13th Sep 2006 07:00
SMG PLC13 September 2006 SMG plc Interim Results 2006 PRESS RELEASE Financial Highlights +----------------------------------------+------------+------------+-----------+| |2006 |2005 |Change |+----------------------------------------+------------+------------+-----------+|Turnover (Underlying)* |£88.6m |£90.7m |- 2% |+----------------------------------------+------------+------------+-----------+|Turnover (Statutory) |£88.6m |£94.9m |- 7% |+----------------------------------------+------------+------------+-----------+|Operating Profit (Underlying)* |£12.3m |£12.8m |- 4% |+----------------------------------------+------------+------------+-----------+|Operating Profit (Statutory) |£12.3m |£13.7m |- 10% |+----------------------------------------+------------+------------+-----------+|Profit Before Tax (Underlying)* |£8.0m |£5.8m |+ 38% |+----------------------------------------+------------+------------+-----------+|Profit Before Tax (Statutory) |£8.0m |£6.7m |+ 19% |+----------------------------------------+------------+------------+-----------+|Basic Earnings per Share (Underlying)* |2.0p |1.4p |+ 43% |+----------------------------------------+------------+------------+-----------+|Basic Earnings per Share (Statutory) |2.0p |1.7p |+ 18% |+----------------------------------------+------------+------------+-----------+|Interim Dividend |1.2p |1.2p |- |+----------------------------------------+------------+------------+-----------+ * Underlying results exclude the impact of the former UGC Cinemas contract. Operational Highlights • Operational performance, cost savings and pension interest charge movements bring a 38% increase in underlying PBT* and a 43% increase in underlying EPS* • Significant uplift in online activity with launch of stv.tv, peopleschampion.com, virginradio.co.uk, pearlanddean.com • Virgin Radio continues to outperform the market Chris Masters, Chairman, said: "We continue to make excellent progress in developing our strategicallyimportant on-line presence aimed at creating new revenue streams. Theseinitiatives will become increasingly important as we move forward." Donald Emslie, Acting Chief Executive, said: "SMG has made good progress in the first half of 2006 on many fronts. We havegrown pre-tax profits, despite unpredictable advertising markets, made headwayin lightening the impact of regulatory costs and taken significant steps increating new businesses and sustainable revenue streams, most notably in theonline environment." 13 September 2006 Further enquiries: SMG plcDonald Emslie, Acting Chief Executive Tel: 020 7882 1199George Watt, Group Finance DirectorCallum Spreng, Group Communications Director Brunswick Group LLPJames Hogan Tel: 020 7404 5959Simon SporborgAsh Spiegelberg SMG plc Interim Results 2006 CHAIRMAN'S STATEMENT Overview The first half of 2006 held mixed fortunes for SMG. Revenue performance variedacross the Group while profits were lifted as a result of operationalperformance, cost savings and a positive movement in pension interest charges.We continue to make excellent progress in developing our strategically importantonline presence aimed at creating new revenue streams. During the six months thepreparatory work on stv.tv, Peopleschampion.com and upgrading thevirginradio.co.uk website was completed and all have now been launched. Theseinitiatives will become increasingly important as we move forward. Underlying Group Turnover was marginally down at £88.6m (2005: £90.7m) as salesrevenues in broadcast television were lower, partially offset by growth in radioand outdoor. However, reduced costs in the areas of licence fees, staff andpension interest charges saw underlying Pre-Tax Profits rise by 38% to £8.0m(2005: £5.8m). Underlying results exclude the impact of the former UGC Cinemascontract, which generated £4.2m in turnover and £0.9m of operating profit in2005. Earnings per share (on the same underlying basis) grew by 43% to 2.0p(2005: 1.4p). Since the half year, SMG's Chief Executive, Andrew Flanagan, has left the Groupby mutual agreement. The Board is making good progress with regard to appointinga successor and is considering both external and internal candidates with thehelp of independent executive search consultants. An announcement will be madeonce this process is complete. In the meantime Donald Emslie has taken over asActing Chief Executive. Following our statement on 29th August regarding the approach from UTV plc, theBoard of SMG has now confirmed in writing to the Board of UTV that, while itrejects UTV's proposal for a merger of the two businesses under which SMGshareholders would receive only a 52% interest in the merged entity, it would bewilling to hold discussions with the Board of UTV