10th Mar 2005 07:00
SMG PLC10 March 2005 Thursday 10th March 2005 SMG plc Preliminary Results for the 12 months ended 31 December, 2004 FINANCIAL HIGHLIGHTS 2004 2003 % changeGroup Turnover (like-for-like**) £201.2m £188.2m + 7%Group Turnover (total) £201.2m £209.2m - 4%Total Operating Profit* (like-for-like**) £29.3m £28.5m + 3%Total Operating Profit £17.7m £10.9m + 62%Profit Before Tax* (like-for-like**) £17.5m £16.0m + 9%Statutory Profit Before Tax £25.3m (£0.3m) ---Basic Earnings per Share* 5.0 pence 4.9 pence +2%Statutory Basic Earnings per Share 7.7 pence 0.5 pence ---EBITDA* (like-for-like**) £35.7m £34.3m + 4%Full year Dividend 2.5 pence 2.5 pence --- * Before exceptional items and goodwill amortisation** Like for like excludes the publishing business, and stakes in GMTV and SRHand their related interest cost benefits, in addition to the effects of FRS17 interest cost changes, penalty interest and interest rate movements. OPERATIONAL HIGHLIGHTS • Strong television performance with Scottish TV and Grampian TV outperforming both ITV and commercial television market • Virgin Radio increases digital listening but is impacted by national advertising market and audience figures • Out of Home Division sees return to sales growth while continuing investment in outdoor panels • Balance sheet strengthened - debt reduced by 66% since 2002 • Encouraging prospects for revenue growth and business development Andrew Flanagan, Chief Executive of SMG, said: "The recovery in advertising markets, a strengthened balance sheet and a returnto revenue growth made 2004 an important year for SMG. With the advertisingrecovery now established, our strong media brands can capitalise on theirhealthy market positions to accelerate growth. We've already seen encouragingrevenue trends in 2005 so far and the excellent business developmentopportunities we've identified are set to further boost SMG's growth." Chris Masters, Chairman of SMG, said: "Against this encouraging background, I am confident that SMG has the potentialto flourish in 2005, delivering growth in revenues, improving performance andincreasing shareholder value." Further enquiries: SMG Andrew Flanagan, Chief Executive 020 7882 1199George Watt, Group Finance Director on 10 March, orCallum Spreng, Corporate Affairs Director 0141 300 3300 thereafter Brunswick James Hogan/Simon Sporborg/James Crampton 020 7404 5959 2004 Preliminary Results CHAIRMAN'S STATEMENT OVERVIEW As advertisers returned to television and cinema screens and we continued to seestrong growth in outdoor campaigns in 2004, like for like Group Turnoverincreased by 7% to £201.2m (2003: £188.2m). Adjusted for disposals and FRS17interest charges, this resulted in growth of 9% in like for like Pre-TaxProfits. The conversion of turnover to profit was somewhat lower than we wouldnormally anticipate due to the lag effect of the investment in our outdoorportfolio, coupled with the effects of lower margins from the phasing of newcontracts in cinema and the slower radio market. Consequently, Pre-Tax Profits(including discontinued businesses but before exceptionals and goodwillamortisation) grew to £17.5m (2003: £17.0m). Earnings per share (beforeexceptionals and goodwill amortisation) increased to 5.0p (2003: 4.9p). During 2004, we successfully completed the sale of our minority holdings inScottish Radio Holdings plc ("SRH") and GMTV Limited ("GMTV"). The gains onsales from these disposals resulted in an increase in Pre-Tax Profits (afterexceptionals and goodwill amortisation) to £25.3m (2003: £0.3m loss). In line with the Group's dividend policy, the Board is recommending a finaldividend of 1.5p, resulting in a full year dividend for 2004 of 2.5p (2003:2.5p). The disposal of our interests in SRH and GMTV, coupled with internal cashgeneration, allowed us to reduce Net Debt by over £100m during the course of theyear yielding a significant saving in interest charges. Net Debt at 31 December2004 amounted to £134.8m (31 Dec 2003: £242.5m). SMG is now strongly positioned to deliver future growth and increasingshareholder value. In addition to benefiting from the current recovery innational advertising, the Group's powerful brands have considerable developmentpotential as we move into the multi-channel digital environment. Since joining SMG in June of last year I have been impressed by the depth andquality of the management, the strength of our brands and their market positionsand the opportunities for self-financing organic growth throughout the Company.Our businesses are well managed, have good cash generating characteristics andoperate efficiently and effectively within their individual markets while at thesame time benefiting