14th Mar 2006 07:03
SMG PLC14 March 2006 SMG plc Preliminary Results 2005 PRESS RELEASE Financial Highlights 2005 2004 ChangeRevenues £210.0m £201.2m + 4%Operating Profit (Underlying)* £31.2m £28.0m + 11%Profit Before Tax (Underlying)* £20.0m £13.7m + 46%Profit Before Tax (Statutory) £18.8m £37.6m - 50%Basic Earnings per Share (Underlying)* 4.9p 3.9p + 26%Basic Earnings per Share (Statutory) 4.6p 12.0p - 62%Full Year Dividend 2.9p 2.5p + 16% * Underlying results exclude net associate contribution and exceptional items,and include additional IAS32 Convertible Unsecured Loan Stock ("CULS") interestcosts. Operational Headlines • Television revenues grew by 3% and operating profits by 19% (exc. reorg costs) • Our Television business outperformed ITV1 in airtime revenues and in peak-time audience share • Virgin Radio produced a market-beating performance with revenues up 11% and operating profits jumping by 23% • Primesight outpaced the outdoor market, growing revenues by 12% and operating profits (exc. reorg costs) by 7% • Pearl & Dean grew revenues, but posted a small operating loss Andrew Flanagan, Chief Executive, said: "Overall, this has been a solid trading result for SMG, coupled with somepositive regulatory outcomes, which has resulted in a year of strong progress.Alongside this we have made significant headway in developing new revenuestreams in response to the changing UK media environment." Chris Masters, Chairman, said: "The Group's encouraging overall operational performance and strong profitgrowth, coupled with its significant progress in new business initiatives, hasunderpinned the Board's confidence in the Group's long term prospects." 14 March 2006 Further enquiries: SMG plcAndrew Flanagan, Chief Executive Tel: 020 7882 1199George Watt, Group Finance DirectorCallum Spreng, Corporate Affairs Director Brunswick Group LLPJames Hogan Tel: 020 7404 5959Simon SporborgAnisha Patel SMG plc 2005 Preliminary Results CHAIRMAN'S STATEMENT OVERVIEW SMG's record of profitable growth continued in 2005 with underlying pre-taxprofits growing 46% to £20.0m (2004: £13.7m). This was driven by increasedrevenue, up 4% to £210.0m (2004: £201.2m), reduced operating costs andfavourable regulatory settlements that resulted in lower television licence feesand reduced public service broadcasting commitments. Underlying results excludenet associate contribution and exceptional items, and include CULS interestcosts under IAS32. Earnings per share (on the same underlying basis) grew by 26%to 4.9 pence (2004: 3.9 pence). Our businesses are strongly branded and well-positioned and they againoutperformed in their respective markets, growing revenues and market share.Alongside this strong operational performance, we made significant progress indeveloping our position in a number of strategically important areas, mostnotably in the digital and online environments. Advertising markets remain more volatile than has traditionally been the caseand, after a strong first quarter in 2005, advertisers reverted to more shortterm, selective booking, resulting in a slowing down of advertising markets overthe remainder of the year. The Group has made good progress in its drive to increase margins, withtelevision and radio showing good year-on-year improvement. Outdoor's marginswere held back in 2005 by our continued investment in panel development, whilstwe are confident that cinema margins can be restored in 2006 and have identifiedopportunities to extend the Pearl & Dean brand which will be developed over thecourse of the coming year. Furthermore, our stated aim of capitalising onexisting growth opportunities and identifying and developing new ones isbeginning to bear fruit. We have two exceptional items: a provision for staff reductions of £3.5m;partially offset by a gain on the disposal of our stake in Heart of Midlothianplc of £2.3m. During the course of the year, following the retirement of Calum MacLeod andDonald Waters, we strengthened the Board with the appointment of MT Rainey, theformer Chairman of Rainey Kelly Campbell Roafe/Y&R, the sixth largestadvertising agency in the UK; Martyn Smith, Finance Director of Avis Europe andTim Gardam, previously Director of Television and of Programmes at Channel 4. The strength of our consumer brands - Virgin Radio, STV and Pearl & Dean -results in SMG being well-placed to capitalise on the growth in digitalplatforms. Furthermore, the Group has a long established reputation as aproducer of high quality original programming, and is an efficient andsuccessful channel manager. Our strategy going forward is to continue to build on these strengths by: • Using our consumer brand strength in television, radio and cinema to expand our digital output both in terms of programme content and interactive services. • Growing our television production and services business. • Extending the reach of our outdoor advertising operation. The Group's encouraging overall