Interim Results 2007
SMG PLC
28 September 2007
28 September 2007
Interim Results 2007
Financial Highlights - Pre exceptionals and IFRS5 includes continuing and
discontinued operations
2007 2006
Revenue £89m £89m
EBITDA £10m £15m
Operating profit £7m £12m
Profit Before Tax £1m £8m
Earnings per Share 0.3p 2.0p
Trading for the first half of 2007 has been in line with management
expectations. The Group is on track to meet our expectations for the second half
of 2007, despite the moderate underperformance in Outdoor. We have identified
further efficiencies in the TV business since the June Business Review, which
will reduce 2008 costs by an additional £2.5m.
Strategic Developments
• Disposal of Primesight outdoor advertising business for up to £62m, with
cash proceeds at completion of £52m which will be used to reduce debt
• Delivering a 10% reduction in controllable costs in 2007 as per our June
plan, with a further 10% reduction identified since then, the latter will
reduce the ongoing costs in 2008 by a further £2.5m
• Already delivering on turnaround plan -12 measurable Key Performance
Indicators identified and embedded in business
• Further strengthening of the TV management team to accelerate growth in
advertising and sponsorship, through appointment of David Connolly - former
Vice Chair of Starcom and Ofcom's CRR adjudicator - as Commercial Director
• In line with our Content strategy, we plan to accelerate the Content
Production business growth through small, accretive acquisitions
• Restructuring of stv into Broadcasting, Content and Ventures divisions
completed
• Pearl & Dean remains a non-core asset and the sale process continues as
management implement changes to improve the efficiency of the business.
Onerous contract provision taken in this period of £11.4m
• £22.4m Convertible Unsecured Loan Stock (CULS) refinanced
Virgin Radio
• Richard Huntingford will take over as Executive Chairman at Virgin Radio
on 1 October, and assume full management responsibility for the business
going forward
• Virgin Radio continues to outperform other listed radio groups and leads
the way in digital listening. Virgin Radio is performing ahead of budget
going into the second-half, the 2008 forecast is for continuing strong
performance; the Board believes this performance will enhance Virgin Radio's
value.
• An IPO remains an option and we confirm that there is significant interest
in Virgin Radio from a number of potential buyers.
• Book value of Virgin Radio goodwill written down to reflect the change
in accounting methodology of the business as a discontinued activity
Richard Findlay, Chairman, commented:
'SMG is on track to deliver its turnaround plan. The disposal of Primesight will
reduce debt significantly and, in Richard Huntingford, we have appointed a very
strong leader for Virgin Radio. stv remains our core focus, and the management
team is making real headway in executing the plan we outlined in June.'
Rob Woodward, Chief Executive, said:
'Despite difficult market conditions, we have delivered to plan over the last
three months, disposing of Primesight, improving Virgin Radio's outlook and
beginning the turnaround of stv, our core business. In TV, further cost
reductions will benefit 2008. We are turning around the business, delivering on
the plan communicated in June and we look forward to the future with
confidence.'
28 September, 2007
There will be a presentation for analysts at the offices of ABN AMRO, 250
Bishopsgate, London EC2 today at 9.30am.
An online video interview with Rob Woodward can be viewed at www.smg.plc.uk from
7am.
There is also a link to the circular sent to shareholders today regarding the
proposed disposal of Primesight at www.smg.plc.uk
Further enquiries:
SMG plc
Richard Findlay, Chairman Tel: 020 7882 1199
Rob Woodward, CEO
George Watt, CFO
Brunswick Group LLP
James Hogan Tel: 020 7404 5959
Simon Sporborg
OPERATIONAL REVIEW
Overview
The first half of 2007 has seen good progress on our turnaround plan, despite
some difficult market conditions and disappointments in the original 2007 budget
prepared by the previous Board.
The Board recognises the current underperformance of the business, has taken a
series of decisive actions to address this weakness and remains confident of
achieving our strategic plan. As outlined in the business review in June,
reduction of debt is central to SMG's strategy, whilst retaining a central focus
on the TV business; our aim is to create the broadcaster of choice for viewers
and advertisers in Scotland.
We have met the revised expectations for the first half; and confirm that we are
on track for the second half. Further cost reductions have been identified which
will benefit 2008; making good progress on our 12 KPIs; and confirming the sale
of Primesight for up to £62m - an uplift from the price on offer in April when
the initial sale process was suspended.
Trading Performance
The first half saw continuing operations generate turnover of £55.6m (2006:
£57.9m), statutory operating profit of £2.3m (2006:£9.0m) and a statutory loss
after tax of £7.1m (2006:£3.7m profit). The loss for the period on discontinued
operations amounted to £34.5m (2006:£2.6m profit) and the total loss
attributable to equity holders was £41.6m (2006:£6.3m profit).
Underlying trading performance excluding exceptional items (in £m) is shown
below.
Turnover Operating Profit
2007 2006 2007 2006
Television 55.6 57.9 3.9 9.0
------ ------ ----- -----
Outdoor 11.5 11.1 0.8 1.6
Radio 12.1 11.1 2.5 2.0
Cinema 9.3 8.5 (0.3) (0.3)
----- ----- ------- -----
32.9 30.7 3.0 3.3
------ ------ ----- -----
Total 88.5 88.6 6.9 12.3
------ ------ ----- -----
Group revenue remained flat at £88.5m (2006: £88.6m). Within the television
business, Broadcast revenues fell 6% to £46.3m (2006: £49.4m) due to lower
airtime and telephone revenues. However, NAR share increased to 6.75% (2006:
6.61%) as stv outperformed the ITV network. In Content, revenues increased 13%
to £5.9m (2006: £5.2m) reflecting higher levels of programme deliveries in the
period. Ventures revenues were also marginally up by 3% to £3.4m (2006: £3.3m).
