2000 Interim Results
SMG PLC
22 August 2000
SMG plc
2000 Interim Results
Six Months Ended 30 June 2000
KEY FINANCIALS
* Total Turnover - up 37% to £152.7m
* EBITDA * - up 39% to £ 40.4m
* Total operating profit * - up 41% to £ 36.4m
* Profit before tax * - up 25% to £ 30.0m
* Earnings per share * - up 16% to 7.8 pence
* Dividend per share - up 5% to 2.3 pence
HIGHLIGHTS
* Record interim earnings and profits
* Excellent first-time contribution from Virgin Radio/Ginger Television
* Increased stake in GMTV (25%)
* Share placing to raise up to £45m
* Well positioned for growth
* Excluding exceptional items and FRS10 goodwill amortisation
Commenting on the interim results, Andrew Flanagan, Chief Executive of SMG,
said:
'These record results highlight that SMG continues to go from strength to
strength. With the acquisition of Ginger Media Group now firmly under our
belts, and delivering exceptional returns, we are now well set to continue our
development as a major player in UK media.'
For further information contact:
Andrew Flanagan Chief Executive 020 7882 1088
Gary Hughes CFO and Business Development Director
George Watt Acting Group Finance Director
Callum Spreng Director of Corporate Affairs
Ben Brewerton Brunswick 020 7404 5959
SMG plc
2000 Interim Results
CHAIRMAN'S STATEMENT
Overview
SMG's progress in the first six months of 2000 has been significant, both in
terms of its corporate development and operational performance. In addition
we have re-branded the group and carried out a corporate restructuring,
positioning SMG well for future expansion.
The acquisition of Ginger Media Group was completed in March and both Virgin
Radio and Ginger Television have been quickly, and effectively, integrated
into the Group. In addition, we were able, at the beginning of the year, to
increase our holding in GMTV to 25%, further strengthening our position in UK
media.
Our existing businesses, as well as those we have acquired, have performed
well in the first six months, resulting in pre-tax profit (excluding
exceptional items and FRS10) growing by 25% to £30.0 million (1999: £24.0
million), a new record. Turnover across the same period grew by 37% to
£152.7 million. Earnings per share (excluding exceptional items and FRS10)
increased from 6.7 pence in 1999, on a restated basis, to 7.8 pence, a growth
of some 16%. The Board has also agreed an interim dividend of 2.3 pence
(1999: 2.2 pence).
The change of the group's name to SMG took place in June, following the
completion of a corporate restructuring and a four-for-one share split. These
changes ensure that SMG is now appropriately structured, and branded, to
continue its development as a leading player in the UK information and
entertainment marketplace.
Today, simultaneously with the publication of our interim results, we have
announced that we are proposing to raise up to £45.0 million (net of expenses)
through a cash placing of 14.6 million new ordinary shares, representing
approximately 5% of SMG's issued share capital. This will strengthen the
group's balance sheet and provide us with the necessary flexibility to finance
and execute new investment and acquisition opportunities quickly.
Television
With advertising revenues across our Broadcasting business growing by 7%, and
as a result of initial savings from staff reductions, we have been able to
improve operating margins to 29%. In addition, our network programme
production business benefited from a first time contribution from Ginger
Television. Overall, Television profits in the first half increased to
£19.5 million, from £16.4 million in the same period last year, a growth of
19%.
Although advertising growth was ahead of expectations, we were not able to
match the exceptional growth across ITV nationally which was fuelled by a
surge of dot.com advertising in the South East of England, and an
unprecedented level of self-promotion by the larger ITV groups. We believe
these factors to be largely temporary but it did result in our Net Advertising
Revenue (NAR) share reducing from 6.2% to 5.8% in the period. We expect to
regain some market share in the second half as these factors recede and other
major advertisers rebalance their campaigns.
Our continued investment in new technology and improved efficiency in
programme making has inevitably resulted in a need for fewer staff. Early in
the year we introduced a redundancy programme and have set aside an
exceptional reorganisation provision of £5.0 million for the group as a whole.