operational performance and strong profitgrowth, coupled with its significant progress in new business initiatives, hasunderpinned the Board's confidence in the Group's long term prospects. As aresult, the Board has decided to recommend a final dividend of 1.7 penceresulting in a full year dividend for 2005 up 16% to 2.9 pence (2004: 2.5pence). PROSPECTS Advertising markets have remained uncertain and short term in the first quarterof 2006. With tough comparables against the same period last year, whichbenefited from an early Easter and accelerated Government spending, we areseeing somewhat lower revenues in the early months of 2006. In addition, aspreviously reported, the UGC cinema contract came to an end in January 2006. Inaddition as previously reported, the UGC cinema contract came to an end in January2006. To provide a proper representation of performance, and to overcome some ofthis distortion, we are providing year-to-date like-for-like comparatives for thefirst four months of 2006 as follows: YTD AprilTV airtime -7%Radio +6%Outdoor +14%Cinema -10% This performance is, however, in line with our projections and we continue to outperform in our markets. We anticipate a much stronger second quarter, aidedby Easter and the World Cup, and we expect to benefit from improving confidenceamongst advertisers. The Group's overall performance is benefiting from the cost reduction initiativesalready undertaken and from the new, rapidly growing, digital revenue streams.Our television businesses, SMG Network Productions and SMG Solutions, have madea particularly good start to the year with strong order books. We remain optimistic that we can continue to deliver profitable growth acrossthe Group in 2006 and we look to the future with confidence. Chris MastersChairmanSMG plc14 March 2006 CHIEF EXECUTIVE'S REVIEW TELEVISION Television grew its revenues by 3% to £137.0m (2004: £133.5m). The impact ofContract Rights Renewal (CRR), which reduced airtime revenues by 3%, was morethan offset by strong growth in programme sales and revenues from our facilitieshire and channel management businesses. This revenue growth and tight costcontrol allied to new, favourable licence terms resulted in Operating Profit,excluding reorganisation costs of £2.7m, growing by 19% to £24.1m (2004:£20.3m). Our Television business marginally outperformed ITV1 as a whole, with airtimerevenue declining by 3.0% against the ITV Network's 3.2% fall. Consequently ourshare of Net Advertising Revenue (NAR) grew slightly to 6.55% (2004: 6.51%). Thereduction in airtime revenue was as a direct result of the CRR mechanism, whichhas the effect of more directly linking audience to revenues, coupled with aweak Scottish market, caused primarily by a significant cut in ScottishExecutive spending in the first half of 2005 and reduced spend by retailers inQ4. The increasing penetration of multichannel television results in an inevitableerosion of audience on the main channels. In 2005, the higher take-up of digitalterrestrial in particular saw ITV1's all time audience share falling by 5.8% to21.3%. Scottish and Grampian TV outperformed the Network with a drop of 4.8% to21.8%. However, in the important peak-time day part - during which mostadvertising is sold - our share of viewing was 30.8% (2004: 31.1%).Significantly, compared to the UK average, we continue to outperform our nearestcompetitor, BBC1 Scotland, by some six percentage points in peak-time. OFCOM, which regulates our television business, delivered two importantconclusions during the course of 2005 which had a positive effect for us. Thereview of our television licence terms resulted in a reduction in our licencefees of around £4.5m in 2005. Further reductions, totalling some £1.0m, will beeffected gradually as digital penetration continues to increase through todigital switchover which, for our licences, is likely to be in 2010.Additionally, OFCOM's review of public service broadcasting (PSB) resulted in areduction in our local programming obligations of over 200 hours per year,including an immediate reduction in hard-to-schedule peak-time Gaelicprogramming of 20 hours and its ultimate removal from the schedule by 2011.OFCOM also accepted our proposals for enhancing local news coverage and thesewill be implemented during 2007. As a result of our reduced PSB hours, combined with the impact of our imminentmove to new, state of the art studios in Glasgow, we reviewed the staffinglevels required for our broadcast television operation. This resulted in theidentification of 55 roles which are no longer required to meet our futurebusiness needs. Consequently, the headcount of our television business will fallover the coming months, almost entirely through voluntary redundancy. This,coupled with a single schedule across our two channel 3 franchises and theintroduction of single branding for our stations, announced earlier this month,will see costs fall further in 