Final Results - Year Ended 31 December 1999
Scottish Media Group PLC
22 February 2000
Scottish Media Group plc
Preliminary Results
For the Year Ended 31 December 1999
Financial Highlights
- Total Turnover - up 17% to £242.7m
- EBITDA* - up 16% to £63.0m
- Operating Profit** - up 14% to £55.3m
- Pre-tax Profit** - up 9% to £50.0m
- Earnings per Share** - up 14% to 56.9 pence
Operational Highlights
- Record profits - reaching £50.0m**
- National expansion - outdoor and cinema acquisitions
- Successful launches - Sunday Herald and S2
- Internet investment - launch of s1
- Transforming acquisition of Ginger Media
* Earnings before interest, tax, depreciation, amortisation and excluding
exceptionals
** Excluding exceptionals and before the impact of goodwill amortisation
under FRS10
Commenting on the results, Don Cruickshank, Chairman of SMG, said:
'1999 was a very significant year for SMG. Expanding nationally into two of
the fastest-growing media sectors in the UK, while launching two ambitious new
products, such as our Sunday newspaper and digital television channel, is a
remarkable achievement in itself. To do so while generating record pre-tax
profits of £50 million is doubly satisfying.
With the Group in such good shape, the acquisition of Ginger Media is set to
transform SMG's position, elevating the Group to a new position within UK
media. The opportunities which lie ahead for SMG have never been better and
we look forward with confidence to the remainder of 2000.'
For further information, contact:
Andrew Flanagan Chief Executive 020 7446 7383
Gary Hughes Group Finance Director 020 7446 7383
Callum Spreng Corporate Affairs Director 020 7446 7383
James Hogan Brunswick Group 020 7404 5959
1999 Full Year Results
Preliminary Announcement
Chairman's Statement
1999 was a year of significant progress for SMG. Not only did we once again
generate record pre-tax profits, achieving £50.0m for the first time, but we
also launched two successful new products and expanded outside Scotland into
two of the UK's fastest-growing media sectors.
The Group's continued growth in turnover and profitability was even more
rewarding given the loss of the Channel 4 rebate and, against this background,
represents a significant accomplishment. This underlines our management's
track record of improving performance from our existing businesses, while
pursuing the strategy of building SMG into a national UK media group through
successful, well-branded assets.
These impressive achievements were reinforced in January by the announcement,
and subsequent approval by our shareholders, of SMG's proposed acquisition of
Ginger Media Group. Following Radio Authority approval, which is expected
shortly, this development is set to transform SMG into a leading UK media
player.
The headline financial results for 1999 are:
1999 1998 Increase
Total Turnover £242.7m £207.4m 17%
EBITDA* £63.0m £54.5m 16%
Total Operating Profit** £55.3m £48.6m 14%
Profit before Tax** £50.0m £46.0m 9%
Earnings per Share** 56.9p 49.8p 14%
Dividend per Share 26.5p 24.2p 10%
* Earnings before interest, tax, depreciation, amortisation and excluding
exceptionals
** Excluding exceptionals and before the impact of goodwill amortisation
under FRS10
Turnover was up 17%, at £242.7m, reflecting increased revenues in television
and newspapers and a part-year contribution from our outdoor and cinema
advertising businesses, acquired during the year.
The cash generative qualities of the Group's operations were underpinned by
strong growth in EBITDA, which increased by 16% to £63.0m.
The growth in operating profits, by 14% to £55.3m, was delivered against the
background of the loss of the Channel 4 rebate, which contributed £3.7m of
profit in 1998, and £4.4m of initial losses from our Sunday newspaper and
digital television channel launches.
Taking all this into account, the achievement of £50.0m of pre-tax profit is
an excellent performance by the management team. This 9% improvement over
1998 also reflects higher interest costs of £5.3m (1998: £2.6m), largely due
to the funding cost on the acquisitions made during the year.
Earnings per share were increased by 14% to 56.9 pence, ahead of profit before
tax due to a reduction in the effective tax rate, and the Board is
recommending a final dividend of 17.7 pence which, when added to the interim
of 8.8 pence, provides a full-year dividend of 26.5 pence - an increase of 10%
over 1998.
TELEVISION
Our Television Division performed well during the period. Total television
turnover increased by 2% to £140.3m in 1999, largely reflecting growth in
airtime revenue which was particularly strong in the second half of the year.
Operating profits improved to £34.7m (1998: £33.7m). This was achieved after
covering the start-up losses on S2, our new pan-Scottish digital channel
launched in April, and the effect of the loss of the Channel 4 rebate.