We therefore expect to see continued benefit from reduced costs across the
remainder of the year and into 2001.
Both Scottish Television and Grampian Television maintained their market
leading positions in their respective regions with a peak-time audience share
of 37%, on par with 1999, despite the growth in multi-channel homes. This
performance was ahead of ITV and we substantially outperformed our nearest
rival, BBC Scotland, by a sizeable 11 percentage points.
Network programme production now comprises Scottish Television Enterprises
(STE) and Ginger Television, which together make SMG the sixth largest
programme producer in the UK. STE's repositioning in 1999 has allowed us to
start the process of successfully rebuilding the level of commissioned
programmes and, importantly, its development slate. Ginger Television has
contributed strongly to first half profits in the four months since
acquisition and has won a further commission for The Priory which will start
its third series on Channel 4 next month. TFI Friday will end its five year
run in December and we have been asked by Channel 4 to develop a replacement
show as well as other programming featuring Chris Evans.
Publishing
With newspaper advertising on our established titles (The Herald and Evening
Times) growing ahead of the market at 7%, and continued attention to cost
control, we were able to improve profits within Publishing to £9.1 million,
from £8.6 million in the equivalent period last year. This improvement was
achieved despite the costs of an extra five publication days of the
Sunday Herald, launched in February last year.
Advertising revenues showed renewed signs of growth after the slowdown in the
first half of 1999, with recruitment and property advertising particularly
strong as a result of faster growth in the local economy. Motoring remains
weak, given the uncertainty in the new and second-hand markets due to the
ongoing review of pricing in the motor industry.
The Scottish newspaper market has become increasingly competitive in 2000,
with the launch of Metro, a free daily tabloid, and The Scotsman and The Times
significantly cutting cover prices in an attempt to increase market share.
While we have seen some impact on circulation from these initiatives, The
Herald and Evening Times have largely been able to withstand this pressure. We
have therefore maintained cover prices and supported the products through
improved editorial, new designs and increased promotion. However, we will
continue to monitor our competitors' current activities to determine if a more
direct response to discounted cover prices is necessary.
The Sunday Herald is now firmly established in the Sunday market with an
audited circulation of 55,000 copies per week, and a market share of
approximately 25%, making it Scotland's third best-selling Sunday broadsheet.
It is now regularly on advertisers' planning schedules and we have seen good
advertising growth in the period. We continue to develop and improve the
product, supported by substantial promotional and marketing activities.
Losses in the first half of 2000 amounted to £1.3 million, in line with 1999
while covering an additional five weeks of production.
Radio
Our Radio Division was established following the acquisition of Virgin Radio,
part of Ginger Media Group. The exceptional growth potential of the radio
sector, which we identified prior to the acquisition, has been strongly
evident since we took control with radio advertising revenues growing by 31%
year-on-year in our first four months of ownership. A significant element of
this improvement has come from dot.com advertisers who, in addition to
regarding radio as internet friendly, were attracted to Virgin Radio's
excellent audience demographics and national reach. This led to a strong
operating performance, with Virgin Radio contributing £6.0 million of profit
in our first half results.
Virgin Radio's music format and branding has been fine-tuned around its
innovative proposition '10 Great Songs in a Row' to build brand awareness,
along with a significant increase in promotional support. Across the first
half, audience levels were broadly at expected levels but the strong gains in
the first quarter RAJARs reversed in the second quarter. Our own research and
analysis indicates we have increased younger listeners at the expense of the
over-thirties and we will adjust our play-list in the second half to restore
the balance of our audience.
Since becoming part of SMG, Virgin Radio, through its participation in Switch
Digital, has secured a place on the second London digital radio multiplex.
This is in addition to Virgin Radio's carriage on Digital One, the national
digital radio multiplex, which commenced broadcasting in November 1999. While
placing the station at the forefront of the development of digital radio, it
has also allowed us to launch a new radio service in London, a classic soul
format, 'The Groove'. The costs of this service, and the national digital
transmission costs of Virgin Radio, are not material, but significantly it
allows for an automatic rollover of both our national AM and our London FM
licences until 2008 and 2011 respectively.