2006. An exceptional charge to effect staffreductions of £2.7m has been taken in the results for 2005. Significant progress was made during 2005 in developing non-airtime revenuestreams potentially capable of offsetting any future diminution of conventionalairtime revenues. These plans are now well-developed and we are targeting togenerate additional revenues from viewers through online and interactiveinitiatives, sponsorship, advertising-funded programming and interactiveadvertising. Initial results have been encouraging, particularly given the factthat such revenue sources are likely to constitute an increasing proportion ofour broadcasting revenues going forward. Our network programme productions business enjoyed excellent success in 2005.Revenue from programme sales grew by 23%, with increased commissions in drama,children's and factual programming. The commissioning of two episodes of Rebus,starring Ken Stott, alongside another successful run of our evergreen policedrama, Taggart, underpinned our credentials as a high quality programmeproducer. Our strategy of broadening our customer base beyond ITV1 made furtherprogress, with new commissions from Sky, C4, Five and ITV2. Future growthprospects have been enhanced by increased responsibility being placed on bothITV and the BBC to increase programme commissions from the nations and regions.In addition, the BBC's own Window of Commercial Competition (WOCC) willpotentially allow non-independent companies, such as SMG TV Productions andGinger TV Productions, the opportunity to bid for up to 25% of the BBC'soriginal commissioning budget. Any benefits from these developments will bederived from 2007 onwards. Our facilities hire and channel management business, SMG Solutions, grew revenueby 36% during the year. This reflected a full year of revenues from our contractwith Setanta to support its SPL football channels and increased commercialproduction activities. We continue to see excellent opportunities for growth inthis fragmented marketplace and have recently concluded a four year deal withBBC Scotland to provide outside broadcast facilities for their productions. RADIO Virgin Radio maintained the momentum built up earlier in 2005 with amarket-beating performance that saw revenues grow by 11% to £22.4m (2004:£20.1m). This was achieved against a backdrop of a 4% decline in the UK radiomarket as a whole and came as a result of increased sponsorship, promotion andonline revenues in addition to a growing contribution from our digital stations.This sales performance converted into Operating Profits for the year up 23% to£4.9m (2004: £4.0m), even after taking into account our increased investment innew digital stations and additional carriage costs. The lifeblood of any radio business is its listeners and 2005 saw a resurgencein Virgin Radio's performance. Listening Hours grew by 16% year on year andReach by 3% partly reflecting the additional contribution of our growing digitalstations, Virgin Radio Classic Rock, Virgin Radio Groove and the new member ofthe Virgin Radio family of stations, Virgin Radio Xtreme, launched in September.On our main service, a stable schedule and popular music policy have contributedto this steady progress, while our move to six monthly measurement of our AMlistening by RAJAR in Q3 2005 has also helped to iron out some of the volatilitythat is a feature of the current diary-based measurement system. The Christian O'Connell breakfast show launched in January 2006. It has beenwell received by industry commentators and critics, and anecdotal evidencegained from our own tracking is encouraging. However, we anticipate that thetrue impact of this new show will only emerge later in 2006 as the show buildsan established listener base. We remain firmly of the view that digital listening provides a range ofopportunities that Virgin Radio is particularly well placed to exploit. We areseeing an accelerating migration of our listeners from AM on to digital with 23%of our audience now listening via digital platforms such as DAB, Dsat andonline. We actively encourage listeners to switch to digital platforms throughpromotion of digital listening and have recently agreed to launch Virgin Radioon Freeview. Furthermore, our multiplatform approach has allowed us tosuccessfully launch a family of digital-only stations. These stations form partof the Virgin Radio Network and we are already generating good levels of spotand sponsorship revenues. Digital platforms, as is the case in television,provide the opportunity to generate direct consumer revenues and we have a welldeveloped strategy to convert our growing digital audience to direct revenuegeneration - particularly through Virgin Radio's well established website. Virgin Radio's cost base has been impacted by the development costs of the newservices especially carriage cost on the new digital platforms. However, wecontinue to examine ways to reduce our other