Interim Results

SMG PLC 11 September 2001 PRESS RELEASE 11 September 2001 SMG plc Interim Results Six Months Ended 30 June 2001 SMG meets market expectations despite tough trading conditions - Earnings and profits impacted by advertising downturn in the UK - Strong underlying performance relative to media sector - Scottish and Grampian TV licences renewed at significantly increased cost - Market share increases in TV, newspapers, cinema and outdoor - Increased stake in SRH (29.5%) - Dividend reduced in line with impact on earnings - Timing of upturn uncertain - Margins protected by early cost reductions KEY FINANCIALS - Total Turnover * - £139.7m (2000: £152.7m) - EBITDA * - £36.5m (2000: £40.0m) - Total operating profit * - £32.0m (2000: £36.4m) - Profit before tax * - £20.0m (2000: £30.0m) - Earnings per share * - 4.7 pence (2000: 7.8 pence) - Dividend per share - 1.5 pence (2000: 2.3 pence) * Excluding exceptional items, online losses and goodwill amortisation These results reflect the severe advertising downturn in the UK. £6m of the fall in pre-tax profit was the result of the decline in ITV advertising; £2m was the impact of the increased cost of the ITV licences; and £2m reflected the carrying cost of the SRH investment. In light of current trading conditions and the previously indicated policy of increasing dividend cover, the interim dividend is reduced to 1.5 pence. Andrew Flanagan, Chief Executive of SMG, said: 'This is the toughest advertising market of recent times, and visibility is poor enough to make predictions unwise at present. However, we are managing our businesses tightly, and we have put cost reduction measures in place early. Audience delivery across all media has been resilient and our cross-media strategy leaves us better placed than most to ride out the current downturn. I am confident that when conditions improve, thanks to our presence across a number of media sectors, we will be well able to take advantage of any upturn.' For further information contact: Andrew Flanagan Chief Executive 020 7882 1199 George Watt Group Finance Director Callum Spreng Corporate Affairs Director James Hogan Brunswick 020 7404 5959 Ben Brewerton Brunswick 020 7404 5959 SMG plc 2001 Interim Results CHAIRMAN'S STATEMENT Overview The well-publicised and rapid slowdown in global advertising markets has had a significant impact on most UK media companies. Combined with the specific effects of the bursting of the dot.com bubble, the outbreak of Foot and Mouth disease and the UK general election, advertising markets in the UK have, except in some brighter spots, seen substantial reductions in year-on-year spending. ITV in particular has seen the worst trading conditions in recent memory and the radio industry, after 10 years of exceptional growth, has been heavily hit. For SMG, however, the scope of our strongly branded media interests and the greater exposure we have to regional markets have helped lessen the full effects of the advertising slowdown and licence renewal. ITV now represents less than 50% of the Group's activities but the impact of the reduction in advertising spend has been exacerbated by higher than anticipated financial terms for the renewal of our ITV licences. Our management has already responded to the difficult trading conditions, with a strong emphasis on early cost reduction. Discretionary spend has been curtailed or postponed and recruitment, management salaries and capital expenditure have been frozen. Due to the prolonged nature of the downturn, a deeper cost-cutting exercise has been initiated for the second half. These factors have resulted in pre-tax profit (excluding exceptional items, online losses and goodwill amortisation) of £20.0 million for the first six months of 2001 (2000: £30.0 million). Turnover across the period was down 9% at £139.7 million. Earnings per share (excluding exceptional items, online losses and goodwill amortisation) were 4.7 pence (2000: 7.8 pence). For some time we have indicated that, as the Group developed, we would retain more of our earnings for development purposes and increase the level of our dividend cover. In the light of current trading conditions, and with limited evidence on which to estimate the timing of an upturn, we have concluded that it is prudent to maintain our dividend cover and to reduce our interim dividend, in line with the reduction in earnings, to 1.5 pence (2000: 2.3 pence). Television The downturn in television advertising revenues affecting ITV specifically, and commercial television in general, resulted in an 11% drop in airtime revenues for our broadcasting operations