Outdoor sales increased by 4% to £11.5m (2006: £11.1m) with double digit Q1
growth slowing in Q2, especially in June. With the cost base growing in terms of
panel rents and overheads to support growth over recent years, operating profits
fell by £0.8m to £0.8m (2006: £1.6m).
Radio revenues grew by 9% to £12.1m (2006: £11.1m) reflecting an excellent
airtime sales performance and strong growth in online revenues. This flowed
through to operating profit resulting in 25% growth to £2.5m (2006: £2.0m) and
operating margins improving to more than 20%.
Cinema revenues were up 9% at £9.3m (2006: £8.5m) reflecting admissions and
screen growth. However, this growth was offset by increased rental payments to
exhibitors resulting in flat operating losses of £0.3m (2006: £0.3m loss).
Interest costs rose from £4.3m in 2006 to £5.9m, reflecting the Group's higher
average debt levels across the period.
Underlying pre-tax profits, excluding exceptionals, after taking all of the
above items into account, amounted to £1.0m (2006: £8.0m).
In view of the performance of the business and the ongoing pressure on the
Group's balance sheet, the Board has decided not to recommend an interim
dividend for the first half. When there is clear evidence of growth as
anticipated in the turnaround plan, the Board will reconsider the payment of a
dividend.
The first half ends with a further write down to the carrying value of Virgin
Radio, of £26.6m, resulting in a revised carrying value of the goodwill and
other assets of £85.0m. This reflects the change in accounting methodology
applied to the valuation of goodwill as the business was reclassified as a
discontinued activity. The goodwill is now valued using a market based approach
reflecting comparable trading multiples.
Within Pearl & Dean, the Board has concluded that the Vue contract is onerous
and a provision to cover future losses has been made of £11.4m. Exceptional
finance fees of £5.0m were incurred in both amending the Group's banking
agreement in April and pursuant to exceptional fees under the terms of that
agreement. Finally, an additional £1.6m exceptional reorganisation cost
provision was made in the period following the announcement of additional
headcount reductions in television.
The Group's net debt amounted to £189.4m at 30 June 2007 (December 2006:
£157.3m) with the increase from December due to a £16.0m seasonal working
capital outflow in cinema and content which will reverse in the second half,
interest payments and exceptional spend on debt negotiation and reorganisation
costs. We have announced today the refinancing of the Group's £22.4m Convertible
Unsecured Loan Stock (CULS) with a facility to April 2009. Assuming this debt
facility was to be in place throughout 2008, the interest charge would be £2.5m.
It is intended that the of the listing of CULS on the UK Listing Authority's
Official List will be cancelled and the CULS cease to trade on the London Stock
Exchange's market for listed securities, in each case with effect from 8am on 1
October 2007, following which redemption monies due to the holders of CULS will
be distributed by Capita Registars.
In addition, following the agreement of a 10 year pension deficit funding
pattern announced in January between the Group and the trustees of the two
defined benefit pension schemes, deficit funding payments of £5.8m were made in
the period. These payments, together with improved asset returns and increased
bond yields, resulted in the IAS19 net deficit falling by over 55% to £14.3m
(December 2006: £32.8m).
Turnaround of core TV business
The TV business has been underperforming in the first half and action has been
taken to address this. The Board has identified a further £2.5m reduction in
controllable costs within the TV business. £1.5m of this saving will be achieved
through efficiencies in staff numbers as we continue to change the skills mix
within the business to ensure that we are fit for purpose and aligned to
delivering the challenging KPIs set out in June. In addition, the TV division's
earnings are weighted to the second half of the year reflecting the seasonal
nature of the advertising market and programme delivery.
As outlined in June, the Board is committed to building a TV business which is
the broadcaster of choice in Scotland, with the goal of becoming Scotland's most
influential, relevant, innovative and trusted media brand. We announced 12 KPIs
in June as part of the 100 day business review (see table below). The KPIs are
based around the three divisions of the TV business - Broadcast, Content and
Ventures. Since June, we have embedded the KPIs into the business and we will
provide an update on progress at our Preliminary results in 2008 and regularly
thereafter.
Division KPIs
Broadcast 1. increase regional advertising market share from 19% to 25% by 2010
(21% in 18 months)
2. grow sponsorship revenues by 50% by 2010 (30% in 18 months)
3. increase margins through better cost control and commercial
management from 10% to 14% by 2010 (11.0% in 18 months)
Content 4. grow produced hours from 45 hours to 130 hours by 2010 (60 hours in
18 months)
5. exploit the extensive content library to achieve 60% growth by 2010
(40% in 18 months)
6. grow rights exploitation business by 40% by 2010
7. maintain margins at 10%
Ventures 8. develop our online presence through stv.tv by delivering compelling
online content to target 200,000 visitors a day by 2010 (30,000
visitors a day in 18 months)
9. increase online advertising revenue to £2 million (£0.75 million in
18 months)
10. focus on regional transaction based consumer opportunities to build
revenues of £2.5 million in 2010 (£1.0 million in 18 months)
11. expand into the Scottish classified advertising market to capture
3% of the total market in 2010 from a zero starting point (0.5% in
18 months)
12. increase margins from 5% to 30% by 2010 (10% in 18 months)
Broadcast
In our Broadcast division, the first half of 2007 has seen audience share rise.