operating costs and we will shortlyenter into dialogue with OFCOM on the financial terms for the extension ofVirgin Radio's national AM licence to 2012. Our licence to broadcast on 1215AMcurrently costs in excess of £2m per year, and given the reducing effectivenessof this spectrum we expect this fee to be reduced to reflect the increase incompetition for both listeners and advertisers since it was set in 2000. OUTDOOR Our outdoor business, Primesight, grew revenues by 12% to £20.7m (2004: £18.5m)as a result of increased panels with yield levels held at their 2004 level,despite a tough market. This was converted into a 7% uplift in Operating Profit,excluding reorganisation costs of £0.4m, to £3.0m (2004: £2.8m) despite thecosts of our continued investment both in 6 sheet panels and our Backlightestate. Our inventory of 6 sheet panels increased by 9% to just over 13,500 at 31December, with a number of excellent contract wins - David Lloyd Leisure,Bestway, One Stop Shops and Spar - contributing to this growth. Our rapidlydeveloping Backlights business grew panel numbers by 55% to 107 panels,including 24 panels from a long-term marketing deal, making Primesight thelargest operator of backlit 48 sheet and Mega 4 panels in London. Having sustained a period of rapid growth and achieving market-leading positionsin health & leisure and convenience retailing, alongside 3rd place position inUK roadside 6 sheets, we now plan a period of consolidation to focus onincreasing our margins. Panel development will be limited to replacing churn andkey selective contracts and we have reduced staffing levels accordingly. We willhowever continue the momentum of development on our Backlights business which weplan to extend to the UK's other major cities during 2006. CINEMA 2005 was a poor year for the blockbuster movies on which the cinema industryrelies to drive audience, and movie-going fell by 4%. Pearl & Dean grew marketshare across the year as we won contracts ahead of the anticipated loss of theUGC contract. As a result, we increased revenues by 3% to £29.9m (2004: £29.1m)while the cinema advertising market as a whole declined by 2% across the year.However, increases in minimum rent guarantees attached to some contractsoutstripped our revenue growth, resulting in Pearl & Dean posting a smallOperating Loss of £0.8m (2004: £0.9m Profit), excluding reorganisation costs of£0.4m. The cinema advertising business has become increasingly tough over the lastcouple of years as a result of consolidation of exhibitors and aggressive pricecompetition from our sole competitor. In a market where both advertisingcontractors offer the same film stock, share is not a determinant of success. Wehave therefore moved to reduce costs and resize this business through headcountreduction. We are also seeking to reduce our exposure to minimum guaranteesgoing forward. The loss of the UGC contract has in itself gone some way toachieving this objective. Furthermore, we have extended our contract with ourbiggest exhibitor, Vue, to 2010, cementing both that relationship and ourprincipal base for the business. With no major contracts due for renewal over the next two years, we have focusedon developing our position in the independent cinemas market. Pearl & Dean nowaccounts for 53% of the independent UK cinemas and we have identified scope forfurther growth. Additionally, we plan to capitalise on the unique position that the Pearl & Deanbrand occupies with cinema-goers through the development of a consumer-facingwebsite (www.pearlanddean.com) which, in addition to compelling content, willalso have the ability to generate revenues both directly from users as well asthrough tie-ups with third party service providers. Through the initiatives already undertaken and an improvement in the quality offilm stock, we expect to restore Pearl & Dean's performance in 2006. PENSIONS In common with many UK companies, our two defined benefit pension schemes havedeficits as calculated under IAS19. We have been reviewing how to manage downthe schemes' liabilities to reduce risk and will be taking further action inthis area during 2006. The scale of the pension deficits under IAS19 isprimarily influenced by two key assumptions, bond yields and the mortality rate.Mortality rates are of particular significance to our schemes as the majority ofmembers live in the West of Scotland, where mortality rates are significantlyworse than the national average. We have now reflected these geography-specificrates in the deficit calculations and, combined with the significant increase inthe schemes' assets achieved during the year, this has seen the deficit, net ofdeferred tax, reduce to £36.7m at the year end (2004: £69.2m). SUMMARY Overall, this has been a solid trading result for SMG, coupled with somepositive regulatory outcomes, which has resulted in a year of strong progress.Alongside this we have made significant headway in developing new