against 15% for ITV as a whole. The high operational gearing of this business, combined with the second half weighting of revenues in our network programme production business, resulted in Television operating profits reducing to £12.9m from £19.4m in the same period last year, a fall of 34%. A principal objective this year was to restore our share of Net Advertising Revenue (NAR) above the 6% level and this was achieved with a 6.07% NAR share (2000: 5.83%). This increased market share followed the predicted evaporation of much of the dot.com advertising that had been focused on the South East of England and the appointment of Carlton to handle our national television airtime sales. Furthermore, the Scottish airtime sales market was strong during the period, and revenues from local advertisers grew by 10%. Despite the continued increase in multi-channel homes in Scotland, both Scottish and Grampian TV maintained their market-leading positions with a peak-time audience share of 36% - just ahead of ITV as a whole and some 11% better than our nearest rival, BBC1 Scotland. This robust audience delivery and reduced advertising demand has served to significantly reduce the price of ITV, re-establishing it as a cost effective medium for advertisers going forward. In April, we renewed the licences for our two franchises, guaranteeing a further 10 years of broadcasting for the company. However, the resultant £9.0m annualised increase in costs has had a significant impact on profitability. The increase, for the Scottish TV licence in particular, was higher than expected and harsher than for comparable licensees. However, the growth in the number of digital homes in Scotland, with the licence payment relief attached to these, means that our licence costs will reduce progressively going forward. We are taking all appropriate steps to minimise the combined impact of reduced revenues and increased licence costs. The full benefits of the reduction in staffing levels implemented in 2000 are taking effect and we are now seeking further headcount reductions. Other cost-cutting measures are being implemented in the second half, adding to the impact of the Group-wide initiatives noted earlier. Since June, we have reached agreement with ITV Digital to permit the use of the ITV brand in Scotland for its digital terrestrial platform, subscription channels such as ITV Sport and for ITV.com. S2 was closed in July to allow ITV2 to be transmitted and this creates an annualised saving for SMG of over £2m. Our network programme production business was re-branded as SMG Television Productions earlier this year and we have strengthened the senior creative team. This year's programme delivery schedule is heavily weighted towards the second half of 2001, with a number of drama, factual and light entertainment commissions currently in production for a range of UK TV networks, including: Club 18-30 - a six part documentary for ITV; The House That John Rebuilt - for Discovery Home and Leisure; and a new series of How2 - ITV's most popular children's information show. We have also secured a number of new commissions for 2002. Publishing Newspaper advertising revenues grew by 3% over the period, despite the weakness in national advertising. However, increases in newsprint costs, and the ongoing effects of Foot and Mouth disease on our magazine Scottish Farmer, held back operating profits in our Publishing Division to £8.0m (2000: £9.1m). Recruitment and property advertising started the year well, reflecting the apparent ongoing health of the local economy. However, classified motoring remains weak and the London display market has clearly been affected by the caution of national advertisers. The circulation of our titles has remained resilient although the newspaper market in Scotland continues to be competitive, with price-cutting still in evidence. We have maintained cover prices on all three of our titles yet our longer term rates of decline have been significantly reduced. The Sunday Herald, which celebrated its second birthday in February, received its first NRS (National Readership Survey) rating, revealing a readership of 170,000. At 2.7 readers per copy, this is significantly ahead of its competition and we look to build on the 10% increase in advertising revenues achieved in the first half. In addition to Group-wide initiatives, management within our newspapers have focused closely on costs, including reducing pagination where appropriate. In readiness for the move to our new printing facilities in 2002, we are reviewing manning levels across our editorial and production departments, with