Out of Home
Our Out of Home business, comprising outdoor and cinema advertising, benefited
from a full six month contribution from Primesight (acquired in March 1999)
and Pearl & Dean (acquired in June 1999). Revenue increased to £13.5 million
(1999: £7.2 million) and Out of Home contributed profits of £1.8 million
(1999: £0.9 million) in the period.
The outdoor sector performed well, particularly in the second quarter where
Primesight's six sheet panel revenues grew by over 40%. We continue to grow
our panel inventory to meet this demand but this has been slower than 1999 due
to the need to meet additional planning requirements. However, this is a
timing issue and we still expect to grow our six sheet panels to 8,500 by the
end of the year.
Although there were no blockbuster movie releases in the first half of 2000, a
steady stream of high quality films and continued growth of cinema audiences
led to strong increases in cinema advertising revenues. Pearl & Dean had over
1,000 screens under contract during the period and continues to grow its
market share of cinema advertising revenues.
Internet
Our approach to the opportunities offered by the internet was outlined earlier
this year and focuses on building on our market-leading position in Scotland,
and on our popular radio services. Progress in both areas has been good and we
now have specialists from all parts of SMG refining and developing our plans.
Delphic Interactive, the group's electronic publishing arm, will cease to
operate externally and will now provide internet expertise and services across
the group.
In addition Virgin Radio, through Ginger On-Line, is already offering a number
of exciting revenue generating services. Audited research demonstrated that
virginradio.co.uk receives 290,000 unique visitors, and eight million page
impressions a month, with an average visit lasting 24 minutes. From this
successful base, advertising, sponsorship and e-commerce revenues are now
running near to £100,000 per month.
We plan to have the first of our Scotland-focused sites, s1, live by the end
of the third quarter, with a full roll-out during 2001. The start up costs of
s1 are being treated as an exceptional item in the first half results and a
provision of £5.0 million has been taken to accommodate this.
Prospects
With both the UK and Scottish economies performing well, the outlook for
advertising revenues in the second half is positive. While we expect the rate
of dot.com advertising growth to slow, both our radio and television
businesses are enjoying encouraging levels of advertising growth from the more
traditional sectors, with radio generating good revenue across the summer
months. Publishing looks set to maintain its progress on advertising growth
through the remainder of the year. We expect Out of Home to continue its good
start to the year, particularly in the outdoor sector.
Appropriately, management concentrated for much of the first half of 2000 on
the acquisition and integration of Ginger Media Group, in addition to ensuring
that our existing businesses continue to deliver up to their potential. With
this achieved, we will continue to seek out fresh opportunities through which
to continue SMG's development as a major player in UK media. We regard the
relaxation of ITV ownership constraints as indicative of the need for
deregulation in the UK media sector. However, such deregulation requires to
be both consistent and comprehensive. Against the background of this changing
environment, SMG is well-positioned to capitalise on the opportunities which
will arise.