on the basis of a proposalwhich has regard to the relative market values of SMG and UTV, SMG's prospectsand the value of SMG's portfolio of assets. No formal response has, as yet, beenreceived from UTV. This statement is made without UTV's consent and there can beno certainty that an offer will be made nor as to the terms on which any offermight be made. We have made significant progress in taking our strong media brands into theonline space, which is allowing us to transact directly with our consumers. Eachof our consumer-facing brands now has a compelling online presence, boosted bysignificant, but low cost, promotion and we are confident that this initiativewill prove to be an important profit driver for SMG in the coming years. In line with our future strategy, which is firmly based on strong television,radio and online brands, exciting content and close connection with ouraudiences, we have today announced the decision to dispose of the Group's cinemaand outdoor advertising businesses Pearl & Dean and Primesight. Althoughexcellent businesses in themselves, they are no longer core to the Group. As far as advertising is concerned, markets have been mixed in the first sixmonths of 2006 and the hoped-for boost in television airtime revenues from theWorld Cup failed to materialise. This weakness has continued across the summermonths, exacerbated by concerns over inflation, fuel prices and high levels ofconsumer borrowing. The Group's net pension deficit reduced to £32.4m - a 12% reduction from the2005 year end and a significant improvement on the prior year (December 2005:£36.7m; June 2005: £68.8m). The research that we have initiated among Scottishcompanies to establish a clearer understanding of mortality rates amongoccupational pension scheme members in Scotland will be concluded in the comingmonths and will form the basis for the future funding of the Group's schemes. The Group's steady performance, both financially and strategically, allied tothe uncertain climate in advertising markets for the remainder of the year, hasprompted the Board to adopt a cautious outlook and maintain the interim dividendat 1.2 pence per share (2005: 1.2 pence). Outlook For the remainder of 2006, we expect our broadcast television business toperform in line with ITV1 as a whole, given that it too is subject to theeffects that the Contract Rights Renewal (CRR) process has on ITV1 in an alreadydepressed TV market. In radio, we expect to continue to outperform the market asVirgin Radio's schedule and music proposition build momentum. Cinema, on theother hand, continues to be affected by the broadcast market overall and weanticipate another tough year for Pearl & Dean. In outdoor, Primesight shouldcontinue to outperform a growing market. Advertising markets remain extremely difficult and there are no indications atthis stage of conditions improving markedly before the end of 2006. Whilst wecontinue to make good progress in creating opportunities for generating revenuesfrom non-traditional sources, these are unlikely to make any significant profitcontribution before 2007 and, in common with other media companies, the Boardviews the outlook for the remainder of the current year as challenging. Chris MastersChairman 13 September 2006 CHIEF EXECUTIVE'S REVIEW Divisional Performance Television revenues, in common with ITV1 as a whole, fell by 7% to £57.9m in thefirst six months of 2006 (2005: £62.2m), impacted by the negative effects ofCRR, a weak television market and the phasing of commissions in SMG Productions.This was partially offset by growth in SMG Solutions, our facilities business.Our share of ITV1's net advertising revenues (NAR) remained stable at 6.6%.Although reduced regional programme costs, staff costs and licence fees helpedto partly offset the revenue fall, the operational gearing of this businessresulted in overall television profits falling by 4% to £9.0m (2005: £9.4m). In radio, industry out-performance saw Virgin Radio's revenues grow by 5% to£11.1m (2005: £10.6m). However, we invested in marketing to support the launchof the Christian O'Connell Breakfast Show and this, combined with increasedcosts for our new digital services, resulted in radio profits reducing to £2.0m(2005: £2.5m). The breakfast show, which launched in late January, has performedwell and is in line with our expectations for a new show in this important slot. In cinema, although the loss of the UGC contract impacted total revenues,underlying revenues grew by 5% to £8.5m (2005: £8.1m). This, coupled withreduced costs as a result of lower headcount, resulted in a flat underlyingprofit performance with a loss of £0.3m (2005: £0.3m loss). In our outdoor advertising business we made good progress in