a view to achieving improved efficiencies ahead of the move. In May, we increased the number of titles within our magazines division with the purchase of Orpheus Publications, whose stable includes a range of niche titles including: The Strad; Choir & Organ; and International Record Collector. However, the effects of the slowdown in the electronics industry on our title, Components in Electronics, and Foot and Mouth disease on our title Scottish Farmer, combined to reduce magazine advertising revenues by £0.5m. Radio Our Radio Division, which consists principally of Virgin Radio, also saw evidence of the reduction in dot.com advertising and the advertising activity surrounding the Euro 2000 football championships. Revenue, however, increased to £14.6m from £13.2m, including an extra two months of trading, but underlying revenues in the comparable six month period were down 20%, compared to year-on-year growth in the first half of 2000 of 31%. Operating profits were held at £6.0m and, within the context of the current advertising climate, we regard this as a good performance, illustrating the value of the excellent demographics and national reach of Virgin Radio. At the end of 2000, we refocused Virgin Radio's music format onto its core audience of 20-45 year olds around the station's '10 Great Songs in a Row' proposition, alongside a revised playlist, and this has strengthened audience levels. The Q2 RAJAR audience figures showed an encouraging 6% increase in listeners, with listening hours growing by a healthy 9%. The Breakfast Show, re-launched in July, should help further build overall audience listening hours as will the investment in a number of new presenters. As in television, the Radio Division has responded to the downturn in advertising with tight cost control and programming and overhead costs have been significantly reduced. Virgin Radio is launching a third London service for digital listeners - Liquid Radio - as a result of our involvement in the consortium that was awarded the third digital radio multiplex in London. This additional service, targeting 12-29 year olds, will go on air late this year and positions us well to capitalise on future growth in the digital arena. Out of Home Our Out of Home Division saw significant growth both in outdoor and cinema advertising. Turnover grew by 16% to £15.7m during the first six months and operating profits at £2.6m, were up 44% on the same period in 2000. Primesight increased its inventory of outdoor advertising panels by 9% to 9,000 and is on track for further panel growth in the second half. Pearl & Dean succeeded in increasing cinema advertising revenues by 36%, on a like for like basis, reflecting an enhanced range of film releases including: Hannibal; Bridget Jones's Diary; and Pearl Harbor. Internet The Group's internet strategy in Scotland focuses on the establishment of a family of web-sites aimed at Scottish-based consumers. Using content already captured elsewhere within the Group and targeting Scottish-based audiences has created very competitive sites at a low cost. In response to the advertising downturn, we have slowed the pace of our investment in this venture, but good progress continues to be made. Virginradio.co.uk continues to support our radio operations very effectively and hosts one of the most listened to internet radio stations in the world and continues to contribute a small profit, mainly driven through online advertising. Corporate Development The Government has now set out a timetable for regulatory change, albeit more lengthy than we would have wished for. We continue to believe that, for such legislation to be effective in creating strong British media companies, it must significantly reduce the amount of regulation, particularly in the area of cross-media ownership. However, while new legislation should allow SMG to maximise the opportunities ahead, we have significant regulatory headroom for each of our businesses in their own sectors. This creates a window of opportunity for SMG where others may be constrained by regulation. Earlier this year we increased our holding in Scottish Radio Holdings plc to 29.5%. We believe it opens up significant strategic options for SMG across the radio, newspaper and outdoor sectors, although the carrying cost of this investment is significant. We remain confident that this represents a very valuable stake in the future consolidation of the industry, particularly in light of the Office of Fair Trading's recent clearance of our investment. Prospects Even in mid-September it is difficult to give a view on prospects for the year. There