Don Cruickshank
Chairman
22 August 2000
Consolidated Profit And Loss Account
for the six months ended 30 June 2000
Excluding Total including
exceptionals exceptionals and
and FRS10 FRS10
Audited
6 6 6 full
Note months months months year
2000 1999 Growth 2000 1999
£m £m * £m £m
Turnover
Continuing operations 125.5 111.2 13% 125.5 236.9
Acquisitions 27.2 - 27.2 -
Discontinued operations - - - 5.8
________ _______ ________ _______
Total turnover 2 152.7 111.2 37% 152.7 242.7
Net operating expenses (116.4) (85.2) (122.4) (191.7)
Reorganisation costs 3 - - (5.0) (2.5)
Internet development 3 - - (5.0) -
________ _______ ________ _______
Net operating expenses (116.4) (85.2) (132.4) (194.2)
Operating profit
Continuing operations 28.8 26.0 11% 16.9 48.5
Acquisitions 7.5 - 3.4 -
________ _______ ________ _______
Group operating profit 36.3 26.0 40% 20.3 48.5
Share of associate 0.1 (0.1) 0.1 1.7
Equity accounting
reinstatement 3 - - - (5.7)
________ _______ ________ _______
Total operating profit 2 36.4 25.9 41% 20.4 44.5
Exceptional items
Investment written back 3 - - - 3.0
________ _______ ________ _______
Profit on ordinary
activities before interest 36.4 25.9 41% 20.4 47.5
Net interest payable 4 (6.4) (1.9) (6.4) (5.3)
________ _______ ________ _______
Profit on ordinary
activities before taxation 30.0 24.0 25% 14.0 42.2
Taxation on profit on 5
ordinary activities (7.8) (6.3) (6.3) (11.8)
________ _______ ________ _______
Profit on ordinary
activities after taxation 22.2 17.7 7.7 30.4
Dividends 6 (6.7) (5.7) (6.7) (17.3)
__________ _______ ________ _______
Profit transferred to
reserves 15.5 12.0 1.0 13.1
========== ======= ======== =======
Earnings per
ordinary
share
- basic 7 7.8p 6.7p 16% 2.7p 11.5p
========== ======= ======== =======
- diluted 7 7.6p 6.6p 15% 2.8p 11.4p
========== ======= ======== =======
*Growth is calculated excluding exceptionals and goodwill amortisation under
FRS10
Consolidated Balance Sheet
at 30 June 2000
Audited
30 30 31
Note June June December
2000 1999 1999
£m £m £m
Fixed assets
Intangible assets 8 364.4 124.6 126.0
Tangible assets 51.4 44.3 45.8
Investments 10 11.0 3.0 10.5
_______ _______ __________
426.8 171.9 182.3
_______ _______ __________
Current assets
Stock 18.3 16.1 17.4
Debtors and prepayments 75.7 60.1 56.8
_______ _______ __________
94.0 76.2 74.2
_______ _______ __________
Creditors: amounts falling
due within one year
Creditors and accrued
charges 65.4 44.8 41.9
Bank loans and
overdrafts 11 218.7 63.9 77.3
Corporation tax 16.9 24.3 14.5
Proposed dividend 6.7 5.7 11.6
_______ _______ __________
307.7 138.7 145.3
_______ _______ __________
Net current liabilities (213.7) (62.5) (71.1)
_______ _______ __________
Total assets less current 213.1 109.4 111.2
liabilities
_______ _______ __________
Creditors: amounts falling
due within one year
Creditors and accrued
charges 2.1 3.9 2.2
Convertible unsecured
loan stock 22.9 23.2 23.2
Secured loan stock 2.7 5.1 2.8
_______ _______ __________
27.7 32.2 28.2
_______ _______ __________
Provisions for liabilities
and charges 12 6.3 6.5 5.8
_______ _______ __________
Net assets 179.1 70.7 77.2
======= ======= ==========
Capital and reserves
Called up share capital 7.3 6.5 6.5
Share premium account - 100.5 101.1
Shares to be issued 27.8 - -
Merger reserve 173.4 - -
Profit and loss account (29.4) (36.3) (30.4)
_______ _______ __________
Equity shareholders' funds 13 179.1 70.7 77.2
======= ======= ==========
Consolidated Cash Flow Statement
for the six months ended 30 June 2000
Audited
Note 6 6 Full
months months Year
2000 1999 1999
£m £m £m
Operating activities
Net cash inflow from continuing
operating activities 14 27.4 22.4 50.0
_______ _______ _______
Returns on investments and servicing of
finance
Interest received 0.1 - 0.2
Interest paid (8.2) (1.3) (4.6)
Interest paid on finance leases (0.1) (0.1) (0.1)
_______ _______ _______
(8.2) (1.4) (4.5)
_______ _______ _______
Taxation
UK corporation tax paid (including
ACT) (4.7) (1.5) (13.2)