stv continues to be the most popular peak-time broadcaster in Scotland with a
share of 27% compared to the BBC share of 22%. Across the Top 50 commercial
programmes in first half of 2007, stv showed 49 of the top 50 programmes for
adults, housewives and women categories and compared to other terrestrial
commercial channels (C4 and five), stv is the best performing. stv's peak time
commercial impacts were down 3.1% in the first half, significantly outperforming
C4 (down 14.4%) and five (down 22.3%). (Source: BARB)
The news service has had a strong year. Ratings for Scotland Today and North
Tonight have grown year on year, up 10% to 24.6% and they regularly outperform
BBC1's Six O'clock News whose ratings have fallen 4% year on year; the share
of BBC1's Reporting Scotland is also down 7% year on year. The sub-regional news
service introduced in January gives an additional five minutes of local news
each weekday to Scotland Today audiences in West and East of Central Scotland
and to North Tonight viewers in Tayside and the North of Scotland. The service
delivers high quality local news content, supported by dedicated web news pages
on www.stv.tv further strengthening our links with local audiences. These new
slots are delivering some of the highest five-minute ratings within these news
programmes. In the first six months of 2007, stv news outperformed the ITV
network by four share points. This was an increase from an outperformance of 2.5
points in the previous year.
Better serving our audience through an additional regional programme
To build on the success of news, we will be introducing a new half hour
news-driven programme in the 5.30pm slot in early 2008. This programme will be a
news-led, magazine style format which will deliver topical discussion on what is
important in Scotland. stv will take control of the schedule and provide a
dedicated hour of news for Scotland each weekday. We have
a strong connection with our evening news audience and are confident that this
enhancement will be well received by our audience.
The success of our broadcasting offering will help strengthen our position as
the broadcaster of choice in Scotland.
David Connolly appointed Commercial Director
We are delighted to confirm that David Connolly, the former OFCOM CRR
adjudicator and Vice Chair of Starcom, joins the management team as Commercial
Director. David is a well respected senior advertising executive who brings a
wealth of experience and skills. David will lead our commercial activities and
is tasked with delivering the advertising and sponsorship KPIs set out in June.
His role will also support the commercialisation of our online strategy and
develop opportunities in branded content.
Accelerating growth in Content
The Content division is positioned right at the heart of the TV business as all
creative talent is now centralised into one group. Content will focus on 360
degree cross-platform programming; building new programme brands and becoming
the natural home for Scottish talent.
In line with our content strategy, and once we are in a position to do so, we
are planning to accelerate the growth in our content business through small,
accretive acquisitions. We have identified a number of targets and will keep you
apprised of progress.
Content's commissioned hours currently total 50 (59 including Gaelic) which is
on track for the 18 month KPI target. In Drama, there are six new Taggart
episodes and four new Rebus episodes for transmission in 2007. In
Factual, the team have had commissions from Bravo, Sky Travel and UK History.
Ginger Productions is also performing well with commissions including ITV2,
Living and Virgin1. The Jack Osbourne, Adrenaline Junkie Series consistently
delivers an average of over 800,000 viewers per week for ITV2.
The stv library has around 200,000 hours of material and we are seeking to
further commercialise our archive material. We will announce the appointment of
an external sales house shortly.
Implementing new online strategy in Ventures
The Ventures division has centralised all the new media growth opportunities
into one business to build a powerful online presence. This will be achieved by
exploiting our regional position through the stv brand with the goal to dominate
the Scottish new media market from a local content angle. It is expected that
the total Ventures division will generate revenues of £20m by 2010. Compelling
content continues to increase on stv.tv with live streaming being successfully
incorporated into the site.
Our interactive service - Watch To Win ('WTW') - has outperformed the national
trend and increased responses. This is a result of a combination of improved
scheduling on key soap nights, appealing cash prizes and captivating graphics.
During September to date, the now once a week competition has driven more profit
in one night than was previously generated in a week long campaign. Since our
WTW proposition was revamped in early May of this year, Q3 profits are 92%
higher than Q1 and 55% higher than Q2.
stv.tv/Bingo was relaunched this year with dedicated web pages created alongside
onscreen, print and a viral campaign. Since the relaunch in August, we generated
more than 17 times the number of registrations in August than for the whole of
July. Also, to date, September registrations are 28% up on August.
Progress on non-core businesses
Primesight
On 31 August, we announced the proposed disposal of Primesight to GMT, a leading
and long established provider of private equity for mid-market European buyouts
in the media and telecoms sectors, for a total consideration of up to £62.0
million.
The Board is satisfied with this outcome and that an uplift in value was
realised over offers available during the Disposal process that we suspended in
April. The proceeds of the sale will strengthen SMG's balance sheet, while
freeing the management team to concentrate on the turnaround of the television
business and the disposal of our other non-core businesses.
The total consideration was made up of £52.0 million payable in cash on
completion; a loan note of £5.0 million, payable at the earlier of five years
from Completion or an exit of the business by GMT; and a further loan note of up
to £5.0 million, payable on a similar basis and contingent upon Primesight
achieving agreed target profits for the financial year ending 31 December 2007.
Approximately £1.4m of the cash proceeds will be placed in a retention account
for use by GMT in relation to certain costs associated with planning issues.
Approximately £0.8m will be paid by GMT to SMG at completion of the Disposal in
respect of expected surplus working capital in Primesight.
