Interim Results - Part 2
SCOTTISH MEDIA GROUP PLC
6 September 1999
PART 2
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the six months ended 30 June 1999
Excluding Total including
exceptionals and FRS10 exceptionals and FRS10
Audited full
Note 6 months 6 months 6 months year
1999 1998 Growth* 1999 1998
£m £m £m £m
Turnover
Continuing operations
103.7 99.9 4% 103.7 207.4
Acquisitions 7.5 - 7.5 -
Total turnover 2 111.2 99.9 11% 111.2 207.4
Net operating expenses (85.2) (75.1) (86.0) (162.7)
Reorganisation costs 3 - - (2.5) -
Pre-launch costs 3 - - - (3.4)
Fixed asset impairment 3 - - - (3.8)
_______ _______ _______ __________
Net operating expenses (85.2) (75.1) (88.5) (169.9)
Operating profit
Continuing operations 25.0 23.1 8% 24.9 37.5
Acquisitions 1.0 - (2.2) -
Channel 4 rebate - 1.7 - 3.7
_______ _______ _______ __________
Group operating profit 2 26.0 24.8 5% 22.7 41.2
Share of associate (0.1) - (0.1) -
Equity accounting
reinstatement 3 - - (5.7) -
_______ _______ _______ __________
Total
operating 25.9 24.8 4% 16.9 41.2
profit
Exceptional
items
Profit on sale of
investments 3 - - - 6.9
Investment written
back 3 - - 3.0 -
_______ _______ _______ __________
Profit on ordinary
activities before
interest 25.9 24.8 4% 19.9 48.1
Net interest payable 4 (1.9) (1.3) (1.9) (2.6)
_______ _______ _______ __________
Profit on ordinary
activities before
taxation 24.0 23.5 2% 18.0 45.5
Taxation on profit on
ordinary activities
5 (6.3) (7.0) (5.1) (15.3)
_______ _______ _______ __________
Profit on ordinary
activities after
taxation 17.7 16.5 12.9 30.2
Dividends 6 (5.7) (5.2) (5.7) (15.7)
_______ _______ _______ __________
Profit transferred to
reserves 12.0 11.3 7.2 14.5
======= ======= ======= ==========
Earnings per
ordinary
share - basic 7 27.3p 25.5p 7% 19.9p 46.6p
======= ======= ======= ==========
- diluted 26.8p 25.1p 7% 19.7p 46.1p
======= ======= ======= ==========
* Growth is calculated excluding exceptionals and FRS10
Consolidated Balance Sheet
at 30 June 1999
Audited
Note 30 June 30 June 31 December
1999 1998 1998
£m £m £m
Fixed
assets
Intangible assets 8 124.6 56.0 60.0
Tangible assets 44.3 35.2 34.4
Investments 10 3.0 - -
171.9 91.2 94.4
Current assets
Stock 16.1 16.4 14.3
Debtors and prepayments 60.1 43.0 47.8
Cash at bank and in
hand - 7.2 -
_______ _______ _________
76.2 66.6 62.1
_______ _______ _________
Creditors: amounts falling
due within one year
Creditors 44.8 33.3 33.8
and
accrued
charges
Bank loans and
overdrafts 11 63.9 - 3.4
Corporation 24.3 21.4 17.7
tax
Proposed 5.7 5.2 10.5
dividend
_______ _______ _________
138.7 59.9 65.4
_______ _______ _________
Net current
(liabilities)/assets (62.5) 6.7 (3.3)
_______ _______ _________
Total assets less current
liabilities 109.4 97.9 91.1
_______ _______ _________
Creditors: amounts falling
due after more than one
year
Creditors 3.9 3.8 3.9
and
accrued
charges
Corporation - 8.5 -
tax
Convertible unsecured
loan stock 23.2 23.3 23.3
Secured loan stock 5.1 - -
_______ _______ _________
32.2 35.6 27.2
_______ _______ _________
Provisions for liabilities
and charges 12 6.5 0.9 1.7
_______ _______ _________
Net assets 70.7 61.4 62.2
_______ _______ _________
Capital and reserves
Called up share capital 6.5 6.5 6.5
Share premium account 100.5 99.2 99.2
Profit and loss
account (36.3) (44.3) (43.5)
_______ _______ _________
Equity shareholders' funds
13 70.7 61.4 62.2
======= ======= =========
Consolidated Cash Flow Statement
for the six months ended 30 June 1999
Audited
Note 6 months 6 months Full Year
1999 1998 1998
£m £m £m
Operating
activities
Net cash inflow from continuing
operating activities 14 22.4 32.3 54.5
Returns on investments and servicing of
finance
Interest received - 0.1 0.3
Interest paid (1.3) (1.7) (3.2)
Interest paid on finance leases (0.1) (0.1) (0.1)
______ ______ _______
(1.4) (1.7) (3.0)
______ ______ _______
Taxation
UK corporation tax paid (including
ACT) (1.5) (3.8) (22.2)
______ ______ _______
Capital expenditure and financial investment
Purchase of tangible fixed assets (4.8) (4.2) (10.6)