_______ _______ _______
Capital expenditure and financial
investment
Purchase of tangible fixed assets (10.8) (4.8) (10.8)
Purchase of fixed asset investments - - (8.5)
Sale of tangible fixed assets 1.5 - 0.3
_______ _______ _______
(9.3) (4.8) (19.0)
_______ _______ _______
Acquisitions and disposals
Purchase of subsidiary undertakings 9 (115.1) (60.0) (63.0)
Net debt acquired with subsidiary
undertakings 9 (73.2) (4.4) (4.4)
Increased investment in associate
undertaking 10 (6.1) - -
Sale of subsidiary undertakings - - 1.0
_______ _______ _______
(194.4) (64.4) (66.4)
_______ _______ _______
Equity dividends paid (11.7) (10.5) (16.2)
_______ _______ _______
Cash outflow before financing (200.9) (60.2) (69.3)
_______ _______ _______
Financing
Net proceeds from rights issue 59.3 - -
Repayment of principal under finance
leases (0.2) (0.3) (0.4)
Repayment of loan notes - (0.1) (1.5)
Share capital options exercised 0.4 0.1 0.1
_______ _______ _______
59.5 (0.3) (1.8)
_______ _______ _______
Cash outflow in the period (141.4) (60.5) (71.1)
======= ======= =======
Movement in Net Debt 2000 1999 1999
£m £m £m
Opening net debt (104.8) (29.0) (29.0)
Cash outflow in the period (141.4) (60.5) (71.1)
Issue of loan stock - (5.1) (5.1)
Other movements 0.6 0.4 0.4
_______ _______ _______
Closing net debt (245.6) (94.2) (104.8)
======= ======= =======
Notes to the Interim Statement
for the six months ended 30 June 2000
1. Basis of preparation of the Interim Statement
The interim statement, which is unaudited, has been prepared on a basis
which is consistent with the accounting policies and practices adopted for
the Group for the year ended 31 December 1999, with the exception that
FRS15 'Tangible Fixed Assets' and FRS16 'Current Tax' came into effect
during the period and have been adopted as required. The balance sheet at
31 December 1999 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.
Fixed annual charges are apportioned to the interim period on the basis of
time elapsed. Other expenses are accrued in accordance with the same
principles used in the preparation of the annual financial statements. The
tax charge for the first half of the current year is based on the rate
expected to prevail for the full year. Where relevant, all prior year
figures have been restated to reflect the impact of a 1-for-10 rights
issue, completed on 15 March 2000, and a 4-for-1 share split which took
place on 26 June 2000.
2. Segmental analysis
The results for the six months ended 30 June 2000 include the post-
acquisition turnover and operating profits from Ginger Media Group Limited
('GMG') which was acquired on 14 March 2000. GMG comprises Virgin Radio
(Radio), Ginger Online (Radio) and Ginger Television (Television) which
have been consolidated as subsidiaries from the date of acquisition.
The analysis of the Group's turnover and operating profit by operating
division is set out below:
Audited
6 6 full
months months year
2000 1999 Growth 1999
£m £m £m
Turnover
Television 85.9 65.5 31% 140.3
Publishing 40.1 38.5 4% 76.1
Radio 13.2 - - -
Out of Home 13.5 7.2 88% 26.3
__________ ______ _______
Total turnover 152.7 111.2 37% 242.7
__________ ______ _______
Turnover in the first six months of 2000 includes £0.5m (1999: £3.6m) of
revenues from sources outside the UK. The audited full year results for
1999 included £4.2m of revenues from outside the UK.
Audited
6 6 full
months months year
2000 1999 Growth 1999
£m £m £m
Operating profit
Television 19.5 16.4 19% 36.4
Publishing 9.1 8.6 6% 14.9
Radio 6.0 - - -
Out of Home 1.8 0.9 100% 4.0
_______ ______ _______
Headline operating profit 36.4 25.9 41% 55.3
Exceptional items (note 3) (10.0) (8.2) - (8.2)
Goodwill amortisation (6.0) (0.8) - (2.6)
_______ ______ _______
Total operating profit (FRS3) 20.4 16.9 21% 44.5
_______ ______ _______
Operating profit in the first six months of 2000 includes £0.3m (1999:
£0.7m) arising outside the UK. The audited full year results for 1999
included £0.6m of operating profits from outside the UK.