revenuestreams in response to the changing UK media environment. Andrew FlanaganChief ExecutiveSMG plc14 March 2006 Consolidated income statementfor the year ended 31 December 2005 31 December 31 December 2005 2004 Note £m £mContinuing Operations Revenue 2 210.0 201.2 Net operating expenses before reorganisation costs (178.8) (173.2) Reorganisation costs 3 (3.5) - ------- -------Net operating expenses (182.3) (173.2) Operating profit 27.7 28.0 Share of results of associates 2 - 2.4 ------- ------- Profit from operations 2 27.7 30.4 Gain on disposal of investment 3 2.3 -Gain on disposal of property 3 - 1.0Loss on disposal of subsidiary undertaking 3 - (2.5)Gain on disposal of associate undertakings 3 - 30.8 ------- ------Profit before financing 30.0 59.7 Interest income 0.6 1.2Finance costs 3,4 (11.8) (23.3) ------- -------Profit before tax 18.8 37.6 Tax 5 (4.4) 0.2 ------- -------Profit attributable to equity holders 14.4 37.8 ------- -------Earnings per ordinary share - basicand diluted 7 4.6p 12.0p Underlying * NoteOperating profit 31.2 28.0 Profit before tax 16 20.0 13.7Earnings per share - basic and diluted 4.9p 3.9p * Underlying results exclude net associate contribution and exceptional items,and include additional IAS 32 convertible unsecured loan stock ("CULS") interestcosts. Consolidated statement of recognised income and expense Year ended 31 December 2005 31 December 31 December 2005 2004 £m £m Actuarial gain/ (loss) recognised in the pension schemes 45.0 (8.6) Deferred tax arising thereon (13.5) 2.6 ------ -------Net profit/ (loss) not recognised directly inincome statement 31.5 (6.0) Profit for the period 14.4 37.8 ------ -------Total recognised income for the period 45.9 31.8 ------ ------- Consolidated balance sheetat 31 December 2005 31 December 31 December Note 2005 2004 £m £mASSETSNon-current assetsGoodwill 8 222.1 222.1Property, plant and equipment 9 36.0 31.2Deferred tax asset 16.7 33.3 --------- --------- 274.8 286.6 --------- ---------Current assetsInventories 33.8 25.5Trade and other receivables 56.2 58.8Cash and cash equivalents 28.0 20.5Short term bank deposit 10 5.0 7.5 -------- -------- 123.0 112.3 -------- --------Total assets 397.8 398.9 -------- --------EQUITYCapital and reserves attributable to the Company's equity holdersCalled up share capital 13 7.8 7.8Share premium 13 59.0 58.8Merger reserve 173.4 173.4Equity reserve 13 2.5 -Other reserve 13 5.3 5.2Hedging reserve 13 (0.5) -Retained earnings 13 (125.1) (160.6) --------- --------Total equity 122.4 84.6 --------- --------LIABILITIESNon-current liabilitiesFinancial liabilities - Borrowings 149.1 139.0 - Convertible unsecured loan stock 11 22.2 22.8 - Derivative financial liability 12 0.5 - - Other non-current liabilities 0.8 1.0Retirement benefit obligation 15 53.0 100.2 ------- ------- 225.6 263.0 ------- -------Current LiabilitiesTrade and other payables 36.8 39.3Current tax liabilities 10.0 8.6Provisions 3.0 0.3Dividends payable - 3.1 -------- -------- 49.8 51.3 ------- --------Total liabilities 275.4 314.3 Total equity and liabilities 397.8 398.9 -------- -------- Consolidated cash flow statementfor the year ended 31 December 2005 31 December 31 December Note 2005 2004 £m £mOPERATING ACTIVITIESCash generated by operations 14 26.7 16.6Income taxes received - 1.6Interest paid (9.0) (13.9)Pension deficit funding (2.8) (2.8) ------- ------- Net cash generated by operating activites 14.9 1.5 ------- -------INVESTING ACTIVITIESInterest received 0.3 1.6Dividends received from associate undertakings - 2.9Disposal of investment 2.7 -Disposal of associate undertakings - 118.7Disposal of subsidiary undertaking - (1.9)Proceeds from sale of property, plant and equipment - 4.0Purchase of property, plant and equipment (11.2) (7.4) ------- --------Net cash (used) / generated by investing activities (8.2) 117.9 ------- --------FINANCING ACTIVITIESDividends paid (11.6) (7.9)Repayment of existing bank borrowings - (232.2)Net borrowings drawn 10.1 139.0Release of cash on deposit 2.5 2.5Net repayment of loan notes/stock (0.2) (0.1) ------ -------Net cash generated by/ (used in) financing activities 0.8 (98.7) ------ -------- Movement in cash and bank overdrafts 7.5 20.7 Net cash and bank overdrafts at beginning of period 20.5 (0.2) -------- -------- Net cash and bank overdrafts at end of period 28.0 20.5 -------- -------- Reconciliation of movement in net debt 31 December 31 December 2005 2004 £m £m Opening net debt (134.8) (242.5)Non-cash bank arrangement fees written off - (3.8)Movement in cash and bank overdrafts in the period 7.5 20.7Net cash (inflow)/ outflow from increase/ (decrease) in debtfinancing (10.1) 93.2IFRS decrease in CULS liability 0.6 -Movement in loan note liabilities 0.2 0.1Net movement in Escrow cash (2.5) (2.5) ------- ------- Closing net debt (139.1) (134.8) ------- ------- Notes to the preliminary announcement for the year ended 31 December 2005 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 