sent to all shareholders on 29 September 2003
and will be available for inspection by members of the public at the Company's
registered office at 200 Renfield Street, Glasgow.
INDEPENDENT REVIEW REPORT TO SMG PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2003 which comprises the consolidated profit and
loss account, the consolidated balance sheet, the consolidated cash flow
statement, the movement in net debt and related notes 1 to 15. We have read the
other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2003.
Deloitte & Touche LLP
Chartered Accountants
10 September 2003
Notes:
A review does not provide assurance on the maintenance and integrity of the
website, including controls used to achieve this, and in particular on whether
any changes may have occurred to the financial statements since first published.
These matters are the responsibility of the directors but no control procedures
can provide absolute assurance in this area.
Legislation in the United Kingdom governing the preparation and dissemination of
financial information differs from legislation in other jurisdictions.
This information is provided by RNS
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