______ ______ _______
Acquisitions and disposals
Purchase of subsidiary 9 (60.0) - (4.1)
undertakings
Net debt acquired with subsidiary
undertakings 9 (4.4) - -
Purchase of current asset
investments - - (8.4)
Sale of current asset investments - 31.4 42.7
______ ______ _______
(64.4) 31.4 30.2
______ ______ _______
Equity dividends paid (10.5) (10.3) (15.5)
______ ______ _______
Cash (outflow)/inflow before financing (60.2) 43.7 33.4
______ ______ _______
Financing
Repayment of principal under
finance leases (0.3) (0.1) (0.4)
Repayment of Loan Notes (0.1) (0.2) (0.3)
Share capital options exercised 0.1 0.2 0.1
------ ------ ------
(0.3) (0.1) (0.6)
(Decrease)/Increase in Cash in the period (60.5) 43.6 32.8
Movement in net debt 1999 1998 1998
£m £m £m
Opening net debt (29.0) (62.5) (62.5)
(Decrease)/increase in cash in the
period (60.5) 43.6 32.8
Issue of loan stock (5.1) - -
Other movements 0.4 - 0.7
______ ______ _______
Closing net debt (94.2) (18.9) (29.0)
______ ______ _______
Notes to the Interim Statement
for the six months ended 30 June 1999
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 1998 with the exception that FRS12
'Provisions, Contingent Liabilities and Contingent Assets' came into effect
during the period and has been adopted as required. The balance sheet at 31
December 1998 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 results for the six months ended 30 June 1999 include the turnover and
contribution from the acquisitions of the magazine title Boxing News on 4
January 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 and Dean Cinemas Limited ('Pearl and Dean') on 7 June 1999
(Out of Home), which have been consolidated from their respective
acquisition dates.
The analysis by class of business of the Group's turnover and operating
profit is set out below:
6 months 6 months Audited
full year
1999 1998 1998
£m £m £m
Turnover
Television 65.5 64.5 137.9
Publishing 38.5 35.4 69.5
Out of Home 7.2 - -
___________ ________ ________
Total turnover 111.2 99.9 207.4
___________ ________ ________
The results of the Television division include broadcasting and network
production activities. The Publishing division includes newspapers,
magazines and electronic publishing. The results of outdoor and cinema
activities are included in the Out of Home category.
Turnover in the first six months of 1999 includes £3.6m (1998: £0.7m) of
revenues from sources outside the UK. The audited full year results for
1998 include £1.8m of revenues from outside the UK.
6 months 6 months Audited full
year
1999 1998 1998
£m £m £m
Operating profit
Television 16.5 15.9 33.7
Publishing 8.6 8.9 14.9
Out of Home 0.9 - -
_________ ________ __________
Operating profit 26.0 24.8 48.6
_________ ________ __________
Operating profit in the period to 30 June 1999 includes £2.0m start up
losses on the launch of two new products - the Sunday Herald and S2. The
Sunday Herald, the Group's new Sunday newspaper, was launched on 7 February
1999 and S2, the Group's new digital television channel, was launched on 30
April 1999.
Television operating profit in the six months to 30 June 1998 includes a
£1.7m contribution from the Channel 4 rebate mechanism which was terminated
at 31 December 1998. There is therefore no comparable contribution in the
six months to 30 June 1999.
Operating profit in the first six months of 1999 includes £0.7m (1998:£0.4m)
arising outside the UK. The audited full year results for 1998 include
£0.9m of operating profits from outside the UK.
3. Exceptional items
(i) A provision for exceptional costs amounting to £2.5m has been made in
the six months to 30 June 1999 to cover planned reorganisation initiatives
following the acquisition of Primesight, Baillie and Pearl and Dean and the
consequent consolidation of the Group's London based property requirements.
(ii) In the 1998 full year results, 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 the 1998 full year results, 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, Glasgow following a Board decision to exit the site by end of 2002.
