21st Apr 2008 07:01
Sport Media Group PLC21 April 2008 Press Release 21 April 2008 SPORT MEDIA GROUP PLC ("Sport Media", "SPMG", "the Group" or "the Company") Interim results for the six months to 31 January 2008 and trading update Sport Media Group plc (AIM: SPMG.L), the integrated multi-media group thatpublishes the Sunday and Daily Sport newspapers and digital content for internetand mobile channels, today publishes its interim results for the six monthsended 31 January 2008. Financial Overview for the Interim Period • Turnover up 181% to £14.4 million (2007 H1: £5.1 million) (includes less than 5 months of Sport Newspapers Ltd consolidated results) • Operating profit increased by 11% to £2.3 million (2007 H1: £2.0 million) • Pre-tax profit increased by 10% to £2.3 million (2007 H1: £2.1 million) • Underlying pre-tax profit increased by 48% to £3.2 million (2007 H1: £2.2million) • EPS down to 1.81p (2007 H1: 3.73p) partly due to the impact of substantially increased charges for amortisation of intangibles and share based payments • Adjusted EPS decreased to 2.55p (2007 H1: 3.86p) due to issue of 58.3 million new shares for the acquisition of Sport Newspapers Ltd. • Interim dividend of 2.0p (2007 Interim: 3.0p) per share in line with the Group's policy of a pay-out of around 80% of underlying EPS Operational Overview for the Interim Period • Completion of transformational acquisition of Sport Newspapers Ltd following a successful share placing that raised £43.7 million. • Completion of the integration of the 2006/7 acquisition of the majority of Strictly Broadband • Strengthening of the management of the Group with the appointments of Andrew Fickling as Executive Director and Managing Director of Sport Newspapers (subsequently made Chief Executive Officer of the Group post period end) and Barry McIllheney as Editor in Chief • Significant new retailers now selling The Sport titles, including Somerfield, to increase total retailer base by approximately 2,000 outlets, an increase in penetration of target sales universe by 20% • New mass market advertisers attracted to the titles, including Setanta, Dial-a-phone and Ladbrokes • Advertising yield increased by 10% to £6.60 since acquisition Trading update • Current market conditions have led to the Board taking a more cautious view on future growth. • Re-launch of the Daily Sport on 21 April 2008 • Waste levels have now dropped to circa 46% • Advertising yields are currently running up 8% Commenting on the results, Andrew Fickling, Chief Executive Officer, said: "Thefirst half of the year has been a period of considerable positive change withinthe Group and we are pleased to report results broadly in line with ourexpectations for the first half. The second-half of year was always going tobe more important than the first half and is considerably more significant withrespect to the full year expectations. The combination of the delayed re-launchand the deteriorating macro economic climate has led the Board to adopt a morecautious approach to the full year forecasts. However, the continued success wehave achieved in reducing costs whilst at the same time growing distributionputs us in a strong position for growth into 2009 and beyond." For further information, please contact: Sport Media Group plc Andrew Fickling, Chief Executive Officer Tel: +44 (0) 161 236 4466Andrew Fletcher, Chief Financial Officer Tel: + 44 (0) 20 8507 6920 www.sportmediagroup.co.uk Daniel Stewart & Company plc Tel: +44 (0) 20 7776 6550Simon Leathers / Katie Shelton www.danielstewart.co.uk Abchurch Communications Tel: +44 (0) 20 7398 7710Chris Lane / Gareth Mead www.abchurch-group.com Notes to Editors: Formed by a reverse takeover of Sport Newspapers Limited by Interactive Worldplc, SPMG combines an established national newspaper brand with recognisedexperience in the delivery of content through digital channels, including bothbroadband and mobile. Through integrating traditional print with new media digital content, SPMG'sstrategy is to expand its target audiences beyond its current loyal readershipand users. The Group will also build upon the brand to attract a more diverseaudience thereby attracting a broader base of significant advertisers. Theintegration also provides significant cross selling and marketing opportunities. CHAIRMAN'S STATEMENT Overview I am pleased to report a solid set of results for the period ended 31 January2008, which has seen significant focus on reorganisation and investment. These results have been prepared in accordance with accounting policies whichare based on the