Final Results

8th Jan 2009 07:00



8 January 2009

Sport Media Group plc

("SMG," the "Company" or the "Group")

Preliminary announcement of results for the year ended 31 July 2008 and Trading update

Sport Media Group plc ("SMG", AIM: SPMG.L) is the integrated multi-media group which publishes the Sunday and Daily Sport newspapers and digital content for internet and mobile phone channels and today announces preliminary results for the year to 31 July 2008. These are reported under International Financial Reporting Standards ("IFRS"), with 2007 comparisons restated accordingly.

Overview

Bank facility being renegotiated

Company has been and remains profitable and has underlying positive operating cash flow

Underlying EPS 5.7p (2007: 9.7p)

No final dividend. Dividend paid for the year 2p (2007: 7p)

Optimistic about the underlying prospects of the Group

Trading update

Trading for the period through to October was broadly inline with management's expectations and whilst market conditions have been difficult, cost savings have been made at the operating level in order to reduce the impact on the financial performance. Trading since that date and across the Christmas period has continued to be challenging, although the Company is still determining the impact on the financial performance at this time. Further comment on the trading for this period will be made at a later date.

In light of the current uncertainty surrounding the Company's sources of finance, and therefore the extent of funds available for further investment, the operating forecasts for the full year are under review at this time. Further guidance on the full year forecasts will be given once the Board has greater visibility on future financing.

For further information, please contact:

Sport Media Group plc
Andrew Fickling, Chief Executive Officer	Tel: + 44 (0) 161 236 4466
Andrew Fletcher, Chief Financial Officer	Tel: + 44 (0) 20 8507 6965
	www.sportmediagroup.co.uk
Daniel Stewart & Company plc
Simon Leathers/Oliver Rigby	Tel: + 44 (0) 20 7776 6550
	www.danielstewart.co.uk

The financial information set out in this announcement does not constitute the Group's financial statements (as defined by s240 of the Companies Act 1985) for the year ended 31 July 2008. The Annual Report of Sport Media Group plc is yet to be published and accordingly a further announcement will be made at that time.

Chairman's Statement

The past year has been one of dramatic change for your company, with both significant acquisition activity and the major subsequent re-organisation of the newspaper business.

Basis of preparation and current banking situation

As announced on 7 January 2009 and referred to in notes 1 and 13 to the preliminary results announcement, on 6 January 2009 the Group was notified by its bankers that Sport Media Group plc was in breach of one of its banking covenants. At the date of this document agreement has not been reached on revised facility terms. However, revised facility terms continue to be negotiated and, in the interim, the bank has informed the Board that the group will be provided with a two month extension to the current facility, expiring on 6 March 2009. The Board believes that the going concern basis of preparation is appropriate because the Company is seeking to remedy the breach through further discussions with the existing finance providers and is also exploring a number of alternative financing sources and structures and that a refinancing solution will be reached within the extension period expiring on 6 March 2009.

Financial Review

In the year to 31 July 2008, the Group produced an increase in pre-exceptional pre-tax profits of 7% to £6m (2007: £5.6m), with underlying earnings per share of 5.72p (2007: 9.7p) on the increased average share capital.

The reported figures include the results of Sport Newspapers for just under 11 months, following its acquisition by the Group in September 2007. Also included are results for Flip Media for two months following its acquisition in June 2008. As a result, Group turnover for the full year rose by 158% to £29.4m (2007: £11.4m), with operating margins of 21.9% (2007: 49.1%).

During the year, the Group paid an interim dividend of 2p per share. Given the current financial situation, the Board is of the opinion that the historic policy of paying 80% of earnings as dividend is no longer appropriate, therefore we will not be paying a final dividend this year. 

The company has been and remains profitable and has positive underlying operating cash flow.

Year End

The Group believe that it is in the best interests of the business to move its financial year-end from July 31st to December 31st. For 0809 this would see the year-end extended to a seventeen-month period to December 2009. This will bring our accounting period more in line with the operational flow of the business, and increase visibility for the budgeting and forecasting process.

Operating Review

In the Autumn of 2007 the original Interactive World business (now trading as Netcollex) acquired the entire issued share capital of Sport Newspapers Limited for aggregate consideration of £50,000,000, in the form of £39,700,000 in cash, a deferred payment of £5,000,000 paid in December 2007, the issue to the vendors of £5,000,000 of loan notes and the payment of £300,000 into a joint retention account pending the determination of the net current assets of Sport Newspapers. Funds amounting to £43,700,000 were raised by way of a placing of an additional 58,266,667 ordinary shares in the Company at 75 pence per share.

The newspaper was subsequently subject to a major reappraisal, including major cost reductions, and was effectively re-launched in April 2008.