from additional synergies as a result of their commonownership. The Board and the executive management team are totally committed to deliveringsustainable growth in shareholder value by: • Maintaining a sharp focus on increasing margins across all our operations. • Capitalising on growth opportunities already identified - either planned or currently under way in each of our businesses. • Seeking out new growth opportunities in response to changes in the media environment. • Remaining alert to other opportunities to maximise shareholder value. TELEVISION As anticipated, Television bounced back strongly in 2004 as advertisers returnedto the small screen. Scottish TV and Grampian TV grew advertising revenues by8%, outperforming both ITV as a whole (+3%) and the commercial television market(+6%). As a result, our share of ITV Net Advertising Revenues (NAR) increased to6.5% (2003: 6.2%). This strong performance resulted from a return of traditionaladvertisers who focus on UK national campaigns, rather than weighting theiradvertising spend to the South East of the UK. This was supported by continuedstrong growth in the Scottish advertising market (+14%). Combined with increasednetwork programme sales and the initial benefits of the Setanta productioncontract, total television turnover grew by 10% to £133.5m (2003: £121.2m). Thehigh operational gearing of this business converted this strong revenueperformance into a 28% increase in television operating profits to £23.0m (2003:£18.0m). Operating margins increased from 15% in 2003 to 17% for 2004. SMG's stations continue to enjoy a unique relationship with their viewers,retaining a 32% peak-time audience share - outperforming ITV (31%) and BBC1Scotland (25%). As audiences further fragment and become increasingly elusivefor advertisers, our strength in offering the only route to quickly accessing amass audience in Scotland is increasingly being understood and valued byadvertisers. In order to further underpin our relationship with viewers, we areexploring with our regulator, Ofcom, the possibility of enhancing our newscoverage at a local level, while also ensuring that our national andinternational news is prioritised appropriately for the Scottish audience. Ofcomis currently consulting on these proposals alongside its own suggestions forPublic Service Broadcasting (PSB) in Scotland. An important element withinOfcom's conclusions will be its plans for the funding of PSB programming inScotland and the extent to which this is reflected in our new licence terms whenthey are announced in June. The settlement we achieved with ITV plc in 2004 - the effect of which was tounderpin our national airtime revenues and cap our network programme costs atinflation - was not invoked in 2004, but this important safeguard continues toprovide significant protection for our television business going forward. Our network programme production business, SMG TV Productions, has focusedsharply on extending its customer base beyond ITV in recent years and now liststhe BBC, C4, Five and a number of channels on the Sky platform among its customers.The business had a number of important successes in 2004 including: Taggart(ITV1); Missing (ITV1); Our Daughter Holly (ITV1); 25 Years of The Comedy Store(BBC1); Extreme Health (C4); Woolamaloo (Five); So You Think You're Safe (Sky1);High School Project USA (Living TV). We also produced the first drama for themobile phone market - CJAC, a 10 episode series of 90-second instalments.However, while it grew revenues by 11%, the mix of factual and other programmeswith lower margins resulted in profits being pegged at close to 2003 levels. SMGTV Productions stands to gain from the increasing requirement for regulatedbroadcasters to commission more network programming from outside London and theongoing growth of multichannel television presents the opportunity for us tofurther grow both volume and the customer base. SMG Broadcast & Event Solutions, our production facilities business, sawrevenues grow by over 200% in 2004, principally as a result of winning thecontract for Setanta, who own the subscription rights to Scottish Premier Leaguefootball. This contract alone will generate revenues of £10.0m over itsfour-year life and we are currently looking at other similar opportunities. Asdemand for production facilities increases with the emergence of a growingnumber of television channels, we expect this part of SMG's television operationto expand accordingly. RADIO As one of only three national commercial stations in the UK, Virgin Radio'sperformance is dependent on two external factors: national advertising markets;and audience. In 2004, erratic conditions in both these areas