Broadcasting
Airtime sales grew by 6%, broadly in line with the ITV Network as a whole.
This growth was achieved despite a number of major advertisers, including the
English clearing banks, ONdigital and a number of 'dot.com' entrants,
concentrating their considerable advertising spend outside of Scotland, and in
particular in the south east of the UK. Despite this, our share of ITV Net
Advertising Revenue (NAR) only marginally reduced from 6.13% to 6.12%, as
local airtime sales continued to grow ahead of national sales during the year.
The introduction of six advertising sub-regions in Scotland, creating a more
competitive option for local advertisers who previously used only local radio
and press, led to local airtime sales growing by over 8%.
The launch of S2, our digital channel - on time and on budget - has succeeded
in introducing further new advertisers to television. Alongside our existing
channels, which we have transmitted in digital format since 1998, S2
represents an important opportunity for the future development of our
television and new media interests.
Audience ratings represent the currency of television airtime sales, and ITV's
ability to attract mass audiences remains fundamental to its success. A
number of schedule improvements were made by the ITV Network Centre during
1999, including the move of News at Ten along with a substantial investment in
new programming. These developments, coupled with our continued investment in
regional programmes, succeeded in increasing our audience share in peak-time
to 38.0% in 1999 from 37.2% in the prior year.
STE
As part of a reorganisation of our television operations, key staff within our
network television production business, Scottish Television Enterprises (STE),
were relocated to London, closer to our main customer, the ITV Network Centre,
and to the network television community as a whole. The programme production
business has long lead-times, and the benefits arising from the relocation
will emerge in 2000. Meanwhile, in 1999, STE maintained its profits at 1998
levels and continued to develop and pitch new ideas and formats. We have
already won a number of exciting new drama, current affairs and children's
programme commissions, which are currently in production for delivery in 2000.
PUBLISHING
Our Publishing Division, which includes the Group's newspaper, magazine and
electronic publishing operations, achieved an increase in total turnover of
9%, from £69.5m in 1998 to £76.1m in 1999. Despite the absorption of the
launch costs of new products, operating profits were maintained in line with
those achieved in the prior year at £14.9m (1998: £14.9m).
Newspapers
Newspapers turnover increased by 6% to £67.2m in the year, primarily as a
result of the launch of the Sunday Herald. In a tough marketplace, total
advertising revenues from the ongoing titles were on a par with those achieved
in the prior year, with a strong performance from high value display
advertising (up 16%) offsetting weakness in motors and retail. The key
classified category of property was marginally ahead year on year, while
recruitment revenues were maintained at 1998 levels.
Through continued investment and product improvement, circulation on our
flagship title, The Herald, was marginally ahead of that achieved in 1998,
allowing it to gain market share and increase its overall readership.
The highlight of 1999 in our newspapers division was the successful launch, in
February, of the Sunday Herald - transforming the Group into a seven day
publisher. The Sunday Herald has been well-received in a competitive
marketplace and, by the end of 1999, already had the third highest circulation
for a Sunday broadsheet in Scotland after less than 11 months on the news-
stands, with average sales of 56,000 per week.
Operating profits from our existing newspapers showed good growth in 1999,
rising 13%, largely as a result of improved efficiency. As anticipated,
start-up costs on the Sunday Herald resulted in a reduction in total newspapers
operating profits to £12.7m (1998: £13.6m).
Other Publishing
We continue to develop our magazines business and, during 1999, we acquired
three titles to add to our existing stable. Predominantly as a result of
these acquisitions, turnover within this part of the Group grew substantially
to £7.1m (1998: £4.9m), with operating profit also well ahead at £2.2m (1998:
£1.2m).
In June, we bought out the minority holding in Delphic Interactive, our
electronic publishing operation. With turnover now at £1.8m, and breaking
even, it serves as a good platform for our online developments.
OUT OF HOME
1999 saw SMG expand beyond Scotland through the acquisition of national
businesses in two of the UK's fastest-growing media sectors - outdoor and
cinema advertising. These operations, which provide UK-wide coverage,
currently form the Group's Out of Home Division and generated post-acquisition
operating profits of £4.0m on turnover of £26.3m in the period.
Outdoor Advertising
Outdoor advertising in the UK has experienced high growth in recent years and
in March we acquired Primesight, a market leader in six sheet roadside panels,
for a consideration of £35.0m. As a national business, Primesight met our
development and investment criteria well, with particular strengths in Greater
London and the Midlands.