A newspaper is a product that is "baked fresh" each day and, although there have been setbacks on the way, the Board is encouraged that the recipe we now have is beginning to gain acceptance and credibility in the market. We have been particularly encouraged by the agreement with Tesco in September to start trialling the paper in a number of their stores, building on successes with various retailers earlier in the year, and this opens up the possibility of significantly increasing the availability of the paper through multiple retail channels. We are currently retailing in c. 39,000 outlets compared to c. 37,000 at the time of acquisition. The newspaper has a very particular niche and we are confident that we can develop the product and grow the circulation from current levels with the team that are now in place.

Utilising the cross-selling opportunities that we have across the Group in both magazines and the digital business, and opportunities to achieve further efficiencies in production and distribution, we are confident that we can increase profitability. The operational gearing of the newspaper business remains very high, and a 10,000 increase/decrease in daily circulation impacts profitability by around £2m on an annual basis.

Average weekday sales are currently around 75,000 copies, approximately 30% lower than at the time of acquisition, but while this has obviously adversely impacted revenues, we have reduced the cost base of the newspaper significantly (by c. £1.6m annually) and expect that any revenue increases will largely flow through to profit. 

The soft launch of the newspaper's website in November provides the opportunity to explore an increased amount of online activity under the Sport brand name and, although in its infancy, a number of projects are currently underway to develop this revenue stream and provide support to the Group's other web offerings.

Netcollex's performance was affected by both internal and external factors, predominantly the fall in newspaper circulations (a key channel for the recruitment of new users), uncertainty surrounding acquisition and usage of 'celebrity' content following a number of high profile court cases this year, and of course the general economic situation. We have reviewed the cost base of the business and made some savings, however the business only employs 12 people, and the need to keep the content quality high means that we need to constantly invest in new libraries and product.

The introduction of Lock and Pay DVDs, distributed through the newspaper and various magazine, retail and mail order channels has proved a great success and trading within the video-on-demand arm of the business remains steady.

Improvements in our technology platform are enabling Netcollex to trial new SMS marketing techniques which are expected to significantly reduce expenditure in this area while maximising the extensive user databases that the business owns. We are confident that, through distribution of both our own content, and greater leverage of the various technological platforms with content partners, this area of business offers significant growth potential.

In April we acquired the publisher of Front magazine, FlipMedia, which has enhanced our publishing portfolio with a mainstream men's lifestyle title that is currently experiencing sales growth in an otherwise lacklustre market (most recently posting over 41,000 sales for its October issue). Administrational efficiencies have already been made in this business and a number of revenue synergies are being developed across editorial content, mobile and the web with the other Group companies. 

FlipMedia's recent joint venture with Myspace, which will see Front content distributed to Myspace's 8 million UK users underlines the strength and creativity of the team behind the title, their strong understanding of their market and makes it a growing and profitable addition to the Group.

Simon Hume-Kendall, who was Chairman of the Group until August 2008, has now announced his resignation from the Board, due to increasing external commitments. I would like to thank Simon for his considerable contributions to the Group.

Impairment of goodwill and other intangible assets

During 2007 the Group acquired the Sport Newspapers group of companies. Prior to acquisition, sales of the Sport newspapers had been falling steadily, there had been a gradual but sustained erosion in the number of retail outlets stocking the titles, content and staffing costs were too high, the products were almost entirely reliant on advertising revenue from the adult industry and the editorial tone and content of the titles was inconsistent and lacking direction.

Although classified advertising revenues have shown a small increase year on year, the general tabloid market is extremely challenging and display advertising revenues are down by almost half, year on year and, as set out elsewhere, it is clear that the Sport Newspapers business will need to maintain its policy of cost cutting to ensure a successful year and that the achievement of significant turn round in the business is likely to take longer than planned at the time of the acquisition. Although a number of initiatives are currently underway to mitigate against this reduction in revenues, the directors have considered the level of intangible assets carried in the Group's balance sheet at 31 July 2008 and carried out a particularly challenging impairment review process. As a result, the directors have decided to recognise an impairment charge of £18.4 million in the goodwill on the acquisition of Sport Newspapers. This represents a write down of approximately one third of the cost of acquisition. 

The directors have also carried out a thorough review of the Group's other acquired intangible assets, principally software and database licences and rights, photographic and film content rights and marketing access rights, and concluded that certain of those intangible assets had become impaired. As a result the Group incurred a write down of £2.3 million.

Total charges in relation to the impairment of goodwill and other intangible assets of £20.7 million have resulted in a substantial pre-tax loss for the Group, which has a distorting effect on the financial statements. However, the directors consider these write downs to be an appropriate reflection of the current trading position of Sport Newspapers business and the unprecedented circumstances in which businesses have been operating in 2008. By taking this decisive action in relation to the carrying value of Group intangible assets the directors consider that the Group's balance sheet reflects a sustainable level of intangible assets going forward.