combined to impacton the station's financial performance. An encouraging first three months wasfollowed by a poorer second quarter and a patchy third quarter. Then, asreported by a number of radio groups, the national radio market in the finalquarter of 2004 was very weak. Additionally, the effects of Virgin Radio's Q42003 RAJAR audience figures impacted first half trading and, for the year as awhole, turnover reduced to £20.1m (2003: £23.2m). The fixed costs of thisbusiness, combined with increased digital transmission costs and the need tocontinue to market the station, resulted in operating profits reducing to £4.3m(2003: £7.3m). Even at this low point in the market, and before the benefits ofdigital listening take effect, the operating margin of this business was still ahealthy 21%. In London, where Virgin Radio competes on equal terms on the FM frequency, thestation has outperformed the market over the last five years and is marketleader in 25-34 year old men, its core audience. We remain committed to workingwith RAJAR and we have met with some early successes in our joint efforts to increase the robustness of Virgin Radio's listening figures, although the possibility of future artificial volatility remains. Boosted by its considerable brand strength and the profile of its listenership,Virgin Radio's growth potential in the digital arena is excellent. Alreadyidentified as the most popular online radio station worldwide, Virgin Radio alsoattracts a disproportionately high level of listening on DAB (Digital AudioBroadcasting) and on digital satellite television, where listeners benefit fromthe uplift in quality from its national AM signal. Additionally, its sisterstations - Virgin Radio Classic Rock and Virgin Radio Groove - which arecurrently only available online and on DAB in London, already generate more thanone million listening hours, without as yet the benefit of cross-promotion fromthe main station. These additional listening hours are now being sold toadvertisers as part of the Virgin Radio Network proposition. Buoyed by thissuccess we have accelerated plans to establish a position on all digitalplatforms. We are already the first radio station in Europe to trialtransmissions using the emerging DRM digital broadcasting technology and thefirst in the UK to broadcast onto 3G mobile phones. OUT OF HOME Our Out of Home Division - which comprises outdoor and cinema advertising - sawa return to sales growth in 2004 as our investment in panel build continued andcinema audiences resumed their upwards trend due to an improved second halfmovie schedule. As a result, across the year Outdoor sales grew by 14% andcinema revenues increased by 5%, leading to total turnover for the divisiongrowing by 9% to £47.6m (2003: £43.8m). However, panel development, combinedwith the phasing of new exhibitor contract terms, saw operating profits heldback to £4.3m (2003: £5.5m). Our 6-sheet panel estate now stands at over 12,500 and Primesight occupies thirdplace in this growing market. As the largest operator in the UK Health & Leisuresector, following our win of the David Lloyd contract earlier this year,Primesight is well positioned to continue to benefit from the ongoing growthprospects of this sector. Additionally, we have created a new business stream over the last two years withthe construction of 60 (now 70) high yielding large format (48 sheet) fullyilluminated Backlight panels on prominent sites across London and, morerecently, in other major UK cities. We plan to continue to roll out these panelsacross the UK, concentrating on the larger conurbations, in 2005 and 2006. In2004 turnover in this business doubled and we anticipate moving into profitduring the course of 2005. For Pearl and Dean, our cinema advertising business, 2004 saw a welcome returnto audience growth as a result of stronger movies in the second half of the yearsuch as: Shrek 2; Spiderman 2; and Bridget Jones 2. However, although revenuesincreased overall, profits were held back due to the phasing of terms on majorexhibitor contracts. 