converting theincreased revenue, brought about by our investment in panel growth in recentyears, into profit. Revenues grew by 13% to £11.1m (2005: £9.8m) and, withmargins growing to 14.4% (2005: 12.2%), this converted into profit growth of 33%to £1.6m (2005: £1.2m). Connecting With Our Audiences Our audiences are vitally important to the success of our business. We continueto make strenuous efforts to grow these where possible, and enhance the affinitythat we enjoy with our viewers and listeners. Across the Group each year, ourconsumer brands reach approximately 16 million people. In television, 80% of the Scottish viewing public tunes into stv for an averageof 11 hours a week. We continue to be the most popular peak-time broadcaster inScotland with a peak-time share of 29% compared to our nearest rival, BBC1, at22%, and more than three times the level of our nearest commercial rival C4(9%). While the ongoing encroachment of multi-channel television will causeaudience erosion until digital switchover in 2010, our target is to retain a 29%share of commercial impacts at digital switchover. Virgin Radio reaches on average 2.3 million listeners a week, including 8% ofall 20-44-year-old men in the UK - a key target group for advertisers. Audienceshave shown a steady upward trend in recent times and, following a slight fall inQ2 of 2006, we anticipate continued growth across the remainder of 2006.Additionally, in July, Virgin Radio became available on Freeview, a move whichis set to boost the 28% of listeners already enjoying our output via digitalplatforms. This compares with an industry average of under 13%, furtherdemonstrating the strength of Virgin Radio in the digital arena. Content Content drives audiences and we continue to focus closely on this aspect of ourbusiness. In television, the ITV1 network schedule remains popular with theScottish audience and so far this year we have augmented ITV1's network outputwith: • Revamped regional news programmes, Scotland Today and North Tonight, which are broadcast each weekday evening in the South and North regions of the stv transmission area respectively. Scotland Today and North Tonight together outperform the BBC's national news at 6 in terms of audience figures. • Refreshed Scotsport, the world's longest-running sports programme. • More popular, yet targeted, local programming such as Jet Set (a look at RAF pilot training at Lossiemouth) and The Woman Who Ate Scotland (a culinary trip around the transmission area). Content is also key to SMG Productions and the seven episodes of Taggart andfour episodes of Rebus produced across 2006 will begin airing this autumn.Additionally, we have produced a second series of Jack Osbourne - AdrenalineJunkie for ITV2 who have just commissioned a further 10 part series in the samevein. In radio, The Christian O'Connell Breakfast Show, launched in late January, hasperformed in line with our expectations for a new show in this important slot.With some of the country's most talented music programmers onboard, VirginRadio's proposition, "The music we all love", is proving popular with listenersattracted to a play list that features 15 of the artists responsible for the top20 selling albums in the first six months of 2006. Capitalising on Content As a content producer we have access to a large back catalogue of recent andhistorical material and, with the proliferation of content-hungry channels, wehave had considerable success in selling content to other broadcasters. In 2006alone, ITV1 and ITV 3 will run 11 repeats of Taggart and we have sold 46episodes of the detective series to UK Gold. Later this year we plan to launch ScotlandonTV.tv, the first IPTV service forScotland, further capitalising on the value and heritage of our televisionarchive which has been built and protected over the last 50 years. Online Activities Digital technology and the increasing range of new distribution platforms offersignificant advantages to SMG in that they allow our broadcast businesses tooperate without the constraints of the regulated environment. Drawing on thestrength of our brands to capitalise on the close relationships we have with ouraudiences will allow us to transact directly with them, thus providing newrevenue streams while at the same time creating the opportunity to target newaudiences. Significant progress in our online development was achieved in the first half of2006: • An extensive new stv.tv website was developed during the first half of the year and launched in July, following the successful rebranding of Scottish TV and Grampian TV to the single stv brand in May. This suite of websites now provides Scottish consumers with news, sport, weather, listings, competitions, dating and gaming