Conclusion

With a significantly broader publishing base, both in print and digital, through the past year the Group has strengthened its capabilities as a multi-channel distributor of content and, despite difficult trading conditions, expects to build on this into 2009 and beyond. The Board remains optimistic about the underlying prospects for the Group.

Finally I would like to take this opportunity to thank all of the employees of Sport Media Group for their enthusiasm and commitment through this challenging trading period.

Consolidated Income Statement - Year ended 31 July 2008

		Continuing	Acquisitions	Year to 31 July  2008	Year to 31 July  2007
	Note	£'000s	£'000s	£'000s	£'000s
Revenue	2	9,058	20,336	29,394	11,363
Cost of sales		(2,910)	(13,185)	(16,095)	( 4,361)
		________	________	________	________
Gross profit		6,148	7,151	13,299	7,002
Administrative costs		(2,158)	(4,707)	(6,865)	(1,419)
		________	________	________	________
Underlying operating profit*		3,990	2,444	6,434	5,583
Depreciation				(225)	(106)
Interest received				103	109
Finance costs				(309)	(2)
				________	________
Underlying profit before tax**				6,003	5,584
Share based payment charges	4			(1,026)	(60)
Reorganisation and re-launch charges	4			(1,489)	-
Negative goodwill on acquisitions	4			279	-
Amortisation of intangibles	9			(1,316)	(210)
Impairment of goodwill and other intangibles	10			(20,676)	-
				________	________
(Loss)/profit before tax				(18,225)	5,314
Taxation credit/(charge)	5			191	(1,647)
				________	________
(Loss)/profit for the period from continuing operations				(18,034)	3,667
Profit attributable to minority interests				(65)	(43)
				______	______
(Loss)/profit for the period attributable to equity holders of the parent				(18,099)	3,624
				______	______
Earnings per share:
Basic (loss)/earnings per share	7			(19.87)p	9.40p
				______	______
Adjusted earnings per share	7			5.72p	9.71p
				______	______
Diluted (loss)/earnings per share	7			(19.87)p	8.57p
				______	______

* Operating profit before non-recurring items, amortisation and impairment of intangibles, share based payment charges, interest and taxation

** Profit before tax and non-recurring items, amortisation and impairment of intangibles and share based payment charges

Consolidated Statement of Changes in Equity - Year ended 31 July 2008

	Share capital	Share premium account	Other reserves	Share option reserve	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000
Equity at 1 August 2006	96	1,161	100	8	2,405	3,770
Profit for the year	-	-	-	-	3,624	3,624
Share-based payments	-	-	-	60	-	60
	________	________	________	________	________	________
Total recognised income and expense	-	-	-	60	3,624	3,684
Dividends	-	-	-	-	(2,696)	(2,696)
Issue of share capital	-	106	-	-	-	106
Cost of shares issued	-	(80)	-	-	-	(80)
	________	________	________	________	________	________
Balance at 31 July 2007	96	1,187	100	68	3,333	4,784
Profit for the year	-	-	-	-	(18,099)	(18,099)
Share-based payments	-	-	-	1,026	-	1,026
	________	________	________	________	________	________
Total recognised income and expense	-	-	-	1,026	(18,099)	(17,073)
Dividends	-	-	-	-	(3,480)	(3,480)
Issue of share capital	146	43,554	-	-	-	43,700
Cost of shares issued	-	(3,204)	-	-	-	(3,204)
	________	________	________	________	________	________
Balance at 31 July 2008	242	41,537	100	1,094	(18,246)	24,727
	======	======	=======	======	=======	======

Consolidated Balance Sheet - As at 31 July 2008

	Notes	2008 £'000	2007 £'000
Non-current assets
Property, plant and equipment		286	126
Indefinite lived assets	9	11,452	-
Customer relationships and contracts	9	3,102	130
Goodwill	9	18,194	200
Other intangible assets	9	3,390	712
Investments		3	3
Deferred tax asset	11	430	-
		________	________
		36,857	1,171
		________	________
Current assets
Inventories		102	35
Trade and other receivables		6,812	4,390
Cash and cash equivalents		534	1,704
		________	________
		7,448	6,129
		________	________
Total assets		44,305	7,300
		=======	=======
Current liabilities
Trade and other payables		4,066	1,544
Short term borrowings		10,430	-
Current tax liabilities		-	873
		________	________
		14,496	2,417
		________	________
Net current( liabilities)/assets		(7,048)	3,712
		________	________
Non-current liabilities
Deferred tax liabilities	11	4,986	68
		________	________
		4,986	68
		________	________
Total liabilities		19,482	2,485
		=======	=======
Net assets		24,823	4,815
		=======	=======
Equity
Share capital	12	242	96
Share premium account		41,537	1,187
Other reserves		100	100
Share award and option reserve		1,094	68
Retained earnings		(18,246)	3,333
		________	________
Equity shareholders' funds		24,727	4,784
Minority interests		96	31
		________	________
Total equity		24,823	4,815
		=======	=======