2005's film line-up appears strong and we are optimisticthat audiences will continue to grow this year. The loss of the UGC contract will result in our market share reducing to 25% in2006, however we hope to partially mitigate the effect of this throughincreasing our penetration in the independent cinema sector, where we have hadnotable successes in 2004, and through other contract wins. Looking forward, Pearl & Dean should continue to benefit from its famous nameand long cinema heritage and we are currently looking at ways not only to extendthe brand but also to exploit growth opportunities outside the UK. PROSPECTS With national advertising markets improving significantly, strong marketpositions, a focused and realistic growth plan coupled with a considerablystrengthened balance sheet, SMG's prospects for the remainder of 2005 areencouraging. Advertising markets have become more predictable, booking patternslonger term and a sustained advertising recovery looks much more certain. Firstquarter trading has been positive across all our businesses, helped by theeffects of the early Easter, which featured in Quarter 2 in 2004. First quarter television revenues have increased by 8% in 2005. Meanwhile, weawait the outcome of Ofcom's review of our television licence terms in June (tobe backdated to 1 January). While the effect on programming costs of the PublicService Broadcasting Review is not yet known, we anticipate a positive outcomefor Scottish TV and Grampian TV. At Virgin Radio, the trading weakness of the final quarter of 2004 proved to beshort-lived and we have seen a return to growth, with Q1 radio revenues expectedto show an uplift of 8%. Primesight continues to perform very strongly, while Pearl & Dean is benefitingfrom better phasing of movies. As a result, Out of Home revenues have shownfirst quarter growth of 12%. Against this encouraging background, I am confident that SMG has the potentialto flourish in 2005, delivering growth in revenues, improving performance andincreasing shareholder value. Chris MastersChairman 10 March 2005 Consolidated profit and loss accountfor the year ended 31 December 2004 Restated 2004 2003 Pre Exceptionals Results Pre exc- Exceptionals Results for exceptionals and FRS10 for year eptionals and FRS10 year and FRS10 and FRS10 £m £m £m £m £m £mTurnover Continuing operations 201.2 - 201.2 188.2 - 188.2Discontinuedoperations - - - 21.0 - 21.0 ----- ----- ----- ----- ----- -----Total turnover 2 201.2 - 201.2 209.2 - 209.2 ----- ----- ----- ----- ----- -----Net operatingexpenses (171.9) (14.8) (186.7) (178.4) (15.9) (194.3)Reorganisationcosts 3 - - - - (2.5) (2.5)Litigationmatters 3 - - - - 3.0 3.0Developmentcosts 3 - - - - (3.0) (3.0)Provision foronerouscontracts 3 - - - - (3.8) (3.8)Writedown ofinvestments 3 - - - - (3.5) (3.5) ----- ----- ----- ----- ----- -----Totaloperatingexpenses (171.9) (14.8) (186.7) (178.4) (25.7) (204.1) OperatingprofitContinuingoperations 29.3 (14.8) 14.5 28.5 (25.7) 2.8Discontinuedoperations - - - 2.3 - 2.3 ----- ----- ----- ----- ----- -----Groupoperatingprofit 29.3 (14.8) 14.5 30.8 (25.7) 5.1Share ofassociates 3 3.5 (0.3) 3.2 9.6 (3.8) 5.8 ----- ----- ----- ----- ----- ----- Totaloperatingprofit 2 32.8 (15.1) 17.7 40.4 (29.5) 10.9 Gain ondisposal ofproperty 3 - 1.0 1.0 - - -Gain ondisposal ofassociateundertakings 3,13 - 31.1 31.1 - - -Gain ondisposal ofsubsidiaryundertaking 3 - (2.5) (2.5) - 33.0 33.0 ----- ----- ----- ----- ----- ----- Profit onordinaryactivitiesbeforefinancingcharges 32.8 14.5 47.3 40.4 3.5 43.9 Net financingcharges 3,4 (15.3) (6.7) (22.0) (23.4) (20.8) (44.2) ----- ----- ----- ----- ----- -----Profit/ (loss)on ordinaryactivitiesbeforetaxation 17.5 7.8 25.3 17.0 (17.3) (0.3)Tax on profiton ordinaryactivities 5 (1.7) 0.5 (1.2) (1.7) 3.6 1.9 ---- ----- ----- ----- ----- ----- Profit onordinaryactivitiesafter taxation 15.8 8.3 24.1 15.3 (13.7) 1.6Dividends 6 (7.8) - (7.8) (7.9) - (7.9) ----- ----- ----- ----- ----- -----Profit/(loss)transferred toreserves 14 8.0 8.3 16.3 7.4 (13.7) (6.3) ===== ===== ====== ===== ===== =====Earnings perordinary share- basic 7 5.0p 7.7p 4.9p 0.5p ===== ===== ===== ===== Consolidated statement of total recognised gains and lossesfor the year ended 31 December 2004 Restated 2004 2003 £m £m Profit for the financial year attributable to shareholders 24.1 1.6 Actuarial loss recognised in the pension schemes (8.6) (15.5) Deferred tax arising thereon 2.6 4.6 Provision for impairment charged against revaluation reserve - (3.1) ----- -----Total recognised gains/ (losses) for the year 18.1 (12.4) =====Prior year adjustment 14 (2.8) ----- Total recognised gains/ (losses) since last annual report 15.3 Consolidated balance sheetat 31 December 2004 Restated Note 2004 2003 £m £m Fixed assetsIntangible assets 8 218.2 233.0Tangible assets 9 32.2 34.8Investments 10 - 87.3 ----- ----- 250.4 355.1 ----- ----- Current assetsDeferred tax asset 1.5 3.2Stock 30.7 22.7Debtors and prepayments 59.7 46.5 Cash at bank and in hand 11 28.0 10.0 ----- ----- 119.9 82.4 ----- ----- Creditors: amounts falling due within one yearCreditors and accrued charges (41.0) (35.4)Bank loans and overdrafts - (30.2)Corporation tax (8.6) (9.1)Proposed dividend (7.8) (7.9) ----- ----- (57.4) (82.6) ----- -----Net current assets/(liabilities) 62.5 (0.2) ----- ----- Total assets less