To provide the Group with a stronger presence in the Scottish outdoor market,
we acquired Baillie Advertising, a privately owned outdoor contractor, also in
March. Primesight's international airports agency business, which did not
match our requirements, was sold to a management buy-out team in November, for
a consideration of £2.0m. These moves have created a national advertising
business which is well-positioned for further growth within the outdoor
sector.
The UK outdoor market slowed down in 1999 compared with prior years but we
were still able to grow Primesight through an aggressive panel build
programme. Primesight's six-sheet panel inventory increased by 30%, from
5,700 on acquisition to over 7,500 by the year-end, and we remain committed to
expanding our outdoor presence in this way, having set targets to reach 9,000
panels by the end of 2000.
Cinema Advertising
In June, we acquired Pearl & Dean, one of the best-known brands in UK
advertising.
The UK cinema advertising market continues to show strong growth, and is
particularly suited to advertisers wishing to reach a young, up-market
audience.
The timing of our acquisition coincided with the release of the year's most
popular films, resulting in post-acquisition profits with a strong bias
towards the second half of Pearl & Dean's year. We expect a more balanced
performance in 2000.
The renewal of our contract with Showcase and the increase in our share of
cinemas owned by Apollo Leisure from 50% to 100%, coupled with the ongoing
development of new multiplexes, has resulted in Pearl & Dean now managing over
1,000 screens for the first time in its history.
CORPORATE DEVELOPMENT
Ginger Media Group
On 31 January, 2000, SMG's shareholders approved the acquisition of Ginger
Media Group ('Ginger Media') at an aggregate price of £225m, including the
assumption of approximately £75m of Ginger Media's debt. Ginger Media
operates across radio, television programme production and the internet and
this acquisition transforms SMG into a leading player in the UK media sector.
Radio Authority approval is expected shortly.
The acquisition fits extremely well with the Group's strategy of building from
its strong base in Scotland into fast-growing, complementary media sectors
through the acquisition of successful, well-branded media assets.
Virgin Radio has one of only three national commercial radio franchises, with
its AM service supplemented by a valuable London FM licence. Radio continues
to represent the fastest growing media sector in the UK, underpinning Virgin
Radio's excellent recent financial performance. We plan to bring Virgin
Radio, Primesight and Pearl & Dean together to form a new National Division of
SMG, gaining significant benefit from a common management approach and a
coordinated offering to advertisers.
Ginger Television is a fast-growing television programme maker, producing a
range of successful mainstream programming, principally for Channel 4 and the
BBC. Its programme strands, and customer base, are highly complementary to
those of STE, providing a good fit with our existing network programme
production operation.
Ginger Media's internet operation complements, and is fully integrated across
all of its activities, providing the opportunity to accelerate the development
of internet radio and related transactional services.
I look forward to announcing the completion of the acquisition of Ginger Media
Group in the very near future.
Internet Strategy and Launch of s1
The Group's strong market position in Scotland, coupled with the creative and
technical expertise that exists within both Delphic and Ginger Online, means
that SMG is well placed within Scotland to benefit from the commercial
opportunities offered by the internet. In addition, the online presence of
Ginger Media will be further developed, on a national and international basis,
to the benefit of the Group as a whole.
The first element of SMG's internet strategy will harness these resources and
create the opportunity for SMG to use the internet in a cohesive and
coordinated way, through local content and advertising. Drawing on the
Group's existing strength in the Scottish classified advertising market, and
our content infrastructure in television and newspapers, we will create a
family of web-sites, under the brand 's1'. This package will create a
comprehensive online offering by linking classified advertising sites in such
areas as jobs, houses and motors, with content-driven sites derived from our
popular regional television programmes. These sites will be heavily marketed
through strong cross-promotion using our extensive media resources in
Scotland.
We will further underpin our presence in Scotland through the launch, in
partnership with our major shareholder, Flextech plc, of a new Scottish
listings web-site, 's1 scene one'. This initiative will present an attractive
and relevant offering to consumers and advertisers and will be further
supported by a full range of online ticketing and e-commerce services, linked
to Flextech's existing 'scene one' product.
SMG's national presence will be supplemented by the expansion of Ginger
Media's existing online activities to include a portfolio of linked internet
radio stations, with certain services targeted specifically at the Scottish
market. Further development of ticketing and other transactional services is
also planned, alongside the expansion of Virgin Radio's existing online
trading service for advertising agencies.
These innovative services will be launched on a phased basis over the next 18
months, thereby extending considerably the range and depth of the media
services provided by SMG. This will require an investment of more than £10m
over the period, supported by the Group's marketing resources.