recognition and measurement principles of InternationalFinancial Reporting Standards ('IFRS') expected to be adopted and effective at31 July 2008, our first full annual reporting date at which we are required toapply IFRS. As a result, the presentation of the results is somewhat differentand the comparative figures for both the previous half year and the full yearended 31 July 2007 have been restated to comply with IFRS. The new accountingpolicies and reconciliations of the differences between the IFRS results and theresults as previously published are set out in the IFRS Transition Document,which is published today. The results for the six months to 31 January 2008 include the results of SportNewspapers Ltd ("Sport Newspapers") for just less than five months since theacquisition which has transformed the business and the balance sheet of theGroup. The results demonstrate a significant step change in the size and scopeof our business with turnover increasing by 181% to £14.4 million and underlyingpre-tax profit (before amortisation of intangibles and share based paymentcharges) reaching £3.2 million; an increase of 48% on 2007. These results havebeen achieved in what are widely regarded as difficult operating conditions,particularly in the retail universe where the majority of the revenues of SportNewspapers are generated. In line with our dividend policy of having a pay-out ratio of 80% of ourunderlying EPS, the Group is pleased to announce an interim dividend of 2p pershare. The record date for the interim dividend will be 4 July 2008 and thedividend will be paid by 31 July 2008. Operating results for the Interim Period In the six months to 31 January 2008 Group revenue increased by 181% to £14.4million (2007 H1: £5.1 million). Excluding the acquisition, revenues were downby 9% on the prior period but with some growth at the gross profit level, whichsimply reflects changes in the mix of content delivery media. Underlying pre-tax profit (before amortisation of intangible assets of £0.4million and share based payment charges of £0.5 million increased by 48% to £3.2million (2007 H1: £2.2 million). This increase includes the benefits of theinclusion of just under five months of the Sport Newspapers acquisition. The positive impact of the acquisition was partially offset by the inclusion ofa small interest charge associated with the modest debt taken on to finance theSport Newspapers acquisition. Interest charges were £23,000, up from £Nil forH1 2007. EPS decreased to 1.81p (2007 H1: 3.73p) partly due to the impact ofsubstantially increased amortisation of intangibles and share based paymentcharges. Adjusted EPS, with those charges stripped out, has also decreased to2.55p (2007: 3.86p) due to issue of 58.3 million new shares in September 2007 tofund the Sport Newspapers acquisition. The balance sheet as at 31 January 2008 shows net assets of £49.2 million. Netdebt stood at just £8.0 million at the period end. The placing in September2007, which raised £43.7 million, was used to fund the majority of theacquisition costs of Sport Newspapers and to facilitate investment in workingcapital. Further deal costs of £1.2 million and debt repayment of £2.0 millionwere met from the cash generation of the Group, as was the cost of acquiring newmedia and content rights (in addition to rights acquired with Sport Newspapers)during the period at a cost of £1.7 million. Cash generated from operations increased by 109% to £3.5 million (2007 H1: £1.7million) despite a substantial additional net investment in working capital inthe Sport Newspapers business. The Group currently has un-drawn borrowingfacilities of £2.2 million. The Group is adequately capitalised for theanticipated future growth and working capital requirement in the medium term. Consolidation of acquisitions During the period, the Group has consolidated the acquisition of SportNewspapers. As highlighted at the time of acquisition, an extensive 'turnaround' process was required to reinvigorate the various brands. This required,and continues to require, management to address expected concerns about theproducts which are held by retailers, potential advertisers and customers alike. Sport Newspapers Limited The re-launch of the Daily Sport on 21 April 2008 is the culmination of the newmanagement team working to present a new proposition to the retail, advertiserand consumer markets, and embark on the most significant and focused marketingcampaign in the newspaper's history. The date of 21 April was chosen to ensure that re-launch avoided the extendedEaster holiday period and to