3. Exceptional items
(i) A provision for exceptional costs amounting to £5.0m has been made in
the period to 30 June 2000 to cover planned reorganisation initiatives
within the Group's Television and Publishing operations. In 1999, an amount
of £2.5m was provided to cover post acquisition reorganisation initiatives
following the acquisition of Primesight plc, Baillie Advertising Limited and
Pearl & Dean Cinemas Limited and the consequent consolidation of the Group's
London based property requirements.
(ii) A provision for exceptional costs amounting to £5.0m has been made in
the period to 30 June 2000 to cover the pre-launch costs of s1, the Group's
family of Scottish based content and e-commerce internet sites.
(iii) During 1999 the Group re-commenced equity accounting for GMTV Limited
('GMTV'), the licence holder for the Channel 3 breakfast television service,
and a non-cash exceptional charge of £5.7m was recognised relating to the
Group's equity accounted share of losses before tax for the period 1995
through to 1998. In addition, a provision held against GMTV loan stock was
released in 1999 resulting in a non-cash exceptional profit of £3.0m
4. Net interest payable
Audited
6 6 full
months months year
2000 1999 1999
£m £m £m
Interest payable:
Bank loans and overdrafts 5.4 0.6 3.4
CULS interest 0.8 1.0 1.6
Finance leases 0.1 0.1 0.1
________ _______ _______
Group interest payable 6.3 1.7 5.1
Share of associate (GMTV) 0.2 0.2 0.4
________ _______ _______
Total interest payable 6.5 1.9 5.5
Interest receivable (0.1) - (0.2)
________ _______ _______
Net interest payable 6.4 1.9 5.3
________ _______ _______
5. Taxation on profit on ordinary
activities
Audited
6 6 Full
months months year
2000 1999 1999
£m £m £m
The charge for taxation is comprised
as follows:
Charge for the period at 26.0%
(1999: 26.0%) 7.8 6.3 13.0
Tax credit on exceptional items (1.5) (1.2) (1.2)
________ _______ ________
6.3 5.1 11.8
________ _______ ________
6. Dividends
Audited
6 6 full
months months year
2000 1999 1999
£m £m £m
2000 interim of 2.3p per share
(1999: 2.2p) 6.7 5.7 5.7
1999 final paid of 4.4p per share - - 11.6
__________ _______ ________
6.7 5.7 17.3
__________ _______ ________
It is proposed to pay the interim dividend on 13 November 2000 to
shareholders on the register at 13 October 2000.
7. Earnings per share
Basic earnings per share (EPS), excluding exceptional items and the impact
of goodwill amortisation under FRS10, is calculated as follows:
Audited
full
6 months 6 months year
2000 1999 1999
Attributable profit for the financial
period (£m) 22.2 17.7 37.0
Weighted average number of shares in issue
(m) 285.6 264.4 264.4
Earnings per ordinary share (pence) 7.8 6.7 14.0
________ _______ _______
Basic EPS, inclusive of exceptional items and after goodwill amortisation
under FRS10, in the six months to 30 June 2000 is 2.7p (six months to 30
June 1999: 4.9p and audited full year 1999: 11.5p).
Diluted EPS, excluding exceptional items and the impact of goodwill
amortisation under FRS10, is calculated as follows:
Audited
6 6 full
months months year
2000 1999 1999
Attributable profit for the financial 22.8 18.3 38.1
period (£m)
Weighted average number of shares in issue 299.2 277.2 277.2
(m)
Diluted EPS (pence) 7.6 6.6 13.7
________ _______ _______
Diluted EPS, inclusive of exceptional items and after goodwill amortisation
under FRS10, in the six months to 30 June 2000 is 2.8p (six months to 30
June 1999: 4.8p and audited full year 1999: 11.4p)
8. Intangible assets
Intangible assets comprise the masthead values ascribed to the Group's two
principal newspaper titles on acquisition, being The Herald (£50.0m) and
the Evening Times (£6.0m), and capitalised goodwill on acquisitions
completed since 1 January 1998. Mastheads are not subject to annual
amortisation, but are reviewed annually for any permanent diminution.