GMTV
The new licence terms for GMTV, which came into effect on 1 January, 1999,
have significantly enhanced the prospects of this national television
franchise. In line with our strategy of building the Group around well-
branded media assets, we increased our shareholding in GMTV, by 5% to 25% on 4
January, 2000, at a purchase price of £6.1m, including the assumption of £0.5m
of loan stock.
Hearts Football Club
SMG's £8.0m investment in Heart of Midlothian plc in September 1999
represented a valuable opportunity for the Group to become involved in one of
the strongest football brands in Scotland, both as an investor and as the
club's media partner. The investment, which saw SMG become a 19.9%
shareholder in the company and subscribe for £4.5m in convertible loan stock,
will be used to strengthen the squad, further develop the stadium and invest
in the club's already successful youth development programme. This is
designed to lead to enhanced performance on the field and regular involvement
in the European competitions, longer cup runs and increased gates. In
addition, SMG will benefit from a direct insight into developments in Scottish
football, an important source of content for our broadcast television
interests.
SMG plc
We announced in January the proposed creation of a new holding company for the
Group, to be named SMG plc in order to reflect the broader national presence
of the Group. This will encompass all of the Group's existing and planned
operations, and approval for the corporate re-structuring and name change will
be sought from shareholders at the AGM in May.
BOARD, MANAGEMENT & STAFF
I joined SMG as Chairman in June, midway through a year of evolution for the
Board, as it sought to draw on a new mix of skills and experience, reflecting
the changing profile of the Group. Executive Directors, Donald Emslie
(Managing Director, Television) and Des Hudson (Managing Director, Publishing)
were appointed to the Board, followed by Non-Executive Director, Stephen Cook
from our largest shareholder, Flextech plc. Sir Gavin Laird, Alistair Moffat
and David Montgomery all stepped down and we are grateful to them for their
contributions to the development of the Group.
Since the year-end, we have announced the appointment of Fiona Harrison as a
Non-Executive Director, and I would like to take this opportunity to welcome
Fiona to the Board.
The Group's management and staff continue to display the energy and
adaptability necessary for the new challenges presented by this dynamic
industry, and I pay tribute to their continued hard work and dedication during
the year.
PROSPECTS
The UK advertising market has seen a solid start to 2000. The strength of the
UK economy has been reflected in good television airtime sales overall,
however in common with last year, some of that growth is being focused on the
South East of the UK. The healthy Scottish economy is contributing to renewed
growth in newspaper recruitment advertising and other advertising sectors are
performing steadily. Our Out of Home Division started the year with outdoor
advertising revenues strengthening and cinema enjoying a busy February with
the release of Toy Story 2.
We have once again set challenging targets for each of our businesses which
reflect the determination of SMG's management and Board to continue to drive
the Group forward. While achieving the required levels of performance will be
demanding, I look forward to the remainder of 2000 with confidence. In the
meantime, we look forward to welcoming Ginger Media's management and staff to
SMG in the near future, following the expected approval of The Radio
Authority.
Don Cruickshank
Chairman
22 February, 2000
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 1999
Excluding Total including
exceptionals exceptionals and
and FRS10 FRS10
Note 1999 1998 Growth* 1999 1998
£m £m £m £m
Turnover
Continuing operations 215.1 207.4 4% 215.1 207.4
Acquisitions 21.8 - 21.8 -
Discontinued operations 5.8 - 5.8 -
_______ ______ _______ ________
Total turnover 2 242.7 207.4 17% 242.7 207.4
Net operating expenses (189.1) (162.5) (191.7) (162.7)
Reorganisation costs 3 - - (2.5) -
Pre-launch costs 3 - - - (3.4)
Fixed asset impairment 3 - - - (3.8)
_______ _______ _______ ________
Net operating expenses (189.1) (162.5) (194.2) (169.9)
Operating profit
Continuing operations 49.1 44.9 9% 48.9 37.5
Acquisitions 4.5 - (0.4) -
Channel 4 rebate - 3.7 - 3.7
_______ _______ _______ ________
Group operating profit 2 53.6 48.6 10% 48.5 41.2
Share of associate 1.7 - 1.7 -
Equity accounting
reinstatement 3 - - (5.7) -