The Disposal circular has been issued to shareholders today for approval at the
EGM on 15 October 2007. Irrevocable undertakings to vote in favour of the
Disposal have been received from the Board and Hanover General Partner II,
which together account for approximately 12.9% of the voting rights
attaching to the ordinary share capital of SMG.
The proceeds from the sale of Primesight are not included in the half year
balance sheet, but will significantly reduce the debt burden in the following
six months. The sale is a clear indication that the Board is beginning to
deliver on its three year plan.
Virgin Radio
There is a strong team in place to drive the business forward under the
leadership of Richard Huntingford, who we are delighted to announce today as
Executive Chairman of Virgin Radio with effect from 1 October. Richard will take
full management responsibility for the business.
The Board has been further strengthened with Rosemary Thorne as Senior
Independent Director and David Palmer as Chief Financial Officer of Virgin
Radio. In addition we are delighted to announce the appointment of David Lloyd,
formerly Managing Director of Galaxy and LBC - part of the Chrysalis Group PLC -
as Programme Director and Andy Grumbridge, formerly of Channel 4, who recently
joined the management team as Head of New Media. These important appointments
further bolster Virgin Radio's outstanding management team.
The Board is pursuing the realisation of full value for Virgin Radio. An IPO
remains an option that we will continue to explore, however, the current
sentiment in equity markets has meant a revision of the timetable. We have also
had significant interest from a number of parties to buy Virgin Radio and we
will concentrate on moving this divestment process forward.
Virgin Radio has had a strong half year, having outperformed the radio market;
achieved its best performance in Rajars in hours and audience reach in 3 years;
and is leading the field in digital listening with 20.5% of its audience being
digital listeners against the industry average of 12.8%. On the back of the
recent Rajar performance and strong leadership team, this business is well
placed for continued growth in 2008.
Pearl & Dean
Pearl & Dean remains non-core and the sale process continues. The first half of
2007 has seen P&D revenue up 9%, driven by admissions growth of 6% and a 6%
increase in screens year on year largely from new builds.
An onerous contract provision of £11.4m has been made for the loss making
contract with Vue which runs until 2010. We will now seek to renegotiate the
terms of this contract and will cut costs to address the losses being incurred
in Pearl & Dean.
Outlook
Q3 Trading in each business - revenue growth YoY
Q3 YTD Q3 October 07
stv airtime +5% -3% -5%
Radio +13% +10% +9%
Cinema +8% + 9% +62%
Outdoor -5% flat +1%
TV is outperforming the ITV network, driven by a strong regional market while
Radio is also continuing to outperform the national radio market. Cinema had a
good performance in Q3 on the back of a strong film line up. The October figure
reflects the strong film releases scheduled and reflects the movement of spend
from later months. The Board confirms that these businesses are on track for the
rest of 2007. Following a weaker performance over the summer months as the six
sheet market has slowed, Outdoor will see operating performance moderately below
expectations for the full year.
We aim to deliver shareholder value based on a turnaround plan underpinned by a
clear set of challenging KPIs now embedded within the new structure of the TV
business. We are delivering on the plan communicated in June and we look to the
future with increasing confidence. We have identified further cost reductions
which will benefit 2008, together with an accelerated growth strategy in our
Content business.
Richard Findlay Rob Woodward
Chairman Chief Executive
28 September, 2007
Consolidated income statement
for the six months ended 30 June 2007
6 months 6 months 31 December
2007 2006 2006
Note Underlying Exceptional Results Underlying Exceptional Results Results
results items for results items for for
period period year
£m £m £m £m £m £m £m
CONTINUING
OPERATIONS
Revenue 2 55.6 - 55.6 57.9 - 57.9 125.6
Net
operating
expenses
before
exceptional
costs (51.7) - (51.7) (48.9) - (48.9) (109.8)
Reorganisation
costs 4 - (1.6) (1.6) - - - (2.6)
Writedown of
stock 4 - - - - - - (6.5)
------- -------- -------- ------- ------- -------- -------
Net
operating
expenses (51.7) (1.6) (53.3) (48.9) - (48.9) (118.9)
------- -------- -------- ------- ------- -------- -------
Operating
profit 3.9 (1.6) 2.3 9.0 - 9.0 6.7
Gain on
disposal of
investment 4 - - - - - - 0.4
Loss on
disposal of
property 4 - - - - - - (0.4)
------- -------- -------- ------- ------- -------- -------
- - - - - - -
------- -------- -------- ------- ------- -------- -------
Profit before
financing 3.9 (1.6) 2.3 9.0 - 9.0 6.7
Interest 0.2 - 0.2 0.1 - 0.1 0.2
income
Finance costs 4,5 (6.1) (5.0) (11.1) (4.4) - (4.4) (8.6)
------- -------- -------- ------- ------- -------- -------
(Loss)/profit
before tax (2.0) (6.6) (8.6) 4.7 - 4.7 (1.7)
Tax
credit/(charge) 7 1.0 0.5 1.5 (1.0) - (1.0) 3.0
------- -------- -------- ------- ------- -------- -------