current liabilities 312.9 354.9 ----- ----- Creditors: amounts falling due after more than one year Bank loans (139.0) (198.4)Creditors and accrued charges (3.8) (1.3)Convertible unsecured loan stock 12 (22.8) (22.8)Secured loan notes 12 (0.7) (0.8) ----- ----- (166.3) (223.3) ----- ----- Provisions for liabilities and charges (0.3) (2.0) ----- ----- Net assets excluding pension liability 146.3 129.6 Pension liability 16 (69.2) (62.8) ----- ----- Net assets including pension liability 77.1 66.8 ====== ====== Capital and reserves Called up share capital 7.8 7.8Share premium account 58.8 58.8Merger reserve 173.4 173.4Profit and loss account (162.9) (173.2) ----- ----- Equity shareholders' funds 14 77.1 66.8 ===== ===== Consolidated cash flow statementFor the year ended 31 December 2004 Restated Note 2004 2003 £m £m Operating activitiesNet cash inflow from operating 15 15.0 21.1activities ----- ----- Dividends received from associates 2.9 1.8 ----- ----- Returns on investments and servicing of financeInterest received 1.6 0.1Interest paid (13.9) (23.6) Debt restructuring costs - (41.0) ----- ----- (12.3) (64.5) ----- -----Taxation UK corporation tax received 1.6 7.1 ----- ----- Capital expenditure and financial investmentPurchase of tangible fixed assets (7.6) (13.1)Sale of tangible fixed assets 4.0 0.4 ----- ----- (3.6) (12.7) ----- -----Acquisitions and disposalsDisposal of associate undertakings 13 118.7 -Disposal of subsidiary undertaking (1.9) 211.0 ----- ----- 116.8 211.0 ----- ----- Equity dividends paid (7.9) (7.8) ----- ----- Cash inflow before financing 112.5 156.0 ----- ----- FinancingRepayment of existing bank borrowings (228.4) (169.9)New borrowings drawn 140.0 -Cash released from/ (placed on) deposit 2.5 (10.0)Increase in bank borrowings - 28.4Net repayment of loan notes/stock (0.1) (0.3) ----- ----- (86.0) (151.8) ----- ----- Cash inflow in the period 26.5 4.2 ----- ----- Movement in net debt 2004 2003 £m £m Opening net debt (242.5) (398.9)Non-cash bank arrangement fees written off (4.8) -Cash inflow in the period 26.5 4.2Net decrease in debt financing 86.0 151.8Currency translation gain - 0.4 ----- -----Closing net debt (134.8) (242.5) ===== ===== Notes to the preliminary announcementfor the year ended 31 December 2004 1. Basis of preparation The financial information set out in the preliminary announcement does notconstitute the Group's statutory accounts within the meaning of Section 240 ofthe Companies Act 1985 and has been extracted from the full accounts for theyears ended 31 December 2004 and 31 December 2003 respectively. Statutoryaccounts for 2003 have been delivered to the Registrar of Companies. Theauditors reported on those accounts; their report was unqualified and did notcontain a statement under either Section 237 (2) or Section 237 (3) of theCompanies Act 1985. The statutory financial statements for the year ended 31December 2004 have yet to be signed. They will be finalised on the basis of thefinancial information presented by the directors in this preliminaryannouncement and will be delivered to the Registrar of Companies in due course. 2. Segmental analysis The analysis of the Group's turnover and operating profit by operating divisionis set out below: 2004 2003 Continuing Discontinued Continuing Discontinued operations Operations Total operations Operations Total £m £m £m £m £m £mTurnoverTelevision 133.5 - 133.5 121.2 - 121.2Radio 20.1 - 20.1 23.2 - 23.2Out of Home 47.6 - 47.6 43.8 - 43.8Publishing - - - - 21.0 21.0 ----- ----- ----- ----- ----- -----Total turnover 201.2 - 201.2 188.2 21.0 209.2 ===== ===== ===== ===== ===== ===== Turnover in 2004 includes £1.8m (2003: £1.6m) of revenues from sources outsidethe UK. ITC qualifying revenue was £111.7m (2003: £103.1m). Restated 2004 2003 Continuing Discontinued Continuing Discontinued operations Operations Total operations Operations Total £m £m £m £m £m £mOperating profitTelevision 23.0 - 23.0 18.0 - 18.0Radio 4.3 - 4.3 7.3 - 7.3Out of Home 4.3 - 4.3 5.5 - 5.5Publishing - - - - 2.8 2.8Associates 3.5 - 3.5 9.6 - 9.6Pension costs (2.3) - (2.3) (2.3) (0.5) (2.8) ----- ----- ----- ----- ----- -----Totaloperating profitexcludingexceptional itemsandFRS10 32.8 - 32.8 38.1 2.3 40.4 Exceptionalitems - - - (10.9) - (10.9)Goodwillamortisation (15.1) - (15.1) (18.6) - (18.6) ----- ----- ----- ----- ----- ----- Totaloperatingprofit 17.7 - 17.7 8.6 2.3 10.9(FRS3) ===== ===== ===== ===== ===== ===== Operating profit in 2004 includes £1.1m (2003: £1.2m) arising outside the UK. Pension costs are incurred in Television £1.9m (2003: £2.0m), Radio £0.1m (2003:£0.1m) and Out of Home £0.3m (2003: £0.2m), and, in 2003 only, Publishing(£0.5m). 