allow the longest stable sales period possibleprior to the summer holidays. This was marginally later than originally plannedand as such means that the expected benefits of the re-launch will not be feltas quickly as hoped. Nevertheless, the long term prospects for the revisedformats remains very exciting, and the Board is optimistic that circulationlevels will grow quickly once the re-launch takes hold. The re-launch also sees the entire adult advertising section of the newspaperbeing placed into its own dedicated section in the middle of the newspaper,offering an unprecedented platform for mainstream advertisers to adopt. TheBoard's belief in the success of attracting mainstream advertising is supportedby the commitment that has come from those advertisers who have used the paperin this transitional phase, in particular Ladbrokes, Setanta, Dial-a-Phone, whohave all become regular advertisers, prior even to the re-launch. Much work was required in advance of the re-launch in order to maximise thebenefits that would accrue. Improvements have been seen in distribution,wastage and yields since acquisition, and further substantial long terms costsavings have been identified and are commencing along side the re-launchprocess. The newspaper has maintained its presence in the additional 2,000 retailersgained during the course of the year, and the Board fully expects this to risefurther following the re-launch. Trial promotional activity carried out withthe Somerfield supermarket group, which yielded an 8% increase in sales duringthe promotion, again supports the Board's belief that building commercialrelationships with key retail partners will provide significant benefits to thebusiness. Information from trials like the Somerfield promotion is being usedin presentations to other key retailers, including the main retail chains. Despite slight falls in circulation during the first half of the year,predominantly attributed to smaller supply levels, the rate of decline hasslowed considerably compared to pre-acquisition levels. This has been helped byall of the improvements to the content of the newspapers, retail estateincreases and the removal of shrouding in WH Smith Travel outlets announcedpreviously. We have also started a programme of retailer awareness, tied to the re-launch ofthe newspaper, to ensure greater compliance in display throughout the existingretail estate. This is considered by the Board to be as high a priority assecuring new retail outlets. New retail opportunities are being evaluated carefully to ensure optimum sellinglocations are prioritised, for example where a retailer can secure copy sales ofover 5 copies per outlet, to ensure that the efficiencies gained in the supplychain are maintained during this expansion. We are currently discussingcontracts with a number of such retailers. Waste levels have now dropped to circa 46% and continue to fall, realizingsignificant savings in supply costs. This represents a drop in supplied copiesfrom 250,000 copies per day in September 2007, to 180,000 copies per day atpresent. A retailer banding system has been introduced with all wholesalers to moreaccurately control supply to the whole estate. This enables extra supply to beaccurately allocated to only those retailers who have a specific profile andtherefore obtain maximum benefit from supply changes. Advertising yields are currently up 8% compared to pre-acquisition levels withyear-on-year yield increases of 4.5%. Advertising revenues are down 8%year-on-year due to a general downturn in the adult advertising marketreflecting current economic climate. We have continued to implement significant cost savings throughout thenewspaper, with editorial content costs down 10% since acquisition and 30%year-on-year. Further consolidation of the business is occurring through a programme ofvoluntary redundancies which will again yield significant savings. Management team strengthened During the first half of the year we have secured the appointment of key staffand partners, including: Barry McIlheney (Editor-in-Chief) Jon Dyer (Circulation Director) John Maddock (non-executive Director) David Bailey (non-executive Director) Jill Britton (Marketing consultant) Wardour Publishing and Design (London advertising representation) Julian Bovis (Re-launch art director) I am pleased to report that during the period under review we also appointedAndrew Fickling as an Executive Director of the Company and Managing Director ofSport Newspapers. After the period end we were further delighted to announceAndrew as Chief Executive Officer