services, many of which provide direct revenues to SMG, while also offering an attractive new online promotional opportunity for advertisers. These sites are each supported through on-air promotion on stv. We plan to add genealogy, motoring and betting to this portfolio before the end of the year. We are targeting to reach 500,000 unique users and 4.0m page impressions per month on stv.tv by the end of 2007. • The acquisition of the price comparison site, peopleschampion.com, was negotiated during the first half of the year and the site launched earlier this month. Peopleschampion.com will be promoted across stv initially then quickly rolled out across all our media and will generate revenues via click-throughs, sales commissions and banner advertising. We anticipate the business quickly reaching profitability since it is targeting to achieve 200,000 unique users and 1.3m page impressions per month by the end of 2007. • Virginradio.co.uk has been refreshed and was relaunched earlier this month. The site has generated significant traffic for many years and we plan to capitalise on its popularity through online advertising. It already achieves over 14 million page impressions per month and attracts 405,000 unique UK users and is targeted to achieve 30 million page impressions and 1 million unique users per month by the end of 2007. Virginradio.co.uk also attracts significant email traffic from its 500,000 registered users, half of whom receive emails from Virgin Radio once a week, creating a valuable and up to date database. • Pearlanddean.com was launched in February, giving this business its first direct interaction with cinema-goers in its 50+ year history. The site now offers news, reviews, listings for every cinema in the UK and Republic of Ireland, dvd hire, movie memorabilia, film related ringtones and movie ticket sales for all the UK's principal cinema chains. Regulation Whilst recognising our commitments as a public service broadcaster, regulationstill has a major influence on the performance of both stv and Virgin Radio.Some 30% of ITV1's schedule remains as PSB and while it accounts for 20% of thecommissioning budget it only returns 11% of the ratings. Over time as we migrateto digital this will be reviewed and we are continuing to work with ourregulator, Ofcom, to reduce the burden of regulation as and where appropriate. We believe that we may have the opportunity to access the reduced licence termsfor Virgin Radio already announced by Ofcom earlier than May 2008. This couldamount to initial annualised savings of around £2m per annum. Furthermore, there are ongoing discussions taking place with regulators in thefollowing key areas: • ITV1 children's schedule • Contract Rights Renewal • Network Arrangements • Product placement • Regional programming • Transmission • Production in the nations and regions Additionally, we expect that the proposed increase in external programmingcommissions by the BBC as part of the WOCC, which we expect to be included intheir Charter renewal process, will benefit both our programme production andfacilities businesses as the demand for programming from the Nations willincrease. Summary SMG has made good progress in the first half of 2006 on many fronts. We havegrown pre-tax profits, despite unpredictable advertising markets, made headwayin lightening the impact of regulatory costs and taken significant steps increating new businesses and sustainable revenue streams, most notably in theonline environment. We have a clear strategy going forward and, while trading in the remainder ofthe year appears challenging, the management and staff are committed to buildingon the progress achieved in the first six months and continuing to drive thebusiness forward. Donald EmslieActing Chief Executive 13 September 2006 Consolidated income statementfor the six months ended 30 June 2006 6 months 6 months 31 December 2006 2005 2005 Note £m £m £mCONTINUING OPERATIONS Revenue 2 88.6 94.9 210.0 Net operating expenses before reorganisation costs (76.3) (81.2) (178.8)Reorganisation costs 4 - - (3.5) ------- ------- --------Net operating expenses (76.3) (81.2) (182.3) ------- ------- --------Operating profit 2 12.3 13.7 27.7 Gain on disposal of investment 4 - - 2.3 ------- ------- --------Profit before financing 12.3 13.7 30.0 Interest income 0.1 0.3 0.6Finance costs 5 (4.4) (7.3) (11.8) ------- ------- --------Profit before tax 8.0 6.7 18.8 Tax 6 (1.7) (1.5) (4.4) ------- ------- --------Profit attributable to equity holders 6.3 5.2 14.4 ------- ------- --------Earnings per ordinary share - basic 8 2.0p 1.7p 4.6p - diluted 8 2.0p 1.7p 4.6p --------------------------------------------------------------------------------Underlying (excludes exceptional