3. Exceptional items i) AssociatesShare of associates contribution includes the equity accounted results of GMTVLimited ("GMTV"), including related amortisation of goodwill of £0.3m (2003:£0.3m), to the date of disposal of the investment in October 2004.The results to 31 December 2003 include both the equity accounted results ofScottish Radio Holdings plc ("SRH") and GMTV, including goodwill amortisation of£3.8m. ii) Gain on disposal of propertyThe Group's property at Cowcaddens was sold during the year resulting in a gainof £1.0m.An exceptional fixed asset provision amounting to £1.1m was made in 2003 tocover an impairment in the value of the Group's property at Cowcaddens. Thisreflected the Group's plans to relocate the Scottish Television business to anew purpose built facility. The total impairment to fixed assets was £4.2m,however, £3.1m was charged to the revaluation reserve as it represents areversal of the studio property revaluation uplift in 2000. iii) Gain on disposal of associate undertakingsThe disposal of the Company's investments in SRH on 16 January 2004 and GMTV on12 October 2004 resulted in gains on disposal of £10.6m and £20.5m respectively(see note 13). iv) Gain on disposal of subsidiary undertakingIn 2003, the disposal of the Company's Publishing division resulted in aprovisional gain on sale of £33.0m.In line with the sale and purchase agreement final agreement was reached withGannet in July 2004 on the completion accounts' net assets. This resulted in anet payment due to Gannet and the provisional gain on sale was adjusted by £2.5million during the first half of 2004. v) Reorganisation costsIn 2003, a provision for exceptional costs amounting to £2.5m was made to coverreorganisation initiatives, primarily in the Group's television operationsfollowing the move to the Aberdeen studios to new state of the art digitalstudios. vi) Litigation MattersAs was disclosed within the 2002 annual report, the Group had received a legalclaim from Chris Evans, one of the former shareholders in Ginger Media GroupLimited, pursuing the final tranche of share-based consideration which wouldhave been payable had all of his contractual terms been met. The Groupvigorously defended this matter and submitted a substantial counter-claim fordamages. On 26 June 2003 the court ruled that Chris Evans had broken the terms of hiscontract and that the Group acted properly in terminating his contract. MrJustice Lightman concluded that Chris Evans was not entitled to any of theshare-based consideration he was claiming and dismissed his own claim fordamages. The judge also ruled that the Group was entitled to seek costs anddamages from Chris Evans. On 28 July 2003 the Group reached a full and final settlement with Chris Evans,which resulted in the Group receiving £6.7m covering all costs and damages inSeptember 2003. This settlement was recognised within the 2003 results as follows: - the exceptional write off of legal and other costs incurred by the Groupdirectly in defence of the claim of £3.7m; and- the recognition of an offsetting exceptional credit of the recovery of thesecosts and associated damages of £6.7m. vii) Development costsThe Group is committed to developing its radio business and has to date appliedfor a number of new FM regional radio licences offered by the Radio Authority,and subsequently Ofcom, as part of its remit to increase the number of analoguelocal licences. An exceptional charge of £3.0m was made in 2003 to cover costsincurred bidding for radio licences. viii) Provision for onerous contractsIn 2003, a provision of £3.8m was made with respect to an onerous sales contractcovering bonus payments on sales of television airtime. This contract wasreviewed following the merger of Carlton and Granada airtime sales houses andreplaced on more beneficial terms. ix) Writedown of investmentsA provision for £3.5m was made in 2003 against the investment in Heart ofMidlothian plc ("Hearts") to write off the remaining carrying value of theinvestment. x) Financing charges(a) £6.7m of unamortised bank facility arrangement fees have been writtenoff during the year. The remaining unamortised balance was written off followingthe replacement of existing bank facilities with a new £158.0m five yearrevolving credit and overdraft bank facility on improved terms. This wascompleted in November 2004. (b) In April 2003, the Group made a payment of £35.8m to United States andUnited Kingdom note-holders in relation to exiting early from the high fixedrate interest charges on this debt. An exceptional provision of £15.0m was madein 2002 and the remaining exceptional cost of £20.8m was included in netfinancing charges during 2003. 