_______ _______ _______ ________
Total operating profit 55.3 48.6 14% 44.5 41.2
Exceptional items
Profit on sale of
investments 3 - - - 6.9
Investment written back 3 - - 3.0 -
_______ _______ _______ ________
Profit on ordinary
activities before interest 55.3 48.6 14% 47.5 48.1
Net interest payable 4 (5.3) (2.6) (5.3) (2.6)
_______ _______ _______ ________
Profit on ordinary
activities before taxation 50.0 46.0 9% 42.2 45.5
Taxation on profit on
ordinary activities 5 (13.0) (13.7) (11.8) (15.3)
_______ _______ _______ ________
Profit on ordinary
activities after taxation 37.0 32.3 30.4 30.2
Dividends 6 (17.3) (15.7) (17.3) (15.7)
_______ _______ _______ ________
Profit transferred to
reserves 19.7 16.6 13.1 14.5
======= ======= ======= ========
Earnings per ordinary share
- basic 7 56.9p 49.8p 14% 46.8p 46.6p
======= ======= ======= ========
- diluted 7 55.9p 49.2p 14% 46.2p 46.1p
======= ======= ======= ========
* Growth is calculated excluding exceptionals and FRS10
Consolidated Balance Sheet
at 31 December 1999
Note
1999 1998
£m £m
Fixed assets
Intangible assets 8 126.0 60.0
Tangible assets 10 45.8 34.4
Investments 11 10.5 -
_________ _________
182.3 94.4
_________ _________
Current assets
Stock 17.4 14.3
Debtors and prepayments 56.8 47.8
_________ _________
74.2 62.1
_________ _________
Creditors: amounts falling due
within one year
Creditors and accrued charges 41.9 33.8
Bank loans and overdrafts 12 77.3 3.4
Corporation tax 14.5 17.7
Proposed dividend 11.6 10.5
_________ _________
145.3 65.4
_________ _________
Net current liabilities (71.1) (3.3)
_________ _________
Total assets less current 111.2 91.1
liabilities
_________ _________
Creditors: amounts falling due
after more than one year
Creditors and accrued charges 2.2 3.9
Convertible unsecured loan
stock 13 23.2 23.3
Secured loan stock 13 2.8 -
_________ _________
28.2 27.2
_________ _________
Provisions for liabilities and
charges 14 5.8 1.7
_________ _________
Net assets 77.2 62.2
========= =========
Capital and reserves
Called up share capital 6.5 6.5
Share premium account 101.1 99.2
Profit and loss account (30.4) (43.5)
_________ _________
Equity shareholders' funds 15 77.2 62.2
========= =========
Consolidated Cash Flow Statement
for the year ended 31 December 1999
Note 1999 1998
£m £m
Operating activities
Net cash inflow from continuing
operating activities 16 50.0 54.5
_______ ______
Returns on investments and servicing of
finance
Interest received 0.2 0.3
Interest paid (4.6) (3.2)
Interest paid on finance leases (0.1) (0.1)
_______ ______
(4.5) (3.0)
_______ ______
Taxation
UK corporation tax paid (including ACT) (13.2) (22.2)
_______ _______
Capital expenditure and financial investment
Purchase of tangible fixed assets (10.8) (10.6)
Sale of tangible fixed assets 0.3 -
Purchase of fixed asset investments (8.5) -
_______ _______
(19.0) (10.6)
_______ _______
Acquisitions and disposals
Purchase of subsidiary undertakings 9 (63.0) (4.1)
Net debt acquired with subsidiary
undertakings 9 (4.4) -
Sale of subsidiary undertakings 1.0 -
Purchase of current asset investments - (8.4)
Sale of current asset investments - 42.7
_______ _______
(66.4) 30.2
_______ _______
Equity dividends paid (16.2) (15.5)
_______ _______
Cash (outflow)/inflow before financing (69.3) 33.4
_______ _______
Financing
Repayment of principal under finance
leases (0.4) (0.4)
Net repayment of loan notes (1.5) (0.3)
Share capital options exercised 0.1 0.1
_______ _______
(1.8) (0.6)
_______ _______
(Decrease)/increase in cash in the period (71.1) 32.8
_______ _______
Movement in net debt 1999 1998
£m £m
Opening net debt (29.0) (62.5)
Cash outflow in the period (71.1) 32.8
Issue of loan notes (5.1) -
Other movements 0.4 0.7
_______ ______
Closing net debt (104.8) (29.0)
======= ======
NOTES TO THE PRELIMINARY ANNOUNCEMENT
for the year ended 31 December 1999
1. Basis of preparation
The financial information for the years ended 31 December 1999 and 31 December
1998 is taken from, but does not constitute, the Group's statutory accounts
for those years. The accounting policies set out in the financial statements
for the year ended 31 December 1998 have been applied consistently to both
years, subject to implementing the requirements of the new accounting
standards noted below. The auditors have completed their audit of the
financial information contained herein and have confirmed that they expect to
give an unqualified opinion. The statutory accounts for the year ended 31
December 1999 will therefore be finalised on the basis of the financial
information presented by the directors in this preliminary announcement.