(iv) During 1991 and 1992, the Group invested £2.5m in taking a 20per cent
shareholding in Good Morning Television Limited ('GMTV'), the licence holder
for the Channel 3 breakfast television service. In 1993, the Group 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 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 the six months to 30 June 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 made to retain the investment in GMTV.
Equity accounting for the Group's share of GMTV losses was suspended in 1995
when the original investment was fully written down. Due to the changed
circumstances noted above, the Group will resume equity accounting for GMTV
and a non-cash exceptional charge of £5.7m has been recognised in the period
to 30 June 1999 relating to the Group's equity accounted share of losses
before tax in the period from 1995 to 1998. The tax charge including
exceptional items has been reduced by £0.9m reflecting the related tax
credit on the equity accounted losses.
In addition, as GMTV's ability to repay its borrowings has improved, the
provision held against the GMTV loan stock has been released in the period
to 30 June 1999 resulting in a non-cash exceptional profit of £3.0m.
(v) Included in the six months and 1998 full year results was a net
exceptional gain amounting to £3.5m in relation to the sale of the Company's
interests in Ulster Television plc ('Ulster') on 23 February 1998. On 14
October 1998, the Company's interests in VCI plc ('VCI') were sold resulting
in a net exceptional gain of £3.4m. This was included in the full year
results for 1998.
4. Net interest payable
Audited
6 months 6 months full year
1999 1998 1998
£m £m £m
Interest receivable - 0.1 0.3
______ ______ _______
Interest payable:
Bank loans and overdrafts 0.6 0.3 1.1
Finance leases 0.1 0.1 0.1
Other interest 1.0 1.0 1.7
______ ______ _______
Group interest payable 1.7 1.4 2.9
Share of associate 0.2 - -
______ ______ _______
Total interest payable 1.9 1.4 2.9
______ ______ _______
Net interest payable (1.9) (1.3) (2.6)
______ ______ _______
5. Taxation on profit on ordinary activities
Audited
6 months 6 months full year
1999 1998 1998
£m £m £m
The charge for taxation is comprised as
follows:
Charge for the period at 26.0per cent (1998:
29.7per cent) 6.3 7.0 13.7
Tax (credit)/charge on exceptional items (1.2) 1.1 1.6
______ ______ _______
5.1 8.1 15.3
______ ______ _______
6. Dividends Audited
6 months 6 months full year
1999 1998 1998
£m £m £m
Ordinary:
Interim of 8.8 pence per share (1998:
8.0 pence) 5.7 5.2 5.2
Final paid of 16.2 pence per share - - 10.5
______ ______ _______
5.7 5.2 15.7
______ ______ _______
It is proposed to pay the interim dividend on 5 November 1999 to
shareholders on the register at 15 October 1999.
7. Earnings per share
Basic earnings per share (EPS) excluding exceptional items and the impact
of FRS10 adjustments is calculated as follows:
Audited
6 6 Full
months months year
1999 1998 1998
Attributable profit for the financial
period (£m) 17.7 16.5 32.3
Weighted average number of shares in
issue (m) 65.0 64.7 64.8
Earnings per ordinary share (pence) 27.3p 25.5p 49.8p
Basic EPS including exceptional items and after FRS10 adjustments in the 6
months to 30 June 1999 is 19.9p (6 months to 30 June 1998: 29.2p and audited
full year 1998: 46.6p).
Diluted EPS excluding exceptional items and the impact of FRS10
adjustments is calculated as follows:
Audited
6 6 Full
months months year
1999 1998 1998
Attributable profit for the financial
period (£m) 18.3 17.0 33.4
Weighted average number of shares in
issue (m) 68.2 67.8 67.9
Diluted EPS (pence) 26.8p 25.1p 49.2p
Diluted EPS including exceptional items and after FRS10 adjustments in the 6
months to 30 June 1999 is 19.7p (6 months to 30 June 1998: 25.1p and audited
full year 1998: 46.1p).
8. Intangible assets
Intangible assets comprise of 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 (£68.6m)
as summarised below.