4. Net financing charges 2004 2003 £m £mInterest payable:Bank loans and overdrafts 12.5 20.0CULS and loan note interest 1.4 1.5 ----- -----Group interest payable 13.9 21.5 Share of associates (0.1) 0.7 ----- -----Total interest payable 13.8 22.2 Interest receivable (1.2) (0.8) ----- -----Net interest payable 12.6 21.4 Pension finance charge 2.7 2.0 ----- -----Net financing charges excluding exceptional items 15.3 23.4 Exceptional financing charges 6.7 20.8 ----- ----- Net financing charges 22.0 44.2 ===== ===== 5. Tax on profit on ordinary activities 2004 2003 £m £mThe charge/ (credit) for taxation is as follows:Charge/ (credit) for the year excluding exceptionalitems and FRS10 0.5 (0.4)Share of taxation of associated undertakings 1.2 2.1 ----- -----Tax on profit on ordinary activities excludingexceptional items and FRS10 at 10% (2003: 10%) 1.7 1.7Tax credit on exceptional items (0.5) (3.6) ----- ----- 1.2 (1.9) ===== ===== 6. Dividends 2004 2003 £m £mProposed interim of 1.0p per share (2003: nil) 3.1 -Proposed final of 1.5p per share (2003: 2.5p) 4.7 7.9 ----- ----- 7.8 7.9 ===== ===== The interim dividend was paid on 6 January 2005 to shareholders on the registerat 3 December 2004 and it is proposed to pay the final dividend on 13 July 2005to shareholders on the register at 10 June 2005. 7. Earnings per share Basic earnings per share (EPS), excluding exceptional items and the impact ofgoodwill amortisation under FRS10, is calculated as follows: 2004 Restated 2003 Attributable profit for the financial period (£m) 15.8 15.3Weighted average number of shares in issue (m) 314.3 314.2Earnings per ordinary share (pence) 5.0 4.9 ===== ===== Basic EPS, inclusive of exceptional items and after goodwill amortisation underFRS10, for the year was 7.7p (restated 2003: 0.5p). There is no difference between basic and diluted EPS because neither the shareoptions nor CULS are dilutive in the year. 8. Intangible assets Total £mCostAt 1 January 2004 and 31 December 2004 293.0 ----- AmortisationAt 1 January 2004 60.0Charge for the period 14.8 -----At 31 December 2004 74.8 ----- Net book value at 31 December 2004 218.2 ===== Net book value at 31 December 2003 233.0 ===== Goodwill comprises capitalised goodwill on acquisitions completed since 1January 1998 and is being amortised on a straight-line basis over 20 years. 9. Tangible fixed assets Plant and Land and buildings technical Leasehold Freehold equipment Total £m £m £m £mCost or valuationAt 1 January 2004 0.7 5.8 70.3 76.8Additions - - 7.6 7.6Disposals - (5.8) - (5.8) ----- ----- ----- -----At 31 December 2004 0.7 - 77.9 78.6 ----- ----- ----- ----- DepreciationAt 1 January 2004 0.3 1.8 39.9 42.0Charge for year - 0.2 6.2 6.4Disposals - (2.0) - (2.0) ----- ----- ----- -----At 31 December 2004 0.3 - 46.1 46.4 ----- ----- ----- ----- Net book value at 31 December 2004 0.4 - 31.8 32.2 ===== ===== ===== ===== Net book value at 31 December 2003 0.4 4.0 30.4 34.8 ===== ===== ===== ===== As set out in note 3 (ii), the Group's property at Cowcaddens was sold duringthe year at the expected market value, resulting in the nil net book valuereflected at the end of the current year as shown above. Upon the disposal ofthe premises at Cowcaddens, £1.1m of depreciation was reallocated from plant andtechnical equipment to freehold land and buildings. 10. Investments Associated Associated Total undertakings undertakings goodwill share of net assets £m £m £m At 1 January 2004 63.8 23.5 87.3Share of associatedundertakings - 3.5 3.5Dividends receivedfrom associatedundertakings - (2.9) (2.9)Goodwill amortisationfor the year (0.3) - (0.3)Disposal of associateundertakings (see note 13) (63.5) (24.1) (87.6) ----- ----- -----At 31 December 2004 - - - ===== ===== ===== 11. Cash at bank and in hand Cash at bank and in hand includes £7.5m placed in Escrow for three years(reducing by £2.5m in each year) in respect of certain of SMG's pension relatedindemnity obligations given under the sale and purchase agreement of thePublishing division disposed of on 4 April 2003. 12. Loan stock and loan notes The convertible unsecured loan stock ("CULS") as at 31 December 2004 isconvertible on 30 April in each of the years 1999 to 2007 inclusive. The CULSare convertible into new SMG shares on the basis of 50.2808 SMG shares per £100nominal of SMG CULS. The CULS are unsecured obligations of SMG and bear interestat a rate of 6.5% per annum. An immaterial amount of CULS was converted on 30April 2004 (2003: immaterial amount converted). Secured loan notes dated October 2007 amounting to £5.1m were issued to fund theacquisition of Primesight. The loan notes bear interest at a rate of 1.5% belowLIBOR and are redeemable on 1 April and 1 October each year. During 2004, £0.1mof loan notes were redeemed, leaving an outstanding balance of £0.7m at 31December 2004. 