(Loss)/profit
for the period
from
continuing
operations (1.0) (6.1) (7.1) 3.7 - 3.7 1.3
DISCONTINUED
OPERATIONS
Profit/(loss)
for the period
from
discontinued
operations 6 3.5 (38.0) (34.5) 2.6 - 2.6 (75.8)
------- -------- -------- ------- ------- -------- -------
Profit/(loss)
attributable
to equity
holders 2.5 (44.1) (41.6) 6.3 - 6.3 (74.5)
----- -------- -------- ------- ------- -------- -------
Earnings per
ordinary share
- basic and
diluted 9 0.8p (13.1p) 2.0p 2.0p (23.6p)
Earnings per
ordinary share
from continuing
operations
- basic and
diluted 9 (0.3p) (2.2p) 1.2p 1.2p (17.9p)
Underlying
(pre IFRS 5) Note
Operating
profit 15 6.9 12.3 17.5
Profit before
tax 15 1.0 8.0 9.1
Earnings per
share - basic 0.3p 2.0p 2.7p
Consolidated statement of recognised income and expense
for the six months ended 30 June 2007
6 months 6 months 31
2007 2006 December
2006
£m £m £m
(Loss)/profit for the period (41.6) 6.3 (74.5)
------- -------- --------
Actuarial gain recognised in the pension schemes 19.1 6.1 4.1
Deferred tax charge to equity (6.1) (1.8) (1.2)
Cash flow hedges - - 0.8
------- -------- --------
Net profit recognised directly in equity 13.0 4.3 3.7
------- -------- --------
Total recognised (expense)/income for the period (28.6) 10.6 (70.8)
------- -------- --------
Consolidated balance sheet
at 30 June 2007
30 June 30 June 31 December
2007 2006 2006
Note £m £m £m
ASSETS
Non-current assets
Goodwill 8.7 222.1 113.5
Property, plant and equipment 14.7 37.7 18.2
Deferred tax asset 8.6 14.1 14.8
-------- -------- ------
32.0 273.9 146.5
-------- -------- ------
Current assets
Inventories 41.1 42.1 36.1
Trade and other receivables 40.2 65.8 42.6
Cash and cash equivalents - 7.7 8.7
Short-term bank deposit - 2.5 2.5
Derivative financial instruments 10 0.3 - 0.3
-------- -------- ------
81.6 118.1 90.2
-------- -------- ------
Non-current assets classified as held for
sale 6 173.8 - 76.7
-------- -------- ------
Total assets 287.4 392.0 313.4
-------- -------- ------
EQUITY
Capital and reserves attributable to the
Company's equity holders
Share capital 11 7.9 7.9 7.9
Share premium 11 61.0 59.5 60.2
Merger reserve 173.4 173.4 173.4
Equity reserve 2.5 2.5 2.5
Other reserve 12 2.0 5.3 3.2
Hedging reserve 0.3 - 0.3
Retained earnings 12 (234.7) (120.2) (202.0)
-------- -------- --------
Total equity 12.4 128.4 45.5
-------- -------- --------
LIABILITIES
Non-current liabilities
Borrowings 170.6 139.2 149.3
Convertible unsecured loan stock - 22.4 -
Other financial liabilities 0.3 0.8 1.1
Retirement benefit obligation 14 20.5 46.0 46.7
-------- -------- --------
191.4 208.4 197.1
-------- -------- --------
Current Liabilities
Trade and other payables 32.0 42.2 35.6
Borrowings 2.4 - -
Convertible unsecured loan stock 22.4 - 22.5
Other financial liabilities 0.7 - -
Tax liabilities - 6.6 1.5
Provisions 0.8 1.0 1.4
Dividends payable - 5.4 -
-------- -------- --------
58.3 55.2 61.0
-------- -------- --------
Liabilities directly associated with
non-current assets classified as held for
sale 6 25.3 - 9.8
-------- -------- --------
Total liabilities 275.0 263.6 267.9
-------- -------- --------
Total equity and liabilities 287.4 392.0 313.4
-------- -------- --------
Consolidated cash flow statement
for the six months ended 30 June 2007
6 months 6 months 31 December
2007 2006 2006
Note £m £m £m
OPERATING ACTIVITIES
Cash (used) /generated by operations 13 (7.9) 1.5 11.8
Taxes paid - (4.4) (4.0)
Interest paid (12.5) (5.2) (10.6)
Pension deficit funding (5.8) - -
-------- -------- ---------
Net cash used by operating activities (26.2) (8.1) (2.8)
-------- -------- ---------
INVESTING ACTIVITIES
Interest received 0.2 0.1 0.2
Purchase of property, plant and
equipment (2.0) (4.9) (9.7)
-------- -------- ---------
Net cash used by investing activities (1.8) (4.8) (9.5)
-------- -------- ---------
FINANCING ACTIVITIES
Dividends paid (3.8) - (5.3)
Net borrowings drawn/(repaid) 20.9 (9.9) 0.2
Release of cash on deposit 2.5 2.5 2.5
Net repayment of loan notes/stock (0.1) - -
-------- -------- ---------
Net cash generated/(used) by financing
activities 19.5 (7.4) (2.6)
-------- -------- ---------
Movement in cash and bank overdrafts (8.5) (20.3) (14.9)
Net cash and bank overdrafts at
beginning of period 13.1 28.0 28.0
-------- -------- ---------
Net cash and bank overdrafts at end of
period 4.6 7.7 13.1
-------- -------- ---------
Reconciliation of movement in net debt
6 months 6 months 31 December
2007 2006 2006
£m £m £m
Opening net debt (157.3) (139.1) (139.1)
Movement in cash and bank overdrafts in
the period (8.5) (20.3) (14.9)
Net cash (inflow)/outflow from
(increase) /decrease in debt financing (21.3) 9.9 (0.2)
Net movement in Escrow cash (2.5) (2.5) (2.5)
IFRS decrease /(increase) in CULS
liability 0.1 (0.2) (0.3)
Movement in loan note liabilities 0.1 - (0.3)
-------- -------- ---------
Closing net debt (189.4) (152.2) (157.3)
-------- -------- ---------
Notes to the interim statement
for the six months ended 30 June 2007
1. Basis of preparation
This financial information comprises the consolidated balance sheets as of 30
June 2007 and 30 June 2006 and related consolidated interim statements of income
and cash flows for the six months then ended (hereinafter referred to as
'financial information').