of the Group. In addition, James Brown was appointed as consultant Editor of Sport Newspapers. On 14 January 2008 we announced the appointment of Barry McIlheney asEditor-in-Chief of Sport Newspapers. Barry spent 21 highly successful years atEmap plc, where he was responsible for a number of landmark publishingachievements, including heading up the teams that launched Heat, FHM and Zoo. Attracting someone of the calibre of Barry to The Sport is a great coup and willallow us to continue to the build the paper as a vehicle to reach young men on adaily basis. He has almost unparalleled success in magazine editing andlaunches and we are confident that Barry can replicate this success at TheSport. These appointments significantly strengthen our management team and will provideadded support as we continue to grow and develop our business. Netcollex Limited The Netcollex Mobile Content business, whilst still being highly profitable, hasbeen affected by a more cautious approach to celebrity content being taken bypublishers in the UK, as a result of the use of the Human Rights Act to protectagainst invasion of privacy. This has led to prime video content opportunitiesbeing lost. The Directors have been advised that publishers in print have shiedaway from publication in the face of threatened privacy litigation. The 'publicinterest' argument over the right to privacy has yet to be truly tested in theCourts. However a recent high profile story involving a prominent figure of themotor racing industry may go to court and is likely to have a substantial impactin the development of this area. Mobile network operators have started to open up their portals to our serviceswith two networks now live with our sites and test results for this have beenencouraging for both us and the network partners, a planned roll out later inthe year will be good for sales in 2008/2009. Overseas markets have not been exploited as originally hoped, Australia now hasage verification in place across all 3 networks, however so far onlyapproximately 2,000 individuals have age verified themselves. Unlike the UKthey did not pre-opt in all their contract customers. As the pool of ageverified users grows it will be a market we will push into and similar positionsare being monitored in Eire, Spain and South Africa. Video on Demand (VOD) with Strictly Broadband has seen their continuance as themarket leader in the UK for adult VOD. Growth in sales has flattened in thelast 6 months and the traffic from Google has been brought back to in-housemanagement after 2 agencies were trialled for 3 monthly contracts and shown tobe less effective. Other methods of getting traffic to the website are beingpursued with strategic partnerships in negotiation. Strictly Broadband haspiloted with the BBFC for the certificated VOD product and this puts us in aunique position to allow internet service providers to deal with a trustedlegalised distributor and this will facilitate more deals in the coming year. Locked DVD's have shown good sales growth with distribution occurring throughretail, mail order and publishing all of which are being exploited in equalmeasure. The method of payment for unlocking is via voice call andreverse-billed SMS and we intend to introduce credit card billing in Q3 2008.Three DVD's have been commissioned to go out with editions of the Sunday Sportin April, May and June, providing opportunities for both circulation increaseand revenue from DVD content. Trading update Whilst the first half of the year has been broadly in line with ourexpectations, it has become clear recently that our customers are not immune tothe present economic uncertainty being felt across the country. In view of weaknesses in the market at the turn of the year, we took thestrategic decision to postpone the planned Q1 2008 re-launch of the titles untilafter the extended Easter period to ensure optimum return from the marketingspend allocated to this project. As a 'second purchase' product, the current climate has inevitably put ournewspaper circulations under pressure and, whilst the successes achieved inslowing the rate of decline since acquisition have encouraged the Board, we havetaken a more cautious view on future growth. Purchasing patterns across all of our business are strongly impulse driven andwe believe take-up of our products and services, particularly of our new digitalpartnerships with the major mobile networks, has similarly been slower thanexpected as a result, however the Board do not believe that there has been anyfundamental change in the growth strategy adopted. Throughout