The profit and loss account is shown including, and excluding, exceptional
items and the impact of goodwill amortisation under FRS 10 in order to provide
a fuller understanding of the underlying operations and performance of the
Group.
FRS12 'Provisions, Contingent Liabilities and Contingent Assets' and FRS13
'Derivatives and other Financial Instruments: Disclosures' came into effect
during the year and have been adopted as required.
2. Segmental analysis
The results for the year ended 31 December 1999 include the turnover and
contribution from the acquisitions of the magazine titles Boxing News on 4
January 1999 and Independent Community Pharmacist ('ICP') and Independent
Electrical Retailer ('IER') on 15 July 1999 (publishing), Primesight plc
('Primesight') on 2 March 1999 (Out of Home), Baillie Advertising Ltd
('Baillie') on 29 March 1999 (Out of Home) and Pearl & Dean Cinemas Limited
('Pearl & Dean') on 7 June 1999 (Out of Home), all of which have been
consolidated from their respective acquisition dates.
In addition, the Group disposed of its interest in Primesight International
Limited, a subsidiary entity of Primesight, on 16 November 1999.
The analysis by class of business of the Group's turnover and operating profit
(excluding exceptional items and the impact of goodwill amortisation under
FRS10) is set out below:
1999 1998
£m £m
Turnover
Television 140.3 137.9
Publishing 76.1 69.5
Out of Home 26.3 -
___________ ___________
Total turnover 242.7 207.4
=========== ===========
The results of the Television division cover broadcasting and network
programme production. The Publishing division includes the results of the
Group's newspapers, magazines and electronic publishing interests. The
results of outdoor and cinema advertising acquisitions are included within the
Out of Home category.
Turnover in 1999 includes £4.2m (1998: £1.8m) of revenues from sources outside
the UK.
1999 1998
£m £m
Operating profit
Television 34.7 33.7
Publishing 14.9 14.9
Out of Home 4.0 -
___________ ____________
Operating profit 53.6 48.6
=========== ============
Operating profit in 1999 is stated after £4.4m of start up losses on the
launch of two new products - the Sunday Herald and S2. The Sunday Herald, the
Group's Sunday newspaper, was launched on 7 February 1999 and S2, the Group's
digital television channel, was launched on 30 April 1999.
Television operating profit in 1998 includes a £3.7m contribution from the
Channel 4 rebate mechanism which was terminated as of 31 December 1998. There
is therefore no comparable contribution in 1999.
Operating profit in 1999 includes £0.6m (1998:£0.9m) arising outside the UK.
Discontinued activities did not contribute to operating profit in 1999.
3. Exceptional items
(i) A provision for exceptional costs amounting to £2.5m has been made to
cover planned reorganisation initiatives following the acquisition of
Primesight, Baillie and Pearl & Dean and the consequent consolidation of the
Group's London based property requirements.
(ii) In 1998, a provision for exceptional costs amounting to £3.4m was made to
cover all pre-launch costs relating to the launch of the Sunday Herald.
(iii) In 1998, an exceptional fixed asset write-off amounting to £3.8m was
made to cover a permanent diminution to the carrying value of the Publishing
division's main operating facilities at Albion Street.
(iv) During 1991 and 1992, the Group invested £2.5m in taking a 20%
shareholding in Good Morning Television Limited ('GMTV') and in 1993, invested
a further £3.0m in loan stock issued by GMTV.
GMTV incurred significant losses following its launch primarily due to a high
level of licence fee payments. The Group's original investment in GMTV was
therefore fully written down by equity accounting over the period from 1992 to
1994. In 1996, full provision was made against the loan stock to reflect the
continuing losses being incurred by GMTV at that time.
During 1999, the Group undertook a review of the options in relation to its
GMTV shareholding in light of the favourable renewal of GMTV's Channel 3
licence by the ITC. Following this review, a decision was taken to retain the
investment.
Equity accounting for the Group's share of GMTV losses was suspended in 1995
when the original investment was fully written off. Due to the changed
circumstances noted above, the Group resumed equity accounting for GMTV in
1999 and a non-cash exceptional charge of £5.7m has been recognised relating
to the Group's equity accounted share of losses before tax in the period from
1995 to 1998.
In addition, GMTV's ability to repay its borrowings has also improved and the
provision held against GMTV loan stock has been released in 1999 resulting in
a non-cash exceptional profit of £3.0m.