items and former UGC contract contribution) Note Revenue 88.6 90.7 200.7 Operating profit 12.3 12.8 30.7 Profit before tax 14 8.0 5.8 19.5 Earnings per share - basic 2.0p 1.4p 4.8p -------------------------------------------------------------------------------- Consolidated statement of recognised income and expensefor the six months ended 30 June 2006 6 months 6 months 31 December 2006 2005 2005 £m £m £m Profit for the period 6.3 5.2 14.4 Actuarial gain recognised in the pension schemes 6.1 - 45.0Deferred tax charge to equity (1.8) - (14.8)Application of IAS 32 and IAS 39 - - (0.5)Recognition of equity component of CULS - - 2.5 ------- ------- --------Net profit recognised directly in equity 4.3 - 32.2 ------- ------- -------- Total recognised income for the period 10.6 5.2 46.6 ------- ------- -------- Consolidated balance sheetat 30 June 2006 30 June 30 June 31 December 2006 2005 2005 Note £m £m £m ASSETSNon-current assetsGoodwill 222.1 222.1 222.1Property, plant and equipment 37.7 32.3 36.0Deferred tax asset 14.1 32.3 16.7 ------- ------- -------- 273.9 286.7 274.8 ------- ------- --------Current assetsInventories 42.1 28.5 33.8Trade and other receivables 65.8 69.0 56.2Cash and cash equivalents 7.7 13.2 28.0Short term bank deposit 2.5 5.0 5.0 ------- ------- -------- 118.1 115.7 123.0 ------- ------- --------Total assets 392.0 402.4 397.8 ------- ------- -------- EQUITYCapital and reserves attributable to the Company's equity holdersShare capital 10 7.9 7.8 7.8Share premium 10 59.5 58.8 59.0Merger reserve 173.4 173.4 173.4Equity reserve 2.5 2.5 2.5Other reserve 5.3 5.2 5.3Hedging reserve 11 - (0.8) (0.5)Retained earnings 11 (120.2) (162.0) (125.1) ------- ------- --------Total equity 128.4 84.9 122.4 ------- ------- --------LIABILITIESNon-current liabilitiesFinancial liabilities- Borrowings 139.2 139.0 149.1- Convertible unsecured loan stock 22.4 22.1 22.2- Derivative financial liability 9 - 0.8 0.5- Other non-current liabilities 0.8 0.9 0.8Retirement benefit obligation 13 46.0 99.0 53.0 ------- ------- -------- 208.4 261.8 225.6 ------- ------- --------Current LiabilitiesTrade and other payables 42.2 41.8 36.5Current tax liabilities 6.6 9.2 10.0Provisions 1.0 - 3.3Dividends payable 5.4 4.7 - ------- ------- -------- 55.2 55.7 49.8 ------- ------- --------Total liabilities 263.6 317.5 275.4 Total equity and liabilities 392.0 402.4 397.8 ------- ------- -------- Consolidated cash flow statementfor the six months ended 30 June 2006 6 months 6 months 31 December 2006 2005 2005 Note £m £m £m OPERATING ACTIVITIESCash generated by operations 12 1.5 4.0 26.7Income taxes paid (4.4) - -Interest paid (5.2) (3.4) (9.0)Pension deficit funding - (2.8) (2.8) ------- ------- --------Net cash (used)/ generated by operating activities (8.1) (2.2) 14.9 ------- ------- --------INVESTING ACTIVITIESInterest received 0.1 - 0.3Disposal of investment - - 2.7Purchase of property, plant and equipment (4.9) (4.4) (11.2) ------- ------- --------Net cash used by investing activities (4.8) (4.4) (8.2) ------- ------- --------FINANCING ACTIVITIESDividends paid - (3.1) (11.6)Net borrowings (repaid)/ drawn (9.9) - 10.1Release of cash on deposit 2.5 2.5 2.5Net repayment of loan notes/stock - (0.1) (0.2) ------- ------- --------Net cash (used in)/ generated by financing activities (7.4) (0.7) 0.8 ------- ------- --------Movement in cash and bank overdrafts (20.3) (7.3) 7.5 Net cash and bank overdrafts at beginning of period 28.0 20.5 20.5 ------- ------- --------Net cash and bank overdrafts at end of period 7.7 13.2 28.0 ------- ------- -------- Reconciliation of movement in net debt 6 months 6 months 31 December 2006 2005 2005 £m £m £m Opening net debt (139.1) (134.8) (134.8)Movement in cash and bank overdrafts in the period (20.3) (7.3) 7.5Net cash outflow/ (inflow) from decrease/ (increase) in debt financing 9.9 - (10.1) IFRS (increase)/ decrease in CULS liability (0.2) 0.7 0.6Movement in loan note liabilities - 0.1 0.2Net movement in Escrow cash (2.5) (2.5) (2.5) ------- ------- --------Closing net debt (152.2) (143.8) (139.1) ------- ------- -------- Notes to the interim statementfor the six months ended 30 June 2006 1. Basis of preparation This financial information comprises the consolidated balance sheets as of 30June 2006 and 30 June 2005 and related consolidated interim statements of incomeand cash flows for the six months then ended (hereinafter referred to as'financial information'). This financial information has been prepared in accordance with the ListingRules of the Financial Services Authority. In preparing this financialinformation management has used the principal accounting policies as set out inthe group's annual financial statements for the year ended 31 December 2005. The group has chosen not to fully adopt IAS 34, 'Interim financial statements',in preparing its 2006 interim statements and, therefore, this interim financialinformation is not in compliance with IFRS. The information for the year ended 31 December 2005 does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. A copyof the statutory accounts for that year has been delivered to the Registrar ofCompanies. The auditors' report on the financial statements was unqualified anddid not include a statement under section 237(2) or (3) of the Companies Act1985. 