Consolidated Cash Flow Statement - Year ended 31 July 2008

Cash flows from operating activities	Year to 31 July 2008	Year to 31 July 2007
	£'000s	£'000s
Underlying operating profit	6,434	5,574
Adjustments for:
Decrease/(increase) in trade and other receivables	2,484	(2,292)
Increase in inventories	(62)	(35)
Decrease in trade & other payables	(1,806)	(103)
Profit on disposal of investment	(106)	-
Cash generated from operations before non-recurring costs	6,944	3,144
Reorganisation and re-launch costs	(1,489)	-
Cash generated from operations	5,455	3,144
Interest received	103	109
Interest paid	(309)	(2)
Income taxes paid	(1,015)	(1,439)
Net cash from operating activities	4,234	1,812
Cash flows from investing activities
Acquisitions of subsidiaries net of cash acquired	(47,256)	(4)
Purchase of property, plant and equipment	(83)	(101)
Purchase of intangible assets	(2,063)	(500)
Capitalised development expenditure	(1,304)	(144)
Sale/(purchase) of investments	356	(3)
Net cash used in investing activities	(50,350)	(752)
Cash flows from financing activities
Cash proceeds from issue of share capital	41,100	-
Share issue costs settled in cash	(604)	(80)
Proceeds from new borrowings	8,500	-
Repayment of borrowings	(570)	-
Payment of equity dividends	(3,480)	(2,696)
Net cash from financing activities	44,946	(2,776)
Net decrease in cash and cash equivalents	(1,170)	(1,716)
Cash and cash equivalents at beginning of period	1,704	3,420
Cash and cash equivalents at end of period	534	1,704
	=========	=========

Notes to the financial information

1 Financial information

The financial information set out in this announcement does not constitute the Group's statutory accounts for the years ended 31 July 2008 and 2007. 

The accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use by the European Union. The financial statements have been prepared in accordance with IFRS for the first time with a transition date of 1 August 2006. The disclosures required by IFRS1 concerning the transition from UK GAAP to IFRS were set out in note 9 to the announcement of the Group's interim results for the six months ended 31 January 2008 published on 21 April 2008.

Whilst the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, it does not include sufficient information to comply with IFRS. The Group expects to publish full financial statements which comply with IFRS during January 2009.

The financial information has been prepared under the same accounting policies as the Group's interim announcement for the period ended 31 January 2008 as presented in the IFRS Transition Document also published on 21 April 2008 and which can be viewed on the Group's website at www.sportmediagroup.co.uk.

The comparative financial information for the year ended 31 July 2007 is derived from the statutory accounts for the year ended 31 July 2007 as adjusted for the conversion from UK GAAP to IFRS. The statutory accounts for the year ended 31 July 2007 have been delivered to the Registrar of Companies. The auditors have reported on the UK GAAP 2007 accounts; their report was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The auditors have yet to sign their report on the 2008 accounts. The statutory accounts for the year ended 31 July 2008 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and on events which take place between the date of this preliminary announcement and the date of finalizing the statutory accounts and will be delivered to the Registrar of Companies following the company's Annual General Meeting. The financial information set out in this announcement was approved by the Board of Directors on 8 January 2009.

Going Concern

The financial information has been prepared on a going concern basis. Due to the events described in Note 13, the validity of this basis is conditional on the replacement of the Group's short term banking facilities with equivalent longer term facilities or the ability of the Group to raise new finance to replace all or part of its existing banking facilities. The Board believes that the going concern basis of preparation is appropriate because the company is seeking to remedy the breach through further discussions with the existing finance providers and is also exploring a number of alternative financing sources and structures and that a refinancing solution will be reached within the extension period expiring on 6 March 2009. Should this not be the case and the Group be unable to continue trading as a result of the withdrawal of its banking facilities, adjustments would have to be made to reduce the value of the assets to their recoverable amounts, to provide for further liabilities which might arise and to reclassify fixed assets and long term liabilities as current assets and liabilities.

2 Revenue

An analysis of the Group's revenue is as follows:

	2008 £'000	2007 £'000
Digital content delivery - mobile telephony	6,882	7,688
Digital content delivery - internet	2,416	3,675
Newspapers - wholesale revenues	10,950	-
Newspapers - advertising revenues	9,146	-
	________	________
Total revenue	29,394	11,363
	=======	=======

3 Business segments 

Prior to the acquisition of Sport Newspapers the Group was organised for management purposes into a single operating division delivering digital content to mobile telephony and internet based platforms. Following the acquisition of Sport Newspapers the group is organised into two operating divisions for management purposes - digital content delivery and publishing newspapers and magazines. 