(v) The sale of the Company's interests in Ulster Television plc ('Ulster') on
23 February 1998 resulted in a net exceptional gain on sale of £3.5m. On 14
October 1998, the Company's interests in VCI plc ('VCI') were sold resulting
in a net exceptional gain of £3.4m.
4. Net interest payable
1999 1998
£m £m
Interest payable:
Bank loans and overdrafts 3.4 1.1
Finance leases 0.1 0.1
Other interest 1.6 1.7
________ _______
Group interest payable 5.1 2.9
Share of associate (GMTV) 0.4 -
________ _______
Total interest payable 5.5 2.9
Interest receivable (0.2) (0.3)
________ _______
Net interest payable 5.3 2.6
======== =======
5. Taxation on profit on ordinary activities
1999 1998
£m £m
The charge for taxation is as
follows:
Charge for the period at 26.0%
(1998: 29.8%) 13.0 13.7
Tax (credit)/charge on exceptional
items (1.2) 1.6
________ _______
11.8 15.3
======== =======
6. Dividends
1999 1998
£m £m
Interim paid of 8.8 pence per share
(1998: 8.0 pence) 5.7 5.2
Proposed final of 17.7 pence per share
(1998: 16.2 pence) 11.6 10.5
________ _______
17.3 15.7
======== =======
It is proposed to pay the interim dividend on 23 May 2000 to shareholders on
the register at 8 May 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:
1999 1998
Attributable profit for the financial
period (£m) 37.0 32.3
Weighted average number of shares in issue (m) 65.0 64.8
Basic earnings per ordinary share (pence) 56.9p 49.8p
Basic EPS including exceptional items and after FRS10 amortisation for the
period was 46.8p (1998: 46.6p).
Diluted EPS, excluding exceptional items and the impact of goodwill
amortisation under FRS10, is calculated as follows:
1999 1998
Attributable profit for the financial
period (£m) 38.1 33.4
Weighted average number of shares in issue (m) 68.2 67.9
Diluted earnings per ordinary share (pence) 55.9p 49.2p
Diluted EPS including exceptional items and after FRS10 amortisation for the
period was 46.2p (1998: 46.1p).
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 purchased goodwill on acquisitions (£70.0m) as
summarised below.
£m £m
As at 31 December 1998 4.0
Acquisitions
Boxing News 0.6
Primesight 35.2
Baillie 6.6
Pearl & Dean 22.5
Delphic Interactive 0.5
ICP/IER 3.2 68.6
_____ _____
72.6
Amortisation during the year (2.6)
_____
As at 31 December 1999 70.0
=====
9. Acquisitions
Acquisitions in 1999 comprised Boxing News, ICP/IER, Primesight, Baillie and
Pearl & Dean, together with the remaining 49% minority interest in Delphic
Interactive. The net assets acquired and related fair value adjustments are
shown below:
Primesight Pearl Other Fair Value Total
& Dean Adjustments
£m £m £m £m £m
Tangible fixed 8.7 0.3 0.3 (0.7) 8.6
assets
Stock 0.1 - - (0.1) -
Debtors 2.9 6.7 - (0.3) 9.3
Creditors (7.5) (3.2) (0.5) (1.9) (13.1)
Deferred tax (0.5) - - - (0.5)
Net debt acquired (1.5) (2.9) - - (4.4)
_______ ______ ______ _______ ______
Net
assets/(liabilities)
acquired 2.2 0.9 (0.2) (3.0) (0.1)
_______ ______ ______ _______ ______
Fair value
consideration
Cash 60.5
Loan notes 5.1
Shares issued 0.4
Acquisition expenses 2.5
______
Total consideration 68.5
______
Goodwill arising
(see note 8) 68.6
======
The principal fair value adjustments relate to provisions for the cost of
obtaining planning consent on certain outdoor sites (£0.7m), provisions
against certain onerous contracts (£0.7m), fixed asset writedowns (£0.7m) and
adjustments to bad debt and other provisions (£0.9m).
10. Tangible fixed assets
Plant and
Land and buildings technical
Leasehold Freehold Equipment Total
£m £m £m £m
Cost
At 1 January 1999 0.5 18.4 57.9 76.8
Acquisitions 1.5 - 12.2 13.7
Additions 0.2 - 10.2 10.4
Disposals - (0.3) - (0.3)
_____ _____ _____ _____
At 31 December 1999 2.2 18.1 80.3 100.6
_____ _____ _____ _____
Depreciation
At 1 January 1999 0.3 4.8 37.3 42.4
Acquisitions - - 4.7 4.7
Charge for year - 0.4 7.3 7.7
_____ _____ _____ _____
At 31 December 1999 0.3 5.2 49.3 54.8
_____ _____ _____ _____
Net book value
At 31 December 1999 1.9 12.9 31.0 45.8
===== ===== ===== =====
Net book value
At 31 December 1998 0.2 13.6 20.6 34.4
===== ===== ===== =====
11. Investments
The investments held at 31 December 1999 represent £2.0m of GMTV loan stock
which is discussed in note 3 above and the Group's £8.5m investment in Heart
of Midlothian plc ('Hearts'), one of the leading football clubs in Scotland.