2005 and 31 December 2004 respectively. The informationfor the year ended 31 December 2004 does not constitute statutory accounts asdefined in section 240 of the Companies Act 1985. A copy of the statutoryaccounts for that year has been delivered to the Registrar of Companies. Theauditors' report on the financial statements was unqualified and did not includea statement under section 237(2) or (3) of the Companies Act 1985. The statutoryfinancial statements for the year ended 31 December 2005 have yet to be signed.They will be finalised on the basis of the financial information presented bythe directors in this preliminary announcement and will be delivered to theRegistrar of Companies in due course. These financial statements have been prepared in accordance with the accountingpolicies based on International Financial Reporting Standards ("IFRS") and IFRICinterpretations endorsed by the European Union (EU) and with those parts of theCompanies Act 1985 applicable to companies reporting under IFRS. The financialstatements have been prepared under the historical cost convention as modifiedby the revaluation of derivative financial instruments. The 2004 comparativeinformation has, as permitted by the exemption in IFRS 1, not been prepared inaccordance with IAS 32, Financial Instruments: Disclosure and Presentation, andIAS 39, Financial Instruments: Recognition and Measurement. Instead, IAS 32 andIAS 39 have been implemented with effect from 1 January 2005. The same principleaccounting policies and methods of computation are followed in this preliminaryannouncement as were published by the Company on 23 June 2005 (see below). The Group has elected to apply policies based on the amendment to IAS 19 issuedin December 2004, which permits actuarial gains and losses to be recognisedoutside the Income Statement in the Statement of Recognised Income and Expense. The reconciliations of equity at 1 January 2004 and 31 December 2004 and thereconciliation of profit for the year ended 31 December 2004, as required byIFRS 1, including the significant accounting policies and full notes to 31December 2004, have been published on the company's website www.smg.plc.uk on 23June 2005. 2.Business segments For management purposes the Group is currently organised into four operatingdivisions (2004: three) - Television, Radio, Cinema and Outdoor. (In 2004,Cinema and Outdoor were reported as one division, Out of Home). These divisions are the basis on which the Group reports its primary segmentinformation. Intersegment revenues are charged at prevailing market prices. Principal activities are as follows: Television - the production and broadcasting of television programmes andassociated enterprises. Radio - the operation of commercial radio in the UK. Cinema - the provision of advertising space within cinema complexes. Outdoor - the provision of advertising solutions across various outdoor mediums. Segment information about these businesses is presented below. Year ended31 December 2005 Television Radio Cinema Outdoor Group £m £m £m £m £mREVENUEExternal sales 137.0 22.4 29.9 20.7 210.0 ------- ------ ------ ------ ------- Independent Television Commission ("ITC") qualifying revenue was £109.0m.Turnover in 2005 includes £2.1m of revenues from sources outside the UK. Year ended 31 December 2005 Television Radio Cinema Outdoor Group £m £m £m £m £mPROFITSegment result excludingreorganisation costs 24.1 4.9 (0.8) 3.0 31.2 ------ ----- ------ ----- Reorganisation costs (i) (3.5) ------Profit from operations 27.7 Gain on disposal of investment (ii) 2.3Financing (11.2) ------Profit before tax 18.8Tax (4.4) ------Profit after tax 14.4 ------ Operating profit in 2005 includes £1.1m arising outside the UK. Year ended 31 December 2005 Television Radio Cinema Outdoor Group £m £m £m £m £m REVENUEExternal sales 133.5 20.1 29.1 18.5 201.2 ------- ------ ------ ------ ------- ITC qualifying revenue was £111.7m.Turnover in 2004 includes £1.8m of revenues from sources outside the UK. PROFITSegment result 20.3 4.0 0.9 2.8 28.0 ------ ------ ----- ----- Share of associates (iii) (iv) 2.4 ----- Profit from operations 30.4 Loss on disposal of subsidiary undertaking (v) (2.5)Gain on disposal of associate undertakings (vi) 30.8Gain on disposal of property (iii) 1.0Financing (22.1) ----- Profit before tax 37.6Tax 0.2 -----Profit after tax 37.8 ----- Operating profit in 2004 includes £1.1m arising outside the UK. i) Attributable to Television segment (£2.7m), Outdoor segment (£0.4m) and Cinema segment (£0.4m)ii) Attributable to Group (unallocated by reporting segment)iii) Attributable to Television segmentiv) Share of associate's results are reported net of tax charge of £1.1mv) Publishing division discontinued in 2003vi) £20.5m attributable to Television division and £10.3m attributable to Radio division 3.Exceptional items i) Reorganisation costs In December 2005, the Group announced plans