13. Disposal of associate undertakings On 16 January 2004, the Group sold its 27.8% shareholding in Scottish RadioHoldings plc ("SRH") to Emap plc. The sale of 9,729,361 ordinary shares in SRHraised cash proceeds of £90.5m, or 930p per share, resulting in a net gain ondisposal of £10.6m after disposal costs of £1.6m. On 12 October 2004, the Group sold its 25% shareholding in GMTV to ITV plc for£31.0m cash less a dividend of £0.7m, resulting in a net gain on disposal of£20.5m after disposal costs of £0.5m. 14. Reconciliation of movements in equity shareholders' funds Restated 2004 2003 £m £m Profit for the year 24.1 1.6Dividends (7.8) (7.9) ----- -----Retained profit/ (loss) for the year 16.3 (6.3) Goodwill previously written off included inretained profit for the period - 57.7Reversal of revaluation reserve - (3.1)Actuarial loss recognised (8.6) (15.5)Deferred tax thereon 2.6 4.6 ----- ----- Net movement in shareholders' funds 10.3 37.4 ----- ----- Opening shareholders' funds as previouslystated 66.8 31.7Prior year adjustment - (2.3) ----- -----Opening shareholders funds restated 66.8 29.4 ----- ----- Closing equity shareholders' funds 77.1 66.8 ===== ===== In finalising the results for the year ended 31 December 2004, the directorsbecame aware that a prepayment balance of £2.8m relating to pension accountingunder SSAP 24 had not been adjusted following the adoption of FRS 17 in 2001.£2.3m of the prepayment balance relates to periods prior to 2003 and £0.5mrelates to 2003. This fundamental error as defined under FRS3 relates tonon-cash, non-trading items and has been dealt with by way of a prior yearadjustment. 15. Reconciliation of operating profit to operating cash flows Restated 2004 2003 £m £m Group operating profit (before exceptionalitems and FRS10) 29.3 30.8Depreciation and other non-cash items 6.4 6.8Increase in stock (7.6) (0.5)Increase in debtors (14.3) (1.8)Increase/ (decrease) in creditors 5.7 (6.3)Net Chris Evans settlement - 4.6Development costs, onerous contracts andreorganisation costs (1.7) (2.5) ----- -----Net cash inflow before pension payment 17.8 31.1 Payment to Caledonian Pension Scheme (2.8) (10.0) ----- -----Net cash inflow from operating activities 15.0 21.1 ===== ===== Net cash inflow from operating activities beforepension payment comprises: Continuing operating activities 17.8 27.4 Discontinued operating activities - 3.7 ---- ---- 17.8 31.1 ==== ==== 16. Pension costs The Group operates two defined benefit pension schemes (during the prior yearthe Scottish Television Retirement Benefit Scheme and the Grampian TelevisionRetirement and Death Benefit Scheme were combined to form one scheme). Theschemes are trustee administered and the schemes' assets are held independentlyof the Group's finances. Pension costs are assessed in accordance with theadvice of an independent professionally qualified actuary. The schemes are the Scottish and Grampian Television Retirement Benefit Schemeand the Caledonian Publishing Pension Scheme. They are closed schemes andtherefore under the projected unit method the current service cost will increaseas the members of the scheme approach retirement. A full actuarial valuation of the schemes was carried out at 1 January 2004 andupdated to 31 December 2004 by a qualified independent actuary. The majorassumptions used by the actuary were: At 31 December At 31 December 2004 2003 Rate of increase in salaries 3.3% 3.3%Rate of increase of pensions in payment 2.8% 2.8%Discount rate 5.3% 5.4%Inflation 2.8% 2.8% The fair value of the assets in the schemes, the present value of theliabilities in the schemes and the expected rate of return at each balance sheetdate was: At 31 December At 31 December 2004 2003 £m £m Equities 7.4% 131.8 7.3% 133.8Bonds 4.3% 90.1 4.9% 70.3 ----- -----Total market value of assets 221.9 204.1 Present value of schemes' liabilities (322.1) (295.8) ----- ----- Deficit in the schemes (100.2) (91.7)Related deferred tax asset 31.0 28.9 ----- -----Net pension liability (69.2) (62.8) ===== ===== Analysis of the amount charged to operating profit Restated 2004 2003 £m £m Defined benefit - current service cost 2.0 1.9Money purchase 0.3 0.4SSAP 24 prepayment adjustment (see note 14) - 0.5 ----- -----Total operating profit charge 2.3 2.8 ===== ===== 17. Mailing A copy of the annual report is being sent to all shareholders on 6 May 2005 andwill be available for inspection by members of the public at the Company'sregistered office at 200 Renfield Street, Glasgow. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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