Digital content delivery

For internal reporting purposes the group records and monitors digital content revenues and cost of sales according to the delivery platform to which content is delivered and through which services are provided, differentiating its key business segments between mobile telephony and internet. Administrative expenses of the digital content delivery business are shared overheads of that business and cannot meaningfully be allocated by revenue stream. The principal tangible fixed assets utilised in the digital content deliver business consist of computer equipment and servers, which are utilised in the delivery of content and services through both platforms. All of the group's digital content delivery activities are currently carried out in the United Kingdom.

Newspapers and magazines

For internal reporting purposes the group records and monitors revenues of the newspapers and magazines division according to the nature of the revenues - from the wholesale distribution of newspaper and magazine titles and from advertising, differentiating its advertising revenues between classified and display. The group does not differentiate cost of sales in the newspaper and magazine division between wholesale and advertising revenue streams as the overwhelming majority of such costs represent shared costs of producing, printing and distributing its newspaper and magazine titles. Similarly, administrative expenses of the newspapers and magazines business are shared overheads of that business and cannot meaningfully be allocated by revenue stream. Excluding goodwill and other intangible assets arising on consolidation, the principal tangible fixed assets utilised in the newspaper and magazines business consist of computer equipment and fixtures and fittings, which are utilised in the production of the titles. All of the group's newspaper and magazine publishing activities are currently carried out in the United Kingdom and republic of Ireland. For internal reporting purposes management information in relation to publishing activities in the Republic of Ireland is treated as combined with information on newspaper and magazine sales in the UK and separate geographical segment information has not therefore been presented.

Group overheads

Group overheads consist of the costs of retaining the Company's Stock Exchange listing, investor relations activities and some central functions which are not recharged to the operating divisions.

Segment information about these businesses is presented below. 

2008	Digital content delivery	Wholesale newspaper & magazine distribution	Newspaper & magazine advertising	Group & eliminations	Consolidated
		£'000	£'000	£'000	£'000
Gross revenues	9,589	10,950	9,086	(231)	29,394
Intra-segment sales	-	-	(231)	231	-
	________	________	________	________	________
Net revenues	9,589	10,950	8,855	-	29,394
	=======	=======	=======	=======	=======
Underlying operating profit	4,279		2,444	(289)	6,434
Depreciation	(69)		(156)	-	(225)
Impairment and amortisation of intangibles	(2,735)		(19,257)	-	(21,992)
Share based payment charges	-		-	(1,026)	(1,026)
Re-organisation and re-launch charges	-		(1,489)	-	(1,489)
Negative goodwill on acquisitions	-		279	-	279
	________	________	________	________	________
Profit/(loss) before interest and tax	1,475		(18,179)	(1,315)	(18,019)
	=======	=======	=======	=======
Finance costs - net					(206)
					________
Loss before tax					(18,225)
Income tax					191
					________
Loss for the year					(18,034)
					=======

	Digital content delivery	Wholesale newspaper & magazine distribution	Newspaper & magazine advertising	Group & eliminations	Consolidated
	£'000	£'000	£'000	£'000	£'000
Balance sheet
Assets	7,645		44,318	(8,171)	43,792
	=======	=======	=======	=======	=======
Liabilities	8,418		4,099	(8,451)	4,066
	=======	=======	=======	=======	=======
Capital expenditure
Property, plant and equipment	28		55	-	83
Goodwill - business combinations	-		36,073	-	36,073

Segment assets and liabilities are reconciled to Group assets and liabilities as follows:

	Assets £'000	Liabilities £'000
Segment assets / liabilities	43,792	4,066
Borrowings	-	10,430
Corporation tax repayable	83	-
Deferred tax	430	4,986
	________	________
Total	44,305	19,482
	=======	=======

2007	Digital content delivery	Wholesale newspaper & magazine distribution	Newspaper & magazine advertising	Group & eliminations	Consolidated
		£'000	£'000	£'000	£'000
Total revenue	11,363	-	-	-	11,363
	=======	=======	=======	=======	=======
Underlying operating profit	5,780	-	-	(197)	5,583
Depreciation	(106)				(106)
Impairment and amortisation of intangibles	(210)	-	-	-	(210)
Share based payments	-	-	-	(60)	(60)
	________	________	________	________	________
Profit before interest and tax	5,464	-	-	(257)	5,207
	=======	=======	=======	=======
Finance income - net					107
					________
Profit before tax					5,314
Income tax					(1,647)
					________
Profit for the year					3,667
					=======

	Digital content delivery	Wholesale newspaper & magazine distribution	Newspaper & magazine advertising	Group & eliminations	Consolidated
	£'000	£'000	£'000	£'000	£'000
Balance sheet
Assets	7,300	-	-	-	7,300
	=======	=======	=======	=======	=======
Liabilities	2,485	-	-	-	2,485
	=======	=======	=======	=======	=======
Capital expenditure
Property, plant and equipment	126	-	-	-	126
Goodwill - business combinations	200	-	-	-	200

4. Non- recurring items

During 2007 the Group acquired the Sport Newspapers group of companies and implemented a reorganisation of that business. As a result the Group incurred non-recurring expenses set out below.