to reorganise the Televisionbusiness in light of reduced Public Service Broadcasting licence requirementsand the impact of new technology which will arise from the forthcoming move ofScottish Television to new premises in Pacific Quay, Glasgow. In the same month,the Group committed to a reorganisation of the structure of the Out of Homedivision, resulting in the creation of separate Outdoor and Cinema divisions. Both decisions culminate in a reduction in headcount within the organisation,resulting in the creation of a provision for exceptional costs of £3.5m. ii) Gain on disposal of investment On 20 October 2005, the Group announced the sale of its 19.9% stake in Heart ofMidlothian plc ("Hearts") to Heart of Midlothian 2005 Limited, a company whollyowned by UAB Ukio Banko Investicine Grupe ("UBIG") at a consideration of £0.9m,or 35 pence per share. The Group also entered into an agreement for the disposalof its entire holding of convertible loan stock in Hearts to UBIG for aconsideration of £1.8m plus accrued interest. The disposal resulted in a net gain of £2.3m to the Group. iii) Gain on disposal of property In 2004, the Group's property at Cowcaddens was sold resulting in a gain of£1.0m. iv) Gain on disposal of subsidiary undertaking In 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 £2.5mduring the first half of 2004. v) Gain on disposal of associate undertakings The disposal of the Group's 27.8% shareholding in Scottish Radio Holdings("SRH") to EMAP plc on 16 January 2004 raised cash proceeds of £90.5m, resultingin a gain on disposal of £10.3m after disposal costs of £1.6m. The disposal of the Group's 25% shareholding in GMTV Limited ("GMTV") to ITV plcon 12 October 2004 for £31.0m cash less a dividend of £0.7m resulted in a gainof disposal of £20.5m after disposal costs of £0.5m. vi) Finance costs In 2004, £6.7m of unamortised bank facility arrangement fees were written off.The remaining unamortised balance was also written off following the replacementin November 2004 of existing bank facilities with a new £158.0m five yearrevolving credit and overdraft bank facility on improved terms. 4.Finance costs 31 December 31 December 2005 2004 £m £mInterest expense:Bank borrowings 9.3 12.5CULS and loan note interest 1.7 1.4 ------- -------- 11.0 13.9Pension finance cost 0.8 2.7 ------- -------Finance costs excluding exceptional items 11.8 16.6Exceptional finance costs (note 3 (vi)) - 6.7 ------- -------Finance costs 11.8 23.3 ------- ------- 5.Tax 31 December 31 December 2005 2004 £m £mThe charge for tax is as follows: Tax on profit on ordinary activitiesexcluding exceptional items at 23% (2004:10%) 4.6 0.3Tax effect of exceptional items (0.2) (0.5) ----- ------ 4.4 (0.2) ----- ------ 6.Dividends 31 December 31 December 2005 2004 £m £mAmounts recognised as distributions to equityholders in the period:Final dividend for the year ended 31 December 2003 of 2.5p - 7.9Interim dividend for the year ended 31 December 2004 of 1.0p - 3.1Final dividend for the year ended 31 December 2004 of 1.5p 4.7 -Proposed interim dividend for the year ended 31 December 2005of 1.2p 3.8 - ----- ------ 8.5 11.0 ----- ------ The interim dividend of 1.2p per share was paid on 24 November 2005 toshareholders on the register at 21 October 2005.The proposed final dividend of 1.7p per share to be paid on 13 July 2006 toshareholders on the register at 9 June 2006 was approved by the Board on 10March 2006 and has not been included as a liability as at 31 December 2005. 7.Earnings per share Basic earnings per share (EPS), excluding exceptional items is calculated asfollows: 31 December 31 December 2005 2004 £m £m Attributable profit for the financial period(including exceptional items) 14.4 37.8Effect of exceptional items 1.0 (23.1) ----- ------Attributable profit for the financial period 15.4 14.7 ----- ------ Weighted average number of shares in issue 314.5m 314.3mEarnings per ordinary share 4.9p 4.7p ------ ------ Basic EPS, inclusive of exceptional items for the year is 4.6p (2004: 12.0p). There is no difference between basic and diluted EPS as there is no materialimpact from dilutive share options. 8.Goodwill £mCostAt 1 January 2005 and 31 December 2005 293.0 Accumulated amortisationAt 1 January 2005 and 31 December 2005 70.9 ------Net book value at 1 January 2005 and 31 December 2005 222.1 ------ Goodwill comprises capitalised goodwill on acquisitions completed since 1January 1998. 9.Property, plant and equipment Plant, Land and technical buildings equipment leasehold and other Total £m £m £m Cost or valuationAt 1 January 2005 0.7 76.9 77.6Additions 0.1 11.1 11.2 ----- ------ ------At 31 December 2005 0.8 88.0 88.8 ----- ------ ------ Accumulated depreciation and impairmentAt 1 January 2005 0.3 46.1 46.4Charge for year 0.3 6.1 6.4 ----- ----- -----At 31 December 2005 0.6 52.2 52.8 ----- ------ ------ Net book value at 31 December 2005 0.2 35.8 36.0 ----- ------ ------Net book value at 31 December 2004 0.4 30.8 31.2 ----- ------ ------ 10.Short term bank deposit The short term bank deposit relates to £5.0m placed in Escrow for a further twoyears (£10.0m in 2003 reducing by £2.5m each year) in respect of certain ofSMG's pension related indemnity obligations given under the sale and purchaseagreement of the Publishing division disposed of on 4 April 2003. 