This financial information has been prepared in accordance with the Listing
Rules of the Financial Services Authority. In preparing this financial
information management has used the principal accounting policies as set out in
the group's annual financial statements for the year ended 31 December 2006.
The group has chosen not to fully adopt IAS 34, 'Interim financial statements',
in preparing its 2007 interim statements and, therefore, this interim financial
information is not in compliance with IFRS.
The information for the year ended 31 December 2006 does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. The auditors' report on the financial statements was unqualified and
did not include a statement under section 237(2) or (3) of the Companies Act
1985.
2. Business segments
For management purposes the Group is currently organised into four operating
divisions - Television, Radio, Cinema and Outdoor. These divisions are the basis
on which the Group reports its primary segment information.
Principal activities are as follows:
Television - the production and broadcasting of television programmes and
associated enterprises.
Radio - the operation of commercial radio in the UK.
Cinema - the provision of advertising space within cinema complexes.
Outdoor - the provision of advertising solutions across various outdoor media.
On 13 September 2006, the Group put its Outdoor and Cinema businesses up for
sale and on 12 April 2007 also announced its intention to float Virgin Radio.
The disposal groups meet all the conditions to be classified as held for sale
and are therefore classed as discontinued operations.
Segment information about these businesses is presented below.
SEGMENT REVENUES
External sales
6 months 6 months
2007 2006
£m £m
Continuing operations
Television 55.6 57.9
-------- --------
Discontinued operations
Outdoor 11.5 11.1
Cinema 9.3 8.5
Radio 12.1 11.1
-------- --------
32.9 30.7
-------- --------
88.5 88.6
-------- --------
SEGMENT RESULTS
Underlying segment result Exceptional items Segment result
6 months 6 months 6 months 6 months 6 months 6 months
2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m
Continuing operations
Television 3.9 9.0 (0.8) - 3.1 9.0
-------- -------- -------- --------
Reorganisation costs attributable to Group (0.8) -
-------- ------
Operating profit 2.3 9.0
Financing (5.9) (4.3)
Exceptional financing costs (5.0) -
-------- ------
(Loss)/profit before tax (8.6) 4.7
Tax credit/(charge) 1.5 (1.0)
-------- ------
(Loss)/profit for the period from continuing operations (7.1) 3.7
-------- ------
Discontinued operations
Outdoor 2.6 1.6 - - 2.6 1.6
Cinema (0.2) (0.3) (11.4) - (11.6) (0.3)
Radio 2.7 2.0 (26.6) - (23.9) 2.0
-------- -------- -------- -------- -------- ------
5.1 3.3 (38.0) - (32.9) 3.3
-------- -------- -------- -------- -------- ------
Tax (charge) (1.6) (0.7) - - (1.6) (0.7)
-------- -------- -------- -------- -------- ------
Profit for the
period from
discontinued 3.5 2.6 (38.0) - (34.5) 2.6
operations -------- -------- -------- -------- -------- ------
Net (loss)/profit attributable to equity shareholders (41.6) 6.3
-------- ------
The above underlying result of discontinued operations includes an IFRS 5
adjustment relating to depreciation which ceased to be charged when the
businesses were classified as held for sale.
3. Operations in the interim period
In line with the UK advertising market as a whole, the autumn season provides
the Group with the highest level of business and largest element of annual
revenue, and as a result the full year results are expected to be more heavily
weighted towards the second half of 2007.
4. Exceptional items
i) Reorganisation costs
In July 2006 the Group initiated a further restructure following the move of stv
to new premises in Pacific Quay, Glasgow. In December 2006, the Group also
announced plans to restructure the corporate function in light of the
announcement of the sale of both the Outdoor and Cinema businesses in September
2006. Both decisions culminate in a reduction in headcount within the
organisation, resulting in the creation of a provision for exceptional costs of
£2.6m.
A further provision of £1.6m was made in the six month period to 30 June 2007
following the announcement of additional restructure plans.
ii) Writedown of stock
A stock writedown of £6.5m was provided in 2006. £5.4m relates to network stock
that has not been transmitted and will not be transmitted on ITV1 in the future.
£0.8m relates to regional drama stock following Ofcom's decision to reduce the
future annual commitment for regional transmission. The remaining £0.3m relates
to a writedown of deficit funded stock following a review of the future sales
prospects for the deficit funded material.
iii) Gain on disposal of investment
In 2006, the write back of a provision for legal and professional fees relating
to the sale of the Group's stake in Heart of Midlothian plc resulted in a net
gain of £0.4m.
iv) Loss on disposal of property
A net loss on disposal of £0.4m was recognised in 2006 following the exit from
the Group's Cowcaddens, Glasgow property.
v) Financing costs
Exceptional fees and costs of £5.0m incurred as a result of the amended banking
agreement dated 5 April 2007 were written off in the period.