	2008 £'000	2007 £'000
General restructuring costs	1,107	-
Redundancy costs	382	-
	________	________
	1,489	-
	=======	=======

A negative goodwill credit of £279,000 arose in the year on the acquisition of Flip Media Limited.

Included in share based payment charges of £1,026,000 are charges of £943,000 in relation to the executive and non-executive share bonus plans in relation to shares granted on the successful completion of the acquisition of Sport Newspapers in September 2007 and not forming part of the Group's ongoing share option and similar schemes.

5. Taxation

	2008 £'000	2007 £'000
Current year tax charge	(109)	(1,644)
Prior period tax credit	50	-
Deferred tax (note 11)
Origination and reversal of temporary differences	305	18
Other deferred tax provisions	(55)	(21)
	________	________
Tax credit/(charge)	191	(1,647)
	=======	=======

Corporation tax is calculated at 29.3% (2007: 30%) of the estimated assessable profit for the year. The tax on the Group's profit before tax differs from the theoretical amount that would arise using the 29.3% tax rate as follows:

	2008 £'000	2007 £'000
(Loss)/Profit before tax	(18,225)	5,314
Tax at the UK corporation tax rate of 29.3% (2007: 30%)	5,340	(1,594)
Tax effect of impairment of goodwill charge not included in taxable profit	(5,379)	-
Tax effect of negative goodwill credit not included in taxable profit	82	-
Tax effect of depreciation that is not deductible in determining taxable profit	(66)	(32)
Tax effect of expenses that are not deductible in determining taxable profit	(7)	(104)
Tax effect of depreciation in excess of capital allowances	73	19
Other timing differences	148	64
	________	________
Tax credit/(charge)	191	(1,647)
	=======	=======

6 Dividends paid

	Year to  31 July  2008	Year to 31 July 2007
	£'000s	£'000s
2006 final dividend - 4.00 pence per share	-	1,538
2007 interim dividend - 3.00 pence per share	-	1,158
2007 final dividend - 4.00 pence per share	1,544	-
2008 interim dividend - 2.00 pence per share	1,936	-
	3,480	2,696

The directors do not recommend the payment of a final dividend in relation to the year ended 31 July 2008.

7 Earnings per share

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares and the post tax effect of dividends and/or interest, on the assumed conversion of all dilutive options and other dilutive potential ordinary shares.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:

Year to 31 July 2008

Continuing and total operations	Earnings	Weighted average number of shares	Per share amount
	£'000s		Pence
Loss after tax	(18,099)	91,104,234
	---------------
Earnings attributable to ordinary shareholders	(18,099)
Weighted average number of shares (used for basic earnings per share)
Dilutive effect of options		3,754,802
Dilutive effect of share bonus schemes		6,779,604
		---------------
Diluted weighted average number of shares (used for diluted earnings per share)	(18,099)	101,638,640
Basic loss per share			(19.9)p
			=========
Diluted loss per share			(19.9)p
			=========

Year to 31 July 2007

Continuing and total operations	Earnings	Weighted average number of shares	Per share amount
	£'000s		Pence
Profit after tax	3,624	38,550,066
	---------------
Earnings attributable to ordinary shareholders	3,624
Weighted average number of shares (used for basic earnings per share)		38,550,066
Dilutive effect of options	-	3,754,802
		----------------
Diluted weighted average number of shares (used for diluted earnings per share)	3,624	42,304,868
Basic earnings per share			9.40p
			=======
Diluted earnings per share			8.57p
			=======

Adjusted basic and diluted earnings per share

In order to understand the underlying trading performance, the directors consider it appropriate to disclose earnings per share before amortisation and impairment of acquired intangible assets, re-organization and re-launch costs and the costs of share based payments. The calculation of adjusted earnings per share is set out below:

	Year to  31 July  2008	Year to  31 July  2007
(Loss)/earnings attributable to ordinary shareholders (£'000)	(18,099)	3,624
Post-tax amortisation and impairment of acquired intangible assets (£'000)	21,333	77
Post tax costs of re-organization and re-launch (£'000)	1,072	-
Post-tax cost of share based payments (£'000)	902	42
Adjusted profit on ordinary activities after taxation (£'000)	5,208	3,743
Weighted average number of shares in issue - basic	91,104,234	38,550,066
- diluted	101,638,640	42,304,868
Basic earnings per share (pence)	(19.9)	9.40
Amortisation and impairment of acquired intangible assets (pence)	23.44	0.20
Costs of re-organization and re-launch (pence)	1.18	-
Cost of share based payments (pence)	1.00	0.11
Adjusted earnings per share (pence)
- basic	5.72	9.71
- diluted	5.12	8.84