11.Convertible unsecured loan stock The CULS as at 31 December 2005 is convertible on 30 April in each of the years1999 to 2007 inclusive. The CULS are convertible into new SMG plc shares on thebasis of 50.2808 SMG shares per £100 nominal of SMG CULS. The CULS are unsecuredobligations of SMG and bear interest at a rate of 6.5% per annum. An immaterialamount of CULS was converted during both the current and prior year. In accordance with the requirements of IAS 39, an adjustment of £0.6m was madeduring the year to reflect the debt to equity split of the CULS balanceoutstanding. As at 31 December 2005, the outstanding CULS balance was £22.2m(2004: £22.8m). 12.Derivative financial liability The derivative financial liability of £0.5m has arisen as a result of aninterest rate swap. The notional principal amount of the outstanding interestrate swap contract at 31 December 2005 was £60.0m. At 31 December 2005 the fixedinterest rates are 4.64% and floating rates are 4.94% (3 month LIBOR). Any netgain or loss deferred in equity will reverse during the next three years, beingthe life of the swap. 13.Statement of changes in shareholders' equity Share Share Equity Other Hedging Retained Capital Premium reserve reserve reserve arnings £m £m £m £m £m £m At 1 January 2004 7.8 58.8 - 4.3 - (181.4) IFRS 2 charge forshare-based payments - - - 0.9 - -Net profit - - - - - 37.8Dividends - - - - - 11.0)Actuarial loss - - - - - (8.6)Deferred tax thereon - - - - - 2.6 --- --- --- --- --- -----At 1 January 2005 7.8 58.8 - 5.2 - (160.6) Net profit - - - - - 14.4Dividends - - - - - (8.5)Shares issued during the period - 0.2 - - - -Equity portion of CULScreated under IAS 32 - - 2.5 - - (1.9)IFRS 2 charge forshare-based payments - - - 0.1 - -Actuarial gain - - - - - 45.0Deferred tax thereon - - - - - (13.5)Fair value loss oninterest rate swaps - - - - (0.5) - ----- ---- ----- ----- ----- -----At 31 December 2005 7.8 59.0 2.5 5.3 (0.5) (125.1) ----- ---- ----- ----- ----- ----- There has been no movement in the merger reserve during the year ended 31 December 2005. 14.Notes to cash flow statement 31 December 31 December 2005 2004 £m £m Operating profit (before reorganisation costs) 31.2 28.0Depreciation and other non-cash items 6.6 6.4 ------ -----Operating cash flows before movements in working capital 37.8 34.4Increase in inventories (8.3) (7.6)Decrease/ (increase) in trade and other receivables 1.7 (14.2)(Decrease)/ increase in trade and other payables (4.0) 5.7Development and reorganisation costs (0.5) (1.7) ------ ------Cash generated by operations 26.7 16.6 ------ ------ 15.Retirement benefit schemes The Group operates two defined benefit pension schemes. The schemes are trusteeadministered and the schemes' assets are held independently of the Group'sfinances. Pension costs are assessed in accordance with the advice of anindependent 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 2005 andupdated to 31 December 2005 by a qualified independent actuary. The majorassumptions used by the actuary were: At 31 December At 31 December 2005 2004Rate of increase in salaries 3.25% 3.30%Rate of increase of pensions in payment 2.75% 2.80%Discount rate 4.80% 5.30%Inflation 2.75% 2.80% 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 2005 2004 £m £m Equities 8.0% 146.2 8.0% 131.8Bonds 4.1 - 4.9% 109.6 4.5-5.3% 90.1 ------- ------Fair value of schemes' assets 255.8 221.9 Present value of defined benefit obligations (308.8) (322.1) ------- -------Deficit in the schemes (53.0) (100.2) ------- ------- A related offsetting deferred tax asset of £16.3m is included under non-currentassets. Therefore the net pension scheme deficit amounts to £36.7m at 31 December 2005 (£69.2m at 31 December 2004). 16.Calculation of underlying profit before tax 31 December 31 December 2005 2004 £m £m Profit before tax 18.8 37.6 Adjusted for:Reorganisation provision 3.5 -Gain on disposals of investment and property (2.3) (1.0)Net gain on disposals of subsidiaryand associate undertakings - (28.3)Unamortised bank fees written off - 6.7Interest effect of GMTV disposal - 1.5Share of associate's contribution - (2.4)CULS interest cost* - (0.4) ----- ------Underlying profit before tax 20.0 13.7 ----- ------ * As IAS 39 has only been adopted from 1 January 2005, the current periodadditional CULS interest cost has been included within the income statement. 17.Mailing A copy of the annual report is being sent to all shareholders on 25 April 2006and will 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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