are many mixed signals, both in the economy as a whole, and within the media sector specifically. The advertising market has become very short term and it would be foolish to make bold predictions at this time. Television and Radio remain weak, but Publishing is stable and Out of Home continues to perform well. Our businesses remain high margin, are well branded and have excellent market positions. We continue to take costs out in response to market conditions, but without damaging the fundamental quality of our services. This leaves us well placed to take advantage of the upturn when it comes. Don Cruickshank Chairman 11 September, 2001 Consolidated profit and loss account for the six months ended 30 June 2001 Excluding online costs, exceptionals and FRS10 Note 6 months 6 months 2001 2000 £m £m Turnover 2 139.7 152.7 Net operating expenses (105.7) (112.8) Share of associates 2.5 0.1 Reorganisation costs 3 - - Internet development 3 - - _______ _______ EBITDA 36.5 40.0 Depreciation & amortisation (4.5) (3.6) _____ _____ Operating profit 2 32.0 36.4 Net interest payable 4 (12.0) (6.4) _______ _____ Profit on ordinary activities before taxation 20.0 30.0 Taxation on profit on ordinary activities 5 (5.4) (7.8) _____ _____ Profit on ordinary activities after taxation 14.6 22.2 Dividends 6 (4.9) (6.7) _____ _____ Profit transferred to reserves 9.7 15.5 Earnings per ordinary share - basic 7 4.7p 7.8p ==== ==== - diluted 7 4.6p 7.6p ==== ==== Consolidated profit and loss account for the six months ended 30 June 2001 Con'd Total including online costs, exceptionals and FRS10 Audited full Note 6 months 6 months year 2001 2000 2000 £m £m £m Turnover 2 139.9 152.7 300.5 Net operating expenses (106.0) (112.8) (219.9) Share of associates 2.5 0.1 2.2 Reorganisation costs 3 - (5.0) (5.0) Internet development 3 - (5.0) (5.0) _______ _______ _______ EBITDA 36.4 30.0 72.8 Depreciation & amortisation (15.7) (9.6) (22.4) ______ _____ ______ Operating profit 2 20.7 20.4 50.4 Net interest payable 4 (12.0) (6.4) (15.3) ______ _____ ______ Profit on ordinary activities before taxation 8.7 14.0 35.1 Taxation on profit on ordinary activities 5 (5.4) (6.3) (13.5) _____ _____ ______ Profit on ordinary activities after taxation 3.3 7.7 21.6 Dividends 6 (4.9) (6.7) (21.0) _____ _____ ______ Profit transferred to reserves (1.6) 1.0 0.6 ===== ===== ====== Earnings per ordinary share - basic 7 1.1p 2.7p 7.4p ==== ==== ==== - diluted 7 1.2p 2.8p 7.2p ==== ==== ==== EBITDA denotes earnings before interest, tax, depreciation and amortisation Consolidated balance sheet at 30 June 2001 Audited Note 30 June 30 June 31 December 2001 2000 2000 £m £m £m Fixed assets Intangible assets 8 342.6 364.4 356.5 Tangible assets 62.8 51.4 57.4 Investments 10 156.0 11.0 112.1 _____ _____ _____ 561.4 426.8 526.0 _____ _____ _____ Current assets Stock 25.9 18.3 23.2 Debtors and prepayments 77.4 75.7 82.1 _____ ____ _____ 103.3 94.0 105.3 _____ ____ _____ Creditors: amounts falling due within one year Creditors and accrued charges 65.7 65.4 69.2 Bank loans and overdrafts 197.6 218.7 134.2 Corporation tax 11.8 16.9 17.1 Proposed dividend 4.9 6.7 13.9 _____ _____ _____ 280.0 307.7 234.4 _____ _____ _____ Net current liabilities (176.7) (213.7) (129.1) _______ _______ _______ Total assets less current liabilities 384.7 213.1 396.9 _____ _____ _____ Creditors: amounts falling due after more than one year Creditors and accrued charges 2.3 2.1 3.1 Other loans 140.0 - 140.0 Convertible unsecured loan stock 22.8 22.9 22.9 Secured loan stock 4.5 2.7 2.3 _____ ____ _____ 169.6 27.7 168.3 _____ ____ _____ Provisions for liabilities and charges 11 2.7 6.3 2.8 _____ ____ ____ Net assets 212.4 179.1 225.8 ===== ===== ===== Capital and reserves Called up share capital 7.8 7.3 7.7 Share premium account 59.0 - 44.5 Shares to be issued 1.4 27.8 27.8 Revaluation reserve 3.1 - 3.1 Merger reserve 173.4 173.4 173.4 Profit and loss account (32.3) (29.4) (30.7) ______ ______ ______ Equity shareholders' funds 12 212.4 179.1 225.8 ===== ===== ===== Consolidated cash flow statement for the six months ended 30 June 2001 Audited Note 6 months 6 months Full Year 2001 2000 2000 £m £m £m Operating activities Net cash inflow from continuing operating activities 13 23.4 27.4 60.7 _____ _____ _____ Dividends received from associates and investments 1.3 - - _____ _____ _____ Returns on investments and servicing of finance Interest received 0.1 0.1 0.6 Interest paid (9.7) (8.2) (15.9) Interest paid on finance leases (0.1) (0.1) (0.1) _____ _____ ______ (9.7) (8.2) (15.4) _____ _____ ______ Taxation UK corporation tax paid (7.9) (4.7) (13.9) _____ _____ ______ Capital expenditure and financial investment Purchase of tangible fixed assets (11.2) (10.8) (18.1) Purchase of fixed asset investments 10 - - (103.1) Sale of tangible fixed assets 1.7 1.5 1.5 _____ _____ _______ (9.5) (9.3) (119.7) _____ _____ _______ Acquisitions and disposals Purchase of subsidiary undertakings 9 (1.9) (115.1) (115.1) Net debt acquired with subsidiary undertakings - (73.2) (73.2) Increased investment in associate undertaking 10 (46.2) (6.1) (6.1) ______ _______ _______ (48.1) (194.4) (194.4) ______ _______ _______ Equity dividends paid (14.1) (11.7) (18.8) ______ _______ _______ Cash outflow before financing (64.6) (200.9) (301.5) ______ _______ _______ Financing Net proceeds from debt placing - - 140.0 Net proceeds from rights issue - 59.3 59.3 Net proceeds from share placing - - 42.3 Share capital options exercised 1.8 0.4 1.9 Net repayment of loan notes (0.1) - 1.6 Repayment of principal under finance leases (0.2) (0.2) (0.5) ______ _______ _______ 1.5 59.5 244.6 ______ _______ _______ Cash outflow in the period (63.1) (141.4) (56.9) ====== ======= ======= Movement in net debt 2001 2000 2000 £m £m £m Opening net debt (300.4) (104.8) (104.8) Cash outflow in the period (63.1) (141.4) (56.9) Issue of loan notes (2.3) - - Other movements 0.1 0.6 (138.7) ______ _______ _______ Closing net debt (365.7) (245.6) (300.4) ======= ======= ======= Notes to the interim statement for the six months ended 30 June 2001 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 2000, with the exception that FRS18 'Accounting Policies' and FRS19 'Deferred Tax' have been adopted in the period as required. The balance sheet at 31 December 2000 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. 2. Segmental analysis The analysis of the Group's turnover and operating profit by operating division is set out below: 6 months 6 months Audited full year 2001 2000 2000 £m £m £m Turnover Television 70.3 85.9 159.4 Publishing 39.1 40.1 78.8 Radio 14.6 13.2 33.6 Out of Home 15.7 13.5 28.7 _____ _____ _____ 139.7 152.7 300.5 Online 0.2 - - _____ _____ _____ Total turnover 139.9 152.7 300.5 _____ _____ _____ Turnover in the first six months of 2001 includes £0.5m (2000: £0.5m) of revenues from sources outside the UK. The audited full year results for 2000 included £1.1m of revenues from outside the UK. 6 months 6 months Audited full year 2001 2000 2000 £m £m £m Operating profit Television 12.9 19.4 36.8 Publishing 8.0 9.1 16.0 Radio 6.0 6.0 15.0 Out of Home 2.6 1.8 4.3 Associates 2.5 0.1 2.2 _____ _____ _____ Headline operating profit 32.0 36.4 74.3 Online (0.1) - - Exceptional items (note 3) - (10.0) (10.0) Goodwill amortisation (11.2) (6.0) (13.9) _____ _____ _____ Operating profit (FRS3) 20.7 20.4 50.4 _____ _____ _____ Operating profit in the first six months of 2001 includes £0.2m (2000: £0.3m) arising outside the UK. The audited full year results for 2000 included £0.6m of operating profits from outside the UK. 3. Exceptional items In 2000, a provision for exceptional costs amounting to £5.0m was made to cover planned reorganisation initiatives within the Group's Television and Publishing operations. In addition in 2000, a provision for exceptional costs amounting to £5.0m was made to cover the pre-launch costs of s1, the Group's suite of Scottish based content and e-commerce Internet sites. 4. Net interest payable Audited 6 months 6 months full year 2001 2000 2000 £m £m £m Interest payable: Bank loans and overdrafts 11.7 5.4 14.3 CULS and loan note interest 0.8 0.8 1.6 Finance leases - 0.1 0.1 _____ _____ _____ Group interest payable 12.5 6.3 16.0 Share of associates 0.3 0.2 0.3 _____ _____ _____ Total interest payable 12.8 6.5 16.3 Interest receivable (0.8) (0.1) (1.0) _____ _____ _____ Net interest payable 12.0 6.4 15.3 _____ _____ _____ 5. Taxation on profit on ordinary activities Audited 6 months 6 months full year 2001 2000 2000 £m £m £m The charge for taxation is comprised as follows: Charge for the period at 27.0% (2000: 26.0%) 4.8 7.8 15.3 Tax credit on exceptional items - (1.5) (1.8) Share of taxation of associated undertakings 0.6 - - _____ _____ _____ 5.4 6.3 13.5 _____ _____ _____ 6. Dividends Audited 6 months 6 months full year 2001 2000 2000 £m £m £m 2001 interim of 1.5p per share (2000: 2.3p) 4.9 6.7 7.1 2000 final paid of 4.5p per share - - 13.9 _____ _____ _____ 4.9 6.7 21.0 _____ _____ _____ It is proposed to pay the interim dividend on 13 November 2001 to shareholders on the register at 26 October 2001. 