8 Business combinations

Fair value adjustments have been made to the book value of the assets and liabilities in acquired companies to adjust, where applicable, the carrying value of certain assets and liabilities. 

a) Sport Newspapers Limited ("Sport Newspapers")

On 5 September 2007 the Group completed the acquisition of Sport Newspapers. The acquired assets and liabilities of Sport Newspapers were:

	Book	Fair value
	Value	adjustments	Fair value
	£'000	£'000	£'000
Newspaper mastheads, publishing rights and imprints and imprints	-	10,911	10,911
Content library	-	1,561	1,561
Websites	-	448	448
Customer relationships and contracts	-	3,338	3,338
Tangible fixed assets	302	-	302
Investments	450	(200)	250
Inventories	5	-	5
Trade and other receivables	4,641	-	4,641
Deferred tax assets	125	-	125
Cash at bank	1,959	-	1,959
Trade and other payables	(3,748)	-	(3,748)
Deferred tax liabilities	-	(4,552)	(4,552)
Net assets acquired	3,734	11,506	15,240
Goodwill			36,352
Consideration			51,592
			========
Satisfied by:
Cash			40,000
Deferred consideration			5,000
Loan notes			5,000
Acquisition costs			1,592
			51,592
			========

Sport Newspapers is the publisher of the Daily and Sunday Sport newspapers and ancillary magazine titles. 100% of the equity of the business was acquired on 5 September 2007. Profits of £386,000 are included in the consolidated results of the Group for the year ended 31 July 2008.

The material fair value adjustments to the net assets of Sport Newspapers were calculated as follows:

i.	Intangible assets in the form of the newspaper mastheads, publishing rights and imprints, trade name and marks of Sport Newspapers as well as certain existing customer relationships and contracts, website development costs and content rights are recognised based on the Directors' assessment of their value taking into consideration the future cash flows that are expected to be derived from them plus the related provision for deferred tax on all separately identified intangible assets.
ii.	Adjustments to bring into line with Group accounting policies.

b) Flip Media Limited ("Flip")

On 1 June 2008 the Group completed the acquisition of Flip. The acquired assets and liabilities of Flip were:

	Book	Fair value
	Value	adjustments	Fair value
	£'000	£'000	£'000
Newspaper mastheads, publishing rights and imprints and imprints	-	541	541
Content library	-	284	284
Customer relationships and contracts	-	286	286
Trade and other receivables	180	-	180
Cash at bank	15	-	15
Trade and other payables	(580)	-	(580)
Deferred taxation	-	(311)	(311)
Net (liabilities)/assets acquired	(385)	800	415
Negative goodwill taken to income statement			(279)
Consideration			136
			========
Satisfied by:
Cash			125
Acquisition costs			11
			136
			========

Flip is the publisher of the Front and DVD World magazine titles. 100% of the equity of the business was acquired on 1 June 2008. losses of £32,000 are included in the consolidated results of the Group for the year ended 31 July 2008.

The material fair value adjustments to the net assets of Flip were calculated as follows:

i.	Intangible assets in the form of the newspaper mastheads, publishing rights and imprints, trade name and marks of Flip as well as certain existing customer relationships and contracts and content rights are recognised based on the Directors' assessment of their value taking into consideration the future cash flows that are expected to be derived from them plus the related provision for deferred tax on all separately identified intangible assets.
ii.	Adjustments to bring into line with Group accounting policies.

9 Goodwill and other intangible assets

	Indefinite lived  assets	Customer  relationships	Goodwill	Other intangible assets
	£'000	£'000	£'000	£'000
Cost
At 1 August 2006	-	-	-	432
Recognised on acquisition of subsidiaries	-	150	200	-
Other additions	-	-	-	644
	________	________	________	________
At 31 July 2007	-	150	200	1,076
	________	________	________	________
Recognised on acquisition of subsidiaries	11,452	3,624	36,352	2,293
Other additions	-	-	-	3,367
Impairment write down in the year	-	-	(18,358)	(2,318)
	________	________	________	________
At 31 July 2008	11,452	3,774	18,194	4,418
	________	________	________	________
Accumulated amortisation and impairment
At 1 August 2006	-	-	-	216
Amortisation for the year	-	20	-	148
	________	________	________	________
At 31 July 2007	-	20	-	364
Amortisation for the year	-	652	-	664
	________	________	________	________
At 31 July 2008	-	672	-	1,028
	________	________	________	________
Carrying amount
At 31 July 2008	11,452	3,102	18,194	3,390
	=======	=======	=======	=======
At 31 July 2007 (restated)	-	130	200	712
	=======	=======	=======	=======

Goodwill and intangible assets acquired in a business combination are allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination as follows:

	2008 £'000	2007 £'000
Strictly Broadband	200	200
Sport Newspapers	17,994	-
	________	________
	18,194	200
	=======	=======

The Group tests goodwill and intangible assets annually for impairment, or more frequently if there are indications that they might be impaired.