Capitalised goodwill is being amortised on a straight-line basis over 20
years, as summarised below:
£m
Cost
At 1 January 2000 72.8
Acquisitions - GMG 238.2
Acquisitions - GMTV 6.2
______
At 30 June 2000 317.2
______
Amortisation
At 1 January 2000 2.8
Charge for the period 6.0
______
At 30 June 2000 8.8
______
Net book value at 30 June 2000 308.4
______
Net book value at 31 December 1999 70.0
______
9. Acquisitions
On 14 March 2000, the company declared its offer for GMG unconditional and
the results have been consolidated from this date using the acquisition
accounting method.
The book values of the assets and liabilities of GMG immediately prior to
the acquisition and the fair value adjustments required in recognition of
the change of ownership are as follows:
Book value Accounting
prior to policy Fair value Fair
acquisition adjustments adjustments value
£m £m £m £m
Tangible assets 0.7 - (0.3) 0.4
Intangible assets 3.8 (3.8) - -
Stock - 4.5 - 4.5
Debtors 15.2 (2.1) (0.3) 12.8
Cash 12.1 - - 12.1
Borrowings (85.3) - - (85.3)
Creditors (18.9) 0.6 (4.5) (22.8)
Provisions (3.9) - - (3.9)
____________ ___________ ___________ ________
Net liabilities
acquired (76.3) (0.8) (5.1) (82.2)
____________ ___________ ___________ ________
Fair value
consideration
Cash 107.9
Shares 40.9
Acquisition expenses 7.2
________
Total consideration 156.0
________
Goodwill arising 238.2
________
Fair value consideration
The £115.1m of consideration met in cash excludes the assumption of GMG's
indebtedness and preference shares amounting to £73.2m. The £40.9m of
consideration met in shares is in the form of ordinary and deferred shares
in SMG (Jersey) Ltd. The shares can be exchanged into SMG plc ordinary
shares in three separate tranches, the first at completion and the following
two anniversaries. As at 30 June 2000, the deferred consideration remaining
to be paid amounts to £27.8m.
Accounting policy adjustments
The main adjustments are as follows:
(i) In accordance with FRS10, an adjustment has been made to write off the
intangible asset (£3.8m) and related debtors (£0.4m) and creditors (£4.2m)
in respect of Virgin Radio's radio licences.
(ii) Adjustments to stock (£4.5m), debtors (£1.6m) and creditors (£3.3m)
have been made in order to align income recognition on television programme
production with the Group's existing accounting policies.
Fair value adjustments
The fair value of fixed assets has reduced by £0.3m to reflect the write
down of certain assets, which are due for replacement. Debtors have
decreased by £0.3m in respect of potential bad debts and creditors have
increased by £4.5m to cover potential liabilities arising from certain
contractual arrangements entered into prior to the acquisition.
Analysis of net cash outflow in respect of the acquisition of GMG
£m
Cash consideration 107.9
Borrowings 85.3
Cash balances acquired (12.1)
Acquisition expenses 7.2
___________
Net cash outflow 188.3
___________
10. Investments
Investments held at 30 June 2000 represent £8.5m in Heart of Midlothian plc
('Hearts'), comprising £3.5m of ordinary share capital and £4.5m of secured
convertible loan stock, along with capitalised acquisition costs. In
addition, it includes £2.5m of loans to associated undertakings.
The Group's investment in associated undertakings relates to GMTV and was
increased on 5 January 2000 from 20% to 25% for a cash consideration of
£5.6m and the assumption of a further £0.5m of GMTV loan stock increasing
the investment in GMTV loan stock to £2.5m. Goodwill in relation to GMTV is
shown at note 8.