2. Business segments For management purposes the Group is currently organised into four operatingdivisions - Television, Radio, Cinema and Outdoor. These divisions are the basis on which the Group reports its primary segment information. Principal activities are as follows: Television - the production and broadcasting of television programmes and associated 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 media. Segment information about these businesses is presented below. Six months ended 30 June 2006 Television Radio Cinema Outdoor Group £m £m £m £m £m REVENUEExternal sales 57.9 11.1 8.5 11.1 88.6 ------- ------ ------ ------ -------PROFITSegment result 9.0 2.0 (0.3) 1.6 12.3 ------- ------ ------ ------ -------Financing (4.3) -------Profit before tax 8.0Tax (1.7) -------Profit after tax 6.3 ------- Six months ended 30 June 2005 Television Radio Cinema Outdoor Group £m £m £m £m £m REVENUEUnderlying external sales 62.2 10.6 8.1 9.8 90.7Former UGC contract - - 4.2 - 4.2 ------- ------ ------ ------ -------External sales 62.2 10.6 12.3 9.8 94.9 ------- ------ ------ ------ -------PROFITUnderlying segment result 9.4 2.5 (0.3) 1.2 12.8Former UGC contract - - 0.9 - 0.9 ------- ------ ------ ------ -------Segment result 9.4 2.5 0.6 1.2 13.7 ------- ------ ------ ------ -------Financing (7.0) -------Profit before tax 6.7Tax (1.5) -------Profit after tax 5.2 ------- 3. Operations in the interim period In line with the UK advertising market as a whole, the autumn season providesthe Group with the highest level of business and largest element of annualrevenue, and as a result the full year results are expected to be more heavilyweighted towards the second half of 2006. 4. 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 move of STV to newpremises in Pacific Quay, Glasgow. In the same month, the Group committed to areorganisation of the structure of the Out of Home division, resulting in thecreation of separate Outdoor and Cinema divisions. Both decisions culminated ina reduction in headcount within the organisation, resulting in the creation of aprovision 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 netgain of £2.3m to the Group after disposal costs of £0.4m. 5. Finance costs 6 months 6 months Full year 2006 2005 2005 £m £m £m Interest expense:Bank borrowings 4.5 4.8 9.3CULS and loan note interest 0.9 1.0 1.7 -------- -------- -------- 5.4 5.8 11.0Pension finance (credit)/ cost (1.0) 1.5 0.8 -------- -------- --------Finance costs 4.4 7.3 11.8 -------- -------- -------- 6. Tax 6 months 6 months Full year 2006 2005 2005 £m £m £mThe charge for tax is as follows:Tax on profit on ordinary activities excluding 1.7 1.5 4.2exceptional items at 21% (2005: 23%)Tax charge on exceptional items - - 0.2 ------- -------- -------- 1.7 1.5 4.4 ------- -------- -------- The charge is lower than the standard rate of 30% due to adjustments for prioryear over provisions and certain tax planning initiatives. 7. Dividends 6 months 6 months Full year 2006 2005 2005 £m £m £mAmounts recognised as distributions to equity holders in the period:Final dividend for the year ended 31 December 2004 of 1.5p - 4.7 4.7Interim dividend for the year ended 31 December 2005 of 1.2p - - 3.8Final dividend for the year ended 31 December 2005 of 1.7p 5.4 - - ------- -------- -------- 5.4 4.7 8.5 ------- -------- -------- The proposed interim dividend of 1.2p per share to be paid on 19 January 2007was approved by the Board on 8 September 2006 and has not been included as aliability as at 30 June 2006. It is proposed to pay the interim dividend to shareholders on the register at 8December 2006. 8. Earnings per share 6 months 6 months Full year 2006 2005 2005 £m £m £mEPS including exceptional items:Basic EPSAttributable profit for the financial period (including exceptional items and former UGC contract) 6.3 5.2 14.4 --------- -------- --------Weighted average number of shares in issue 314.8m 314.3m 314.5mEPS 2.0p 1.7p 4.6p ---------- -------- -------- Underlying EPS:Basic EPSAttributable profit for the financial period (including exceptional items and former UGCcontract) 6.3 5.2 14.4Impact of exceptional items and former UGC contract - (0.7) 0.6 --------- -------- --------Attributable profit for the financial period 6.3 4.5 15.0 --------- -------- -------- Weighted average number of shares in issue 314.8m 314.3m 314.5mUnderlying EPS 2.0p 1.4p 4.8p ---------- -------- -------- There is no difference between basic and diluted EPS as there is no materialimpact from dilutive share options. 