5. Finance costs
6 months 6 months Full year
2007 2006 2006
£m £m £m
Interest expense:
Bank borrowings 6.7 4.5 9.8
CULS and loan note interest 0.8 0.9 1.5
-------- -------- --------
7.5 5.4 11.3
Pension finance credit (1.4) (1.0) (2.7)
-------- -------- --------
Finance costs excluding exceptional items 6.1 4.4 8.6
Exceptional financing costs (note 4) 5.0 - -
-------- -------- --------
Finance costs 11.1 4.4 8.6
-------- -------- --------
6. Discontinued operations
6 months 6 months Full year
2007 2006 2006
£m £m £m
Post tax results from discontinued
operations (34.5) 2.6 (75.8)
Included within results for the period to 30 June 2007 are exceptional items as
follows:
Onerous contract provision
A provision of £11.4m has been made to cover future losses expected from the Vue
contract within Cinema division.
Goodwill impairment and asset writedown
A further £26.6m goodwill impairment and asset writedown loss has been
recognised in the 6 months on the carrying value of Virgin Radio to reflect the
current market value.
Included within the full year 2006 results are exceptional items as follows:
OFCOM settlement
In previous years the Group believed that £0.8m of analogue licence fees had
been overpaid to OFCOM. During 2006 the Group decided to write this amount off
following a decision to accept the revised analogue licence terms.
Goodwill impairment
Goodwill impairment losses of £76.8m were recognised in 2006 in accordance with
IAS36 on the carrying value of Virgin Radio (£58.8m) and Pearl & Dean
(£18.0m). These writedowns were due to the weaker trading performance
experienced in both businesses in 2006.
Cash flows from discontinued operations
6 months 6 months Full year
2007 2006 2006
£m £m £m
Net cash flows from operating activities (5.7) (0.9) 7.9
Net cash flows from investing activities (0.7) (2.4) (4.3)
-------- -------- --------
(6.4) (3.3) 3.6
-------- -------- --------
The major classes of assets and liabilities comprising the operations classified
as held for sale are as follows:
June 2007
£m
Goodwill 110.8
Property, plant and equipment 24.4
Inventories 0.2
Trade and other receivables 31.4
Cash and cash equivalents 7.0
--------
Total assets classified as held for sale 173.8
--------
Trade and other payables 10.3
Tax balances 3.6
Provisions 11.4
--------
Total liabilities associated with assets classified as held for sale 25.3
--------
Net assets of disposal group 148.5
--------
7. Tax
6 months 6 months Full year
2007 2006 2006
£m £m £m
The (credit)/charge for tax on continuing
operations is as follows:
Tax on profit on ordinary activities
excluding exceptional items at 20% (1.0) 1.0 (0.2)
(2006: 21%)
Tax effect of exceptional items (0.5) - (2.8)
-------- -------- --------
(1.5) 1.0 (3.0)
-------- -------- --------
The tax (credit)/charge is higher/(lower) than the standard rate of 30% due to
adjustments for prior year provisions.
The effect of the changes enacted in the 2007 Finance Act is to reduce the
deferred tax asset provided at 30 June 2007. This decrease in the deferred tax
asset is due to the reduction in the corporation tax rate from 30% to 28% and is
reflected in the Consolidation Statement of recognised income and expense.
8. Dividends
6 months 6 months Full year
2007 2006 2006
£m £m £m
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31
December 2005 of 1.7p - 5.4 5.3
Interim dividend for the year ended 31
December 2006 of 1.2p 3.8 - -
-------- -------- --------
3.8 5.4 5.3
-------- -------- --------
9. Earnings per share
6 months 6 months Full year
2007 2006 2006
£m £m £m
Underlying EPS:
Basic EPS
Earnings attributable to ordinary
shareholders 2.5 6.3 9.5
-------- -------- --------
Weighted average number of shares in issue 316.8m 314.8m 315.3m
EPS 0.8p 2.0p 3.0p
-------- -------- --------
EPS from continuing operations
Basic EPS 2.5 6.3 9.5
Pre-tax (profit) from discontinued
operations (5.1) (3.3) (0.3)
Tax relating to discontinued operations 1.6 0.7 0.3
-------- -------- --------
Basic underlying EPS from continuing
operations (1.0) 3.7 9.5
-------- -------- --------
Weighted average number of shares in issue 316.8m 314.8m 315.3m
EPS (0.3p) 1.2p 3.0p
-------- -------- --------
EPS including exceptional items:
Basic EPS
Earnings attributable to ordinary
shareholders (including exceptional items) (41.6) 6.3 (74.5)
-------- -------- --------
Weighted average number of shares in issue 316.8m 314.8m 315.3m
EPS (13.1p) 2.0p (23.6p)
-------- -------- --------
EPS from continuing operations
Basic EPS (41.6) 6.3 (74.5)
Pre-tax loss/(profit) from discontinued
operations 32.9 (3.3) 17.7
Tax relating to discontinued operations 1.6 0.7 0.3
-------- -------- --------
Basic EPS from continuing operations (7.1) 3.7 (56.5)
-------- -------- --------
Weighted average number of shares in issue 316.8m 314.8m 315.3m
EPS (2.2p) 1.2p (17.9p)
-------- -------- --------
EPS from discontinued operations
Basic EPS
Pre-tax profit/(loss) from discontinued
operations 5.1 3.3 (17.7)
Tax relating to discontinued operations (1.6) (0.7) (0.3)
-------- -------- --------
Basic EPS from discontinued operations 3.5 2.6 (18.0)
-------- -------- --------
Weighted average number of shares in issue 316.8m 314.8m 315.3m
EPS 1.1p 0.8p (5.7p)
-------- -------- --------
There is no difference between basic and diluted EPS as there is no material
impact from dilutive share options.