The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using post-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs and the rate used was 11%. The growth rates are based on the directors' growth forecasts and the rates used were 4% per annum for fifteen years followed by a decline of 5% in perpetuity thereafter. The directors believe that the rate of 4% is justified based on past performance and the Group's positioning in the market. 

The amortisation periods used for customer relationships and contracts were between 5 and 7 years and for photographic and other content rights is 10 years. Software development costs are amortised over 5 years and website development costs over 4 years. 

10. Impairment of goodwill and other intangible assets

During 2007 the Group acquired the Sport Newspapers group of companies. The second half of 2008 saw the introduction of unprecedented upheaval and uncertainty in the world economy and the impact of this on those arenas in which the Sport Newspapers business operates - the UK economy, the tabloid newspaper market and the retail universe - have changed the commercial landscape from that which pertained at the time (September 2007) of the Group's acquisition of Sport Newspapers.

The directors have considered the level of intangible assets carried in the Group's balance sheet at 31 July 2008 and carried out a particularly challenging impairment review process. As a result, the directors have decided to recognise an impairment charge of £18.4 million to the goodwill on the acquisition of Sport Newspapers. This represents a write down of approximately one third of the cost of acquisition. 

The directors have also carried out a thorough review of the Group's other acquired intangible assets, principally software and database licences and rights, photographic and film content rights and marketing access rights, and concluded that certain of those intangible assets had become impaired. As a result the Group incurred a write down of £2.3 million.

Total charges in relation to the impairment of goodwill and other intangible assets are therefore £20.7 million.

11 Deferred tax 

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period.

a) Assets:

	Accelerated tax depreciation £'000	Tax  losses £'000	Amortisation of intangibles £'000	Share based payment £'000	Other £'000	Total £'000
At 1 August 2006	-	-	-	-	-	-
(Charge)/credit to income	-	-	-	-	-	-
	________	________	________	________	________	________
At 1 August 2007	-	-	-	-	-	-
(Charge)/credit to income	19	162	-	124	-	305
Acquisition of subsidiaries	125	-	-	-	-	125
	________	________	________	________	________	________
As 31 July 2008	144	162	-	124	-	430
	=======	=======	=======	=======	=======	=======

b) Liabilities:

	Accelerated tax depreciation £'000	Tax losses £'000	Amortisation of intangibles £'000	Share based payment £'000	Other £'000	Total £'000
At 1 August 2006	-	-	65	-	-	65
(Charge)/credit to income	-	-	(18)	21	-	3
	________	________	________	________	________	________
At 1 August 2007	-	-	47	21	-	68
Acquisition of subsidiaries	-	-	-	-	4,863	4,863
(Credit) to income	-	-	-	-	(354)	(354)
Charge to income	-	-	-	-	409	409
	________	________	________	________	________	________
As 31 July 2008	-	-	47	21	4,918	4,986
	=======	=======	=======	=======	=======	=======

12 Share capital

	Number of Shares	Price	£'000
Authorised as at 31 July 2007 and 31 July 2008:
200 million ordinary shares of 0.25p each			500
			=======
Issued and fully paid ordinary shares of 0.25p each:
1 August 2006	38,450,438		96
Issue of shares to fund acquisitions	134,442		-
	________		________
1 August 2007	38,584,880		96
Placing - September 2007	58,266,667	75p	146
	________		________
31 July 2008	96,851,547		242
	=======		=======

The Company has one class of ordinary shares which carry no right to fixed income. During the year certain ordinary shares were designated 'A' ordinary shares and 58,266,667 'A' ordinary shares were issued in a share placement arrangement. The 'A' ordinary shares rank pari passu in all respects with the ordinary shares except in that they did not carry an entitlement to participate in dividend payments in respect of the year ended 31 July 2007.

Transaction costs of £3,204,000 were incurred on the issue of shares in 2008 (2007: £80,000), of which £2,600,000 was satisfied by the issue of shares and the remainder settled in cash, and these costs were deducted from the share premium account.

13 Post balance sheet events

On 6 January 2009 the Group was notified by its bankers that Sport Media Group plc was in breach of one of its banking covenants. At the date of this document agreement has not been reached on revised facility terms. However, revised facility terms continue to be negotiated and, in the interim, the bank has informed the Board that the Group will be provided with a two month extension to the current facility, expiring on 6 March 2009.

The Company is seeking to remedy the breach through further discussions with the existing finance providers and is also exploring a number of alternative financing sources and structures. The Board believes that a refinancing solution will be reached within the extension period.

ENDFR BRMLTMMIMBRL

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Related Shares:

SPMG.L