7. Earnings per share Basic earnings per share (EPS), excluding online costs, exceptional items and the impact of goodwill amortisation under FRS10, is calculated as follows: Audited 6 months 6 months full year 2001 2000 2000 Attributable profit for the financial period (£m) 14.6 22.2 43.7 Weighted average number of shares in issue (m) 311.5 285.6 291.4 Earnings per ordinary share (pence) 4.7 7.8 15.0 _____ _____ _____ Basic EPS, inclusive of online costs, exceptional items and after goodwill amortisation under FRS10, in the six months to 30 June 2001 is 1.1p (six months to 30 June 2000: 2.7p and audited full year 2000: 7.4p). Diluted EPS, excluding online costs, exceptional items and the impact of goodwill amortisation under FRS10, is calculated as follows: Audited 6 months 6 months full year 2001 2000 2000 Attributable profit for the financial period (£m) 15.2 22.8 44.8 Weighted average number of shares in issue (m) 326.6 299.2 315.2 Diluted EPS (pence) 4.6 7.6 14.2 _____ _____ _____ Diluted EPS, inclusive of online costs, exceptional items and after goodwill amortisation under FRS10, in the six months to 30 June 2001 is 1.2p (six months to 30 June 2000: 2.8p and audited full year 2000: 7.2p). 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 2001 317.2 Acquisitions - Orpheus 5.2 Adjustment to Ginger goodwill (11.1) ______ At 30 June 2001 311.3 ______ Amortisation At 1 January 2001 16.7 Charge for the period 8.0 ____ At 30 June 2001 24.7 _____ Net book value at 30 June 2001 286.6 _____ Net book value at 31 December 2000 300.5 _____ The Ginger goodwill adjustment relates to the write-back of goodwill and related items previously included within shares to be issued. 9. Acquisitions On 16 May 2001, the group completed its acquisition of Orpheus Publications Limited ('Orpheus') and the results have been consolidated from this date using the acquisition accounting method. Goodwill amounted to £5.2m (see note 8) and the fair value of liabilities acquired was £0.8m. 10. Investments Investments held at 30 June 2001 represent £8.5m in Heart of Midlothian plc ('Hearts') and £147.5m in associated undertakings. The Group's investment in Hearts comprises £3.5m of ordinary share capital and £4.5m of secured convertible loan stock, along with capitalised acquisition costs. The Group's investment in associated undertakings relates to Scottish Radio Holdings plc ('SRH') (£147.0m) and loan stock to GMTV (£0.5m). Goodwill in relation to GMTV is included in intangible assets. The Group's investment of £103.1m in SRH at 31 December 2000 was increased during the period and the Group began equity accounting for SRH as an associate effective from 20 February 2001. At 30 June 2001, the investment in SRH consists of net assets and equity accounted profits (£21.7m) and goodwill (£128.5m) less goodwill amortisation (£3.2m). 11. Provision for liabilities and charges Audited 6 months 6 months full year 2001 2000 2000 £m £m £m Deferred taxation 0.9 2.3 0.9 Equity accounted losses 1.8 4.0 1.9 ___ ___ ___ 2.7 6.3 2.8 ___ ___ ___ Equity accounted losses represents the equity accounted losses on GMTV. 12. Reconciliation of movements in equity shareholders' funds Audited 6 months 6 months full year 2001 2000 2000 £m £m £m Profit for the financial period 3.3 7.7 21.6 Dividends (4.9) (6.7) (21.0) _____ _____ ______ (1.6) 1.0 0.6 Increase in share premium 14.5 72.3 116.8 Shares issued 0.1 0.8 1.2 Shares to be issued (26.4) 27.8 27.8 Revaluation of freehold buildings - - 3.1 Amount deducted in respect of shares issued to QUEST - - (0.9) _____ _____ ______ Net movement in shareholders' funds (13.4) 101.9 148.6 Opening shareholders' funds 225.8 77.2 77.2 _____ _____ ______ Closing equity shareholders' funds 212.4 179.1 225.8 _____ _____ ______ Shares to be issued represent deferred consideration on the Ginger Media Group acquisition completed in March 2000. 13. Reconciliation of operating profit to operating cash flows Audited 6 months 6 months full year 2001 2000 2000 £m £m £m Continuing activities Operating profit (before online costs, share of associates, exceptional items and FRS 10) 29.5 36.3 72.1 Depreciation and other non-cash items 3.7 3.6 9.7 Decrease/(increase) in stock 5.4 4.6 (1.3) Increase in debtors (3.7) (4.1) (9.8) Decrease in creditors (8.2) (9.8) (3.7) Reorganisation costs (1.1) (3.2) (5.3) Internet development costs (2.2) - (1.0) _____ _____ _____ Net cash inflow from continuing operations 23.4 27.4 60.7 _____ _____ _____ 14. Mailing A copy of this statement is being sent to all shareholders on 25 September 2001 and will be available for inspection by members of the public at the Company's registered office at 200 Renfield Street, Glasgow.

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