10. Derivative financial liability
The derivative financial asset at 30 June 2007 is £0.3m (£nil at 30 June 2006;
£0.3m at 31 December 2006) and has arisen as a result of an interest rate swap.
The Group uses interest rate swaps to manage its exposure to interest rate
movements on its bank borrowings.
The notional principal amount of the outstanding interest rate swap contract at
30 June 2007 was £60.0m. At 30 June 2007 the fixed interest rates are 4.94%
(fixed until 2007) and floating rates are 5.93% (3 month LIBOR). Any net gain or
loss deferred in equity will reverse this year being the life of the swap.
11. Share capital
During the six months to 30 June 2007, the Group has issued new ordinary shares
of 2.5p each which has resulted in a £0.8m increase in share premium.
12. Statement of changes in reserves
Other Retained
reserve earnings
£m £m
At 1 January 2007 3.2 (202.0)
Net loss - (41.6)
Dividends - (3.8)
Movement in share-based payments (1.2) -
Allotment of own shares - (0.3)
Actuarial gain - 19.1
Deferred tax thereon - (6.1)
-------- --------
At 30 June 2007 2.0 (234.7)
-------- --------
There have been no movements in the merger reserve, equity reserve and hedging
reserve during the six months ended 30 June 2007.
13. Notes to cash flow statement
6 months 6 months Full year
2007 2006 2006
£m £m £m
Operating profit (before exceptional items) 3.9 9.0 15.8
Depreciation and other non-cash items 0.5 1.7 1.6
-------- -------- --------
Operating cash flows before movements in
working capital 4.4 10.7 17.4
Increase in inventories (5.0) (8.3) (9.0)
Decrease/(increase) in trade and other
receivables 4.7 (6.9) (7.5)
(Decrease)/increase in trade and other
payables (4.2) 9.0 7.1
Reorganisation costs (2.1) (2.1) (4.1)
-------- -------- --------
Cash (used)/generated by continuing
operations (2.2) 2.4 3.9
-------- -------- --------
Discontinued operations
Operating profit (before exceptional items) 5.1 3.3 2.6
Depreciation and other non-cash items 0.1 2.0 3.4
-------- -------- --------
Operating cash flows before movements in
working capital 5.2 5.3 6.0
(Increase)/decrease in trade and other
receivables (8.5) (3.7) 2.3
(Decrease)/increase in trade and other
payables (2.4) (2.1) -
Reorganisation costs - (0.4) (0.4)
-------- -------- --------
Cash (used)/generated by discontinued
operations (5.7) (0.9) 7.9
-------- -------- --------
Cash (used)/generated by operations (7.9) 1.5 11.8
-------- -------- --------
14. Retirement benefit schemes
The fair value of the assets in the schemes, the present value of the
liabilities in the schemes and the expected rate of return at each balance sheet
date was:
At 30 June At 30 June At 31 December
2007 2006 2006
£m £m £m
Equities 8.4% 148.1 8.0% 140.0 8.4% 145.9
Bonds 4.6- 5.2% 116.3 4.1- 4.9% 111.0 4.6- 5.2% 114.7
------ ------ ------
Fair value of
schemes' assets 264.4 251.0 260.6
Present value of
defined benefit
obligations (284.9) (297.0) (307.3)
------ ------ ------
Deficit in the
schemes (20.5) (46.0) (46.7)
------ ------ ------
A related offsetting deferred tax asset of £6.2m is shown under non-current
assets. Therefore the net pension scheme deficit amounts to £14.3m at 30 June
2007 (£32.4m at 30 June 2006; £32.8m at 31 December 2006).
15. Reconciliation of underlying results pre IFRS 5
Continued Discontinued Group underlying results
6 6 31 6 6 31 6 6 31
months months December months months December months months December
2007 2006 2006 2007 2006 2006 2007 2006 2006
£m £m £m £m £m £m £m £m £m
Operating
profit 3.9 9.0 15.8 3.0 3.3 1.7 6.9 12.3 17.5
(Loss)/
profit
before
tax (2.0) 4.7 7.4 3.0 3.3 1.7 1.0 8.0 9.1
16. Post balance sheet events
On 31 August 2007, the Group announced the conditional sale of its Outdoor
division, Primesight to GMT Communications Partners ('GMT') for a total
consideration of up to £62.0m. The total consideration is made up of £52.0m
payable in cash at Completion; a loan note of £5.0m payable at the earlier of
five years from Completion or an exit from the business by GMT; and a further
loan note payable on a similar basis of up to £5.0m contingent upon Primesight
achieving agreed target profits for the financial year ending 31 December 2007.
The Disposal is conditional upon shareholder approval.
17. Availability
A copy of this statement is being sent to all shareholders by inclusion in the
circular dated 28 September 2007 relating to the Disposal of Primesight and will
be available for inspection by members of the public at the Company's registered
office at Pacific Quay, Glasgow, G51 1PQ.
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 2007 which comprises consolidated income statement,
consolidated statement of recognised income and expense, consolidated balance
sheet, consolidated cash flow statement and related notes. 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 Listing Rules
of the Financial Services Authority 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.
This interim report has been prepared in accordance with the basis set out in
Note 1.
Review work performed
We conducted our review in accordance with 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 disclosed accounting policies have
been applied. 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 and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
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 2007.
PricewaterhouseCoopers LLP
Chartered Accountants
Glasgow
28 September 2007
Notes:
(a) The maintenance and integrity of the SMG plc web site is the responsibility
of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the web site.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
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