£m £m
As at 31 December 1998 4.0
Acquisitions
- Boxing News 0.6
- Primesight 35.2
- Baillie 6.6
- Pearl and Dean 22.5
- Delphic Interactive 0.5 65.4
___ _____
69.4
Amortisation for period to 30 June 1999 (0.8)
_____
As at 30 June 1999 68.6
_____
9. Acquisitions
Acquisitions in the six month period to 30 June 1999 comprised Boxing News,
Primesight, Baillie and Pearl and Dean, together with the remaining 49per
cent of Delphic Interactive which the Group did not own which was acquired
for £0.4m on 24 June 1999. The net assets acquired and related fair value
adjustments are shown below:
Prime Pearl Other Fair Value Total
sight and Adjustments
Dean
£m £m £m £m £m
Tangible fixed
assets 8.7 0.3 0.2 (0.7) 8.5
Stock 0.1 - - (0.1) -
Debtors 2.9 6.7 - (0.2) 9.4
Creditors (7.5) (3.2) (0.5) (1.7) (12.9)
Deferred tax (0.5) - - - (0.5)
Net debt acquired (1.5) (2.9) - - (4.4)
______ _____ _____ ___________ ______
Net assets acquired 2.2 0.9 (0.3) (2.7) 0.1
______ _____ _____ ___________ ______
Fair value consideration
Cash 57.7
Loan notes 5.1
Shares issued 0.4
Acquisition expenses 2.3
______
Total consideration 65.5
______
Goodwill arising
(see note 8) 65.4
======
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 (£0.6m)
and adjustments to bad debt and other provisions (£0.7m).
10. Investments
The investment held at 30 June 1999 represents £3.0m of GMTV loan stock
which is discussed in note 3 above.
11. Bank loans and overdrafts
The Group had treasury facilities amounting to £215.0m at its disposal as at
30 June 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 30 June 1999, £151.1m of these facilities were available to be used for
general corporate purposes.
12. Provisions for liabilities and charges
Provisions for liabilities and charges comprise equity accounted losses on
GMTV, as discussed at note 3, of £5.1m and deferred taxation amounting to
£1.4m. The balances at 30 June 1998 and 31 December 1998 are comprised of
deferred taxation balances amounting to £0.9m and £1.7m respectively.
13. Reconciliation of movements in equity shareholders' funds
Audited
6 months 6 months full year
1999 1998 1998
£m £m £m
Profit for the financial 12.9 18.9 30.2
period
Dividends (5.7) (5.2) (15.7)
________ ________ ___________
7.2 13.7 14.5
Shares issued 1.3 1.0 1.0
________ ________ ___________
Net movement in shareholders' funds 8.5 14.7 15.5
Opening shareholders' funds 62.2 46.7 46.7
________ ________ ___________
Closing equity shareholders' funds 70.7 61.4 62.2
======== ======== ===========
14. Reconciliation of operating profit to operating cash flows
Audited
6 months 6 months full year
1999 1998 1998
£m £m £m
Continuing activities
Operating profit (before exceptional
items and FRS10) 26.0 24.8 48.6
Depreciation charges 3.2 2.5 5.9
Issue of shares re profit share
scheme 0.3 0.5 0.6
(Increase)/Decrease in stock (1.8) 0.8 2.9
(Increase)/Decrease in debtors (2.9) 4.2 (2.0)
Increase in creditors 0.5 1.2 2.6
Reorganisation costs (1.1) (1.7) (2.8)
Sunday paper pre-launch costs (1.8) - (1.3)
________ ________ ___________
Net cash inflow from continuing
operations 22.4 32.3 54.5
======== ======== ===========
15. Post balance sheet events
On 15 July 1999, the Group announced the acquisition of two magazine titles,
Independent Community Pharmacist and Independent Electrical Retailer, for a
total consideration of £3.1m. Both titles are established monthly trade
journals which operate as franchises within their respective market
segments.
On 6 September 1999, the Group announced a strategic alliance with Heart of
Midlothian plc ('Hearts'), one of the leading football clubs in Scotland.
The Group has undertaken to subscribe for 19.9per cent of the ordinary share
capital of Hearts and £4.5m of convertible loan stock, for an aggregate cash
consideration of £8.0m. Full conversion of the loan stock would give the
Group up to 37.4per cent of Hearts' enlarged share capital.
The funds will be utilised by Hearts to strengthen the playing squad,
develop the stadium and invest in the club's already successful youth
development programme. The Group believes that it will be able to maximise
the potential of, and benefit from, Hearts' existing media-related interests
which are complementary to the Group's advertising and publishing
operations.
The transaction is subject to Hearts' shareholder approval and regulatory
approval.
16. Year 2000 review
During 1997 and 1998 the Group conducted a review of all main computer
systems to ensure they were Year 2000 compliant. This review has not
uncovered any material issues and where necessary hardware and operating
systems are being replaced to ensure continuity of operations beyond 1999.
17. A copy of this statement is being sent to all shareholders on 14
September 1999 and will be available for inspection by members of the public
at the Company's registered office at Cowcaddens, Glasgow.
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