9. Derivative financial liability The derivative financial liability at 30 June 2006 is £nil (£0.8m at 30 June2005; £0.5m at 31 December 2005) and has arisen as a result of an interest rateswap. The Group uses interest rate swaps to manage its exposure to interest ratemovements on its bank borrowings. The notional principal amount of the outstanding interest rate swap contract at30 June 2006 was £60.0m. At 30 June 2006 the fixed interest rates are 4.94% (fixed until 2007) and floating rates are 4.75% (3 month LIBOR). Any net gain or loss deferred in equity will reverse during the next three years, being the life of the swap. 10. Share capital During the six months to 30 June 2006, the Group has issued new ordinary sharesof 2.5p each relating to the exercise of share option awards, which has resultedin a £0.1m increase in share capital and a £0.5m increase in share premium. 11. Statement of changes in reserves Hedging Retained reserve earnings £m £m At 1 January 2006 (0.5) (125.1)Net profit - 6.3Dividends - (5.4)Allotment of own shares - (0.3)Actuarial gain - 6.1Deferred tax - (1.8)Movement in hedging reserve 0.5 - -------- --------At 30 June 2006 - (120.2) -------- -------- There have been no movements in the merger reserve, equity reserve and otherreserve during the six months ended 30 June 2006. 12. Notes to cash flow statement 6 months 6 months Full year 2006 2005 2005 £m £m £m Operating profit (before reorganisation costs) 12.3 13.7 31.2Depreciation and other non-cash items 3.7 3.4 6.6 -------- -------- --------Operating cash flows before movements in working capital 16.0 17.1 37.8 Increase in inventories (8.3) (3.0) (8.3)(Increase)/ decrease in trade and other receivables (10.6) (8.5) 1.7Increase/ (decrease) in trade and other payables 6.9 (1.3) (4.0) -------- -------- -------- 4.0 4.3 27.2Reorganisation costs (2.5) (0.3) (0.5) -------- -------- --------Cash generated by operations 1.5 4.0 26.7 -------- -------- -------- 13. Retirement benefit schemes 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 30 June At 30 June At 31 December 2006 2005 2005 £m £m £m Equities 8.0% 140.0 7.6% 137.0 8.0% 146.2Bonds 4.1- 4.9% 111.0 4.1 - 4.9% 93.9 4.1- 4.9% 109.6 ------ ------ ------Fair value of schemes' assets 251.0 230.9 255.8 Present value of defined benefit obligations (297.0) (329.9) (308.8) ------ ------ ------Deficit in the schemes (46.0) (99.0) (53.0) ------ ------ ------ A related offsetting deferred tax asset of £13.6m is shown under non-currentassets. Therefore the net pension scheme deficit amounts to £32.4m at 30 June 2006 (£68.8m at 30 June 2005; £36.7m at 31 December 2005). 14. Calculation of underlying profit before tax 6 months 6 months Full year 2006 2005 2005 £m £m £m Profit before tax 8.0 6.7 18.8 Adjusted for: Former UGC contract contribution - (0.9) (0.5)Reorganisation provision - - 3.5Gain on disposal of investments - - (2.3) -------- -------- --------Underlying profit before tax 8.0 5.8 19.5 -------- -------- -------- 15. Mailing A copy of this statement is being sent to all shareholders on 4 October 2006 andwill be available for inspection by members of the public at the Company'sregistered office at Pacific Quay, Glasgow, G51 1PQ. Independent auditors' review report to SMG plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2006 which comprises the consolidated incomestatement, consolidated statement of total gains and losses, consolidatedbalance sheet, consolidated cash flow statement and related notes. We have readthe other information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the London Stock Exchange require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the company for the purposeof the Listing Rules of the Financial Services Authority and for no otherpurpose. We do not, in producing this report, accept or assume responsibilityfor any other purpose or to any other person to whom this report is shown orinto whose hands it may come save where expressly agreed by our prior consent inwriting. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. PricewaterhouseCoopers LLPChartered AccountantsGlasgow13 September 2006 Notes: (a) The maintenance and integrity of the SMG plc web site is the responsibilityof the directors; the work carried out by the auditors does not involveconsideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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