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.
12. Bank loans and overdrafts
The Group had treasury facilities amounting to £215.0m at its disposal as at
31 December 1999, including two five year revolving credit facilities, one for
£60.0m which runs to June 2002 and one for £120.0m which runs to May 2004. At
31 December 1999, £137.7m of these facilities were available to be used for
general corporate purposes. On 13 January 2000, an additional £60.0m three
year revolving credit facility was established and is also available for
general corporate purposes.
13. Loan stock
The convertible unsecured loan stock ('CULS') at 31 December 1999 is
convertible on 30 April in each of the years 1999 to 2007 inclusive. The CULS
are convertible into new Scottish Media Group shares on the basis of 12.5702
Scottish Media Group shares per £100 nominal of Scottish Media Group CULS.
The CULS are unsecured obligations of Scottish Media Group and bear interest
at a rate of 6.5% per annum. On 30 April 1999, £0.1m of CULS were converted.
Secured loan stock dated October 2007 amounting to £5.1m was issued to fund
the acquisition of Primesight. The loan stock bears interest at a rate of one
and a half percent below LIBOR and is redeemable on 1 April and 1 October each
year. On 1 October 1999, £2.3m of loan stock was redeemed.
14. Provisions for liabilities and charges
Provisions for liabilities and charges comprise equity accounted losses on
GMTV, as discussed at note 3, of £3.5m and deferred taxation amounting to
£2.3m. The balance at 31 December 1998 is comprised of deferred taxation
balances amounting to £1.7m.
15. Reconciliation of movements in equity shareholders' funds
1999 1998
£m £m
Profit for the year 30.4 30.2
Dividends (17.3) (15.7)
_______ _______
13.1 14.5
Shares issued 1.9 1.0
_______ _______
Net movement in
shareholders' funds 15.0 15.5
Opening shareholders' funds 62.2 46.7
_______ _______
Closing equity shareholders'
funds 77.2 62.2
======= =======
16. Reconciliation of operating profit to operating cash flows
1999 1998
£m £m
Continuing activities
Group operating profit (before 53.6 48.6
exceptional items and FRS10)
Depreciation and other non-cash
items 6.7 6.5
(Increase)/decrease in stock (3.1) 2.9
Increase in debtors (4.7) (2.0)
(Decrease)/increase in creditors 1.0 2.6
Reorganisation costs (1.4) (2.8)
Sunday paper pre-launch costs (2.1) (1.3)
________ _______
Net cash inflow from continuing
operations 50.0 54.5
======== =======
17. Post balance sheet events
(i) On 4 January 2000, the Group announced it had increased its shareholding
in GMTV from 20% to 25%, for a cash consideration of £5.6m, with a further
£0.5m of GMTV loan stock assumed.
(ii) On 13 January 2000, the Group announced it had entered into an agreement
for its wholly owned subsidiary, Scottish Media Group (Jersey) Limited ('SMG
(Jersey)'), to acquire the entire issued share capital of Ginger Media Group
Limited ('Ginger Media').
Ginger Media is one of the leading independently owned media groups in the UK
and comprises Virgin Radio, Ginger Television and a developing internet
operation - Ginger Online.
The total consideration amounts to approximately £225m which is to be
satisfied £185m in cash (including the assumption of Ginger Media's
indebtedness, including preference shares, which is expected to be
approximately £75m) and £40m in shares.
As part of the funding for this acquisition, the Group is raising
approximately £58m, net of expenses, through a 1 for 10 fully underwritten
rights issue.
The acquisition of Ginger Media is conditional on approval from The Radio
Authority.
(iii) At the next Annual General Meeting, the Group will propose that a new
holding company be established, to be called SMG plc, in order to reflect the
broader national presence of the Group. The new company will encompass all of
the Group's existing and proposed operations and will be established by way of
a scheme of arrangement.
18. A copy of the annual report is being sent to all shareholders on 7 April
2000 and will be available for inspection by members of the public at the
Company's registered office at Cowcaddens, Glasgow.
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