11. Bank loans and overdrafts
The Group had treasury facilities amounting to £225.0m at its disposal as at
30 June 2000. Of this, £30.0m was available for general corporate purposes.
In August, the Group completed a refinancing of its funding arrangements
with the establishment of a £140.0m 10 year private placement and a new
£200.0m 3 year revolving credit facility. As at 22 August 2000, the Group
had treasury headroom of approximately £150.0m.
12. Provisions for liabilities and charges
Audited
6 months 6 months full year
2000 1999 1999
£m £m £m
Deferred taxation 2.3 1.4 2.3
Equity accounted losses 4.0 5.1 3.5
________ __________ __________
6.3 6.5 5.8
________ __________ __________
Equity accounted losses represents the equity accounted losses on GMTV.
13. Reconciliation of movements in equity shareholders' funds
Audited
6 months 6 months full year
2000 1999 1999
£m £m £m
Profit for the financial period 7.7 12.9 30.4
Dividends (6.7) (5.7) (17.3)
___________ ___________ ___________
1.0 7.2 13.1
Increase in share premium 72.3 - -
Shares issued 0.8 1.3 1.9
Shares to be issued 27.8 - -
___________ ___________ ___________
Net movement in shareholders'
funds 101.9 8.5 15.0
Opening shareholders' funds 77.2 62.2 62.2
___________ ___________ ___________
Closing equity shareholders'
funds 179.1 70.7 77.2
___________ ___________ ___________
The ordinary share capital and share premium have moved as follows:
Share Share Merger
capital premium reserve Total
£m £m £m £m
At 1 January 2000 6.5 101.1 - 107.6
1-for-10 underwritten rights issue 0.7 58.6 - 59.3
GMG consideration 0.1 12.9 - 13.0
Conversion of 6.5% Cumulative - 0.3 - 0.3
Unsecured Loan Stock
Group share option and profit share - 0.5 - 0.5
schemes
Transfer to merger reserve - (173.4) 173.4 -
_________ _______ _______ ________
At 30 June 2000 7.3 - 173.4 180.7
_________ _______ _______ ________
On 26 June 2000 a Scheme of Arrangement between SMG plc and its
shareholders under section 425 of the Companies Act 1985 was implemented.
This was sanctioned by the Court of Session on 23 June 2000 and all issued
shares in Scottish Media Group plc were then cancelled. Following the
cancellation, the share capital of Scottish Media Group plc was restored
to its former nominal amount and the credit arising as a result of the
cancellation was applied in paying up in full new Scottish Media Group plc
shares equal in nominal value to the shares cancelled. The new Scottish
Media Group plc shares were issued to SMG plc, which, as a result, became
the new holding company of the Group. On 26 June 2000 the new ordinary
shares in SMG plc were admitted to the Official List of the London Stock
Exchange. A 4-for-1 share split took place on the same date. The
application of merger accounting principles to the consolidation of the
new holding company results in the share capital of the Group in prior
years being equivalent to the share capital of Scottish Media Group plc.
As at 30 June 2000, the ultimate parent company had sufficient
distributable reserves to make dividend payments at current levels for the
foreseeable future.
Shares to be issued represent deferred consideration remaining to be paid
to GMG shareholders as discussed in note 9.
14. Reconciliation of operating profit to operating cash flows
Audited
6 6 full
months months year
2000 1999 1999
£m £m £m
Continuing activities
Operating profit (before
exceptional items and FRS10) 36.3 26.0 53.6
Depreciation and other non-cash
items 3.6 3.5 6.7
Decrease/(increase) in stock 4.6 (1.8) (3.1)
Increase in debtors (4.1) (2.9) (4.7)
(Decrease)/increase in creditors (9.8) 0.5 1.0
Reorganisation costs (3.2) (1.1) (1.4)
Sunday paper pre-launch costs - (1.8) (2.1)
_________________ _______ _______
Net cash inflow from continuing
operations 27.4 22.4 50.0
_________________ _______ _______
15. A copy of this statement is being sent to all shareholders on 11
September 2000 and will be available for inspection by members of the public
at the Company's registered office at 200 Renfield Street, Glasgow.
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