the entire sector, advertising spend has declined, but the Board areencouraged that, despite affecting display advertising in the newspaper,classified advertising has mitigated this decline and is running at itsstrongest rate since acquisition. As a result of the above, the momentum and growth we were predicting for thesecond half of the year will be less dramatic than originally expected, delayedpartly because of the general economic environment, and partly because of thestrategic re-evaluation of the optimum re-launch date in order to provide themaximum opportunity for positive impact. The re-launch and associated marketing and PR activity will reinvigorate thenewspapers, and present them to an audience of media buyers, retailers andconsumers who have previously discounted, or not been exposed to them before.It will also firmly establish the papers as a unique offering on the newsstand,creating a valuable platform for advertisers targeting our audience profile. Inaddition to benefiting the paper's revenue streams, increases in circulationresulting from this activity will have an immediate positive impact on thedigital side of the Group, providing opportunities for increased response acrossall digital offerings. The strengthening of the management team also ensures that a coherent internetstrategy can now be developed for the newspapers, which will be rolled outfollowing the re-launch, bringing a digital publishing element to the currentmix within the Group, and enhancing our advertising platforms even further. At the time of the acquisition of Sport Newspapers our forecast for the year wassecond-half loaded to accommodate the planned changes to the newspapers.Although the first half has been broadly in line with that forecast, ourattitude looking forward is more prudent for the reasons discussed above. There-launch and associated activities over the coming weeks will quickly allow usto gain a better perspective on progress. The continued success achieved inreducing costs across all areas of the Group to date puts us in a strongposition for growth into 2009 and beyond. Finally, I would like to take this opportunity to thank our staff for theirdedication and excellent work to date and look forward to updating shareholderswith further progress in due course. Simon Hume Kendal Chairman 21 April 2008 CONSOLIDATED INTERIM INCOME STATEMENT 6 months to Year to 6 months to 31 Jan 31 July 31 Jan 2007 2007 2008 Restated Restated Continuing Acquisitions Unaudited Unaudited Unaudited Note £'000s £'000s £'000s £'000s £'000s Revenue 2 4,628 9,736 14,364 5,109 11,363Cost of sales (1,789) (5,355) (7,144) (2,296) (4,361) ---------------- ---------------- ---------------- ---------------- ---------------- Gross profit 2,839 4,381 7,220 2,813 7,002Administrative costs (1,498) (3,454) (4,952) (776) (1,711) ---------------- ---------------- ---------------- ---------------- ----------------Operating profit 2 1,341 927 2,268 2,037 5,291Interest received 77 65 109Finance costs (23) - (2) ---------------- ---------------- ---------------- Profit before tax analysedbetween:Profit before amortisation 3,210 2,169 5,568of intangibles and sharebased paymentsAmortisation of intangibles (418) (47) (110)Share based payments (470) (20) (60)Profit before tax 2,322 2,102 5,398 Income taxes (737) (658) (1,665) ---------------- ---------------- ----------------Profit for the period from continuing operations 1,585 1,444 3,733 Minority interest (40) (10) (43) ---------------- ---------------- ----------------Profit for the periodattributable to equityholders of the Company 1,545 1,434 3,690 ---------------- ---------------- ----------------Earnings per share forprofit attributable to theequity holders of theCompany during the period: Basic earnings per share 3 1.81p 3.73p 9.57p ---------------- ---------------- ----------------Adjusted earnings per share 3 2.55p 3.86p 9.88p ---------------- ---------------- ----------------Diluted earnings per share 3 1.61p 3.39p 8.72p ---------------- ---------------- ---------------- CONSOLIDATED INTERIM BALANCE SHEET 31 Jan 2007 31 Jan 2007 31 July 2007 Unaudited Restated Restated Unaudited Unaudited Note £'000s £'000s £'000s Non-current assetsProperty, plant and equipment 393 122 126Indefinite lived assets 4 31,751 - -Customer relationships and contracts 4 3,559 145 130Goodwill 4 24,700 166 200Other intangible assets 4 4,922 746 770Investments 3 - 3Deferred tax assets 141 8 20 ---------------- ---------------- ---------------- 65,469 1,187 1,249Current assetsInventories 100 - 35Trade and other receivables 7,559 2,273 4,390Cash and cash equivalents 1,118 2,387 1,704 ---------------- ---------------- ---------------- 8,777 4,660 6,129 ---------------- ---------------- ----------------Total assets 74,246 5,847 7.378 ========== ========== ==========Current liabilitiesTrade and other payables 3,853 1,263 1,518Short-term borrowings 8,924 326 -Current tax payable 1,005 392 914 ---------------- ---------------- ---------------- 13,782 1,981 2,432Non-current liabilitiesDeferred tax 11,307 - - ---------------- ---------------- ---------------- 11,307 - - ---------------- ---------------- ----------------Total liabilities 25,089 1,981 2,432 ---------------- ---------------- ----------------Total net assets 49,157 3,866 4,946 ========== ========== ========== Equity attributable to equity holders of theparentShare capital 6 242 96 96Share premium account 44,741 1,262 1,187Other reserves 100 100 100Share option reserve 538 28 68Retained earnings 3,465 2,366 3,464 ---------------- ---------------- ----------------Equity shareholder' funds 49,086 3,852 4,915 Minority interest 71 14 31 ---------------- ---------------- ---------------- Total shareholders' funds 49,157 3,866 4,946 ========== ========== ========== CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY Share Share Total Share premium Other option Retained equity capital account reserves reserve earnings £'000s £'000s £'000s £'000s £'000s £'000s NoteBalance at 1 August 2006 96 1,161 100 8 2,470 3,835 Profit for the period - - - - 1,434 1,434Value of options granted - - - 20 - 20Dividends 5 - - - (1,538) (1,538)Issue of share capital 6 - 106 - - - 106Cost of shares issued - (5) - - - (5) ------------ ---------------- ------------------- ----------------- -------------- -------------Balance at 31 January 2007 96 1,262 100 28 2,366 3,852 Profit for the period - - - - 2,256 2,256Value of options granted - - - 40 - 40Dividends 5 - - - - (1,158) (1,158)Issue of share capital 6 - - - - - -Cost of shares issued - (75) - - - (75) ------------ ---------------- ------------------- ----------------- -------------- -------------Balance at 31 July 2007 96 1,187 100 68 3,464 4,915 Profit for the period - - - - 1,545 1,545Value of options granted - - - 41 - 41Value of share bonus - - - 429 - 429grantedDividends 5 - - - - (1,544) (1,544)Issue of share capital 6 146 43,554 - - - 43,700 ------------ ---------------- ------------------- ----------------- -------------- -------------Balance at 31 January 2008 242 44,741 100 538 3,465 49,086 ============ =============== =================== ================= ============== ============= CONSOLIDATED INTERIM CASH FLOW STATEMENTS 6 months to 6 months to Year to 31 31 Jan 31 Jan 2007 July 2007 2008 Restated Restated Unaudited Unaudited Unaudited Note £'000s £'000s £'000s Cash flows from operating activitiesOperating profit 2,268 2,037 5,291Adjustments for:Depreciation 103 36 106Amortisation of intangible assets 418 47 110Share based payments 470 20 60Profit on disposal of investments (106) - -Decrease/(increase) in trade and other receivables 1,599 (176) (2,292)(Increase) in inventories (60) - (35)(Decrease)/increase in trade & other (1,209) (294) (96)payables ----------------------- ------------------------- -------------------------Cash generated from operations 3,483 1,670 3,144Interest received 77 65 109Interest paid (23) - (2)Income taxes paid (873) (942) (1,439) ----------------------- ------------------------- -------------------------Net cash from operating activities 2,664 793 1,812 ----------------------- ------------------------- -------------------------Cash flows from investing activitiesAcquisitions of subsidiaries net of cash (47,911) (4) (4)acquiredPurchase of property, plant and (70) (33) (101)equipmentPurchase of intangible assets (1455) (500) (500)Deferred development expenditure (250) (72) (144)Sale/(purchase) of investments 356 - (3) ----------------------- ------------------------- -------------------------Net cash used in investing activities (49,330) (609) (752) ----------------------- ------------------------- -------------------------Cash flows from financing activitiesProceeds from issue of share capital 6 43,700 - -Share issue costs 6 - (5) (80)Proceeds from new borrowings 5,000 - -Repayment of borrowings (1,076) - -Payment of equity dividends 5 (1,544) (1,538) (2,696) ----------------------- ------------------------- -------------------------Net cash from financing activities 46,080 (1,543) (2,776) ----------------------- ------------------------- -------------------------Net decrease in cash and cash equivalents (586) (1,359) (1,716)Cash and cash equivalents at beginningof period 1,704 3,420 3,420 ----------------------- ------------------------- -------------------------Cash and cash equivalents at end of period 1,118 2,061 1,704 ============== ============== ============== NOTES TO THE CONSOLIDATED INTERIM FINANCIAL INFORMATION 1. Basis of preparation The consolidated interim financial information is for the six months ended 31January 2008. It has been prepared in accordance with the requirements of IFRS 1"First-time Adoption of International Financial Reporting Standards" relevant tointerim reports, because they are part of the period covered by the Group'sfirst IFRS financial statements for the year ended 31 July 2008. They do notinclude all of the information required for full annual financial statements,and should be read in conjunction with the consolidated financial statements ofthe Group for the year ended 31 July 2007. The consolidated interim financial information (the interim financialinformation) has been prepared in accordance with the accounting policies setout in full in the IFRS Transition Document which has been published today andwhich can be found on our website (www.sportmediagroup.co.uk) and which arebased on the recognition and measurement principles of IFRS in issue as adoptedby the European Union (EU) and are expected to be adopted and effective at 31July 2008, our first annual reporting date at which we are required to use IFRSaccounting standards adopted by the EU. Sport Media Group Plc's consolidated financial statements were prepared inaccordance with United Kingdom Accounting Standards (United Kingdom GenerallyAccepted Accounting Practice) until 31 July 2007. The date of transition toIFRS was 1 August 2006, as a result, comparative figures in respect of 2007 havebeen restated to reflect changes in accounting policies as a result of adoptionof IFRS. The disclosures required by IFRS 1 concerning the transition from UKGAAP to IFRS are given in the reconciliation schedules presented and explainedin full in the IFRS Transition Document. The accounting policies have been applied consistently throughout the Group forthe purposes of preparation of these consolidated interim financial statements. This consolidated interim financial information was been approved for issue bythe Board of Directors on 21 April 2008. The financial information set out in this interim report does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. TheGroup's statutory financial statements for the year ended 31 July 2007, preparedunder UK GAAP, have been filed with the Registrar of Companies. The auditor'sreport on those financial statements was unqualified and did not contain astatement under Section 237(2) of the Companies Act 1985. 2. Segment analysis Prior to the acquisition of Sport Newspapers the Group was organised formanagement purposes into a single operating division delivering digital contentto mobile telephony and internet based platforms. Following the acquisition ofSport Newspapers the group is organised into two operating divisions formanagement purposes - digital content deliver and newspapers. Digital content delivery For internal reporting purposes the group records and monitors digital contentrevenues and cost of sales according to the delivery platform to which contentis delivered and through which services are provided, differentiating its keybusiness segments between mobile telephony and internet. Administrative expensesof the digital content delivery business are shared overheads of that businessand cannot meaningfully be allocated by revenue stream. The principal tangiblefixed assets utilised in the digital content deliver business consist ofcomputer equipment and servers, which are utilised in the delivery of contentand services through both platforms. All of the group's digital content deliveryactivities are currently carried out in the United Kingdom. Newspapers For internal reporting purposes the group records and monitors revenues of thenewspapers division according to the nature of the revenues - from the wholesaledistribution of newspaper titles and from advertising, differentiating itsadvertising revenues between classified and display. The group does notdifferentiate cost of sales in the newspaper division between wholesale andadvertising revenue streams as the overwhelming majority of such costs representshared costs of producing, printing and distributing its newspaper titles.Similarly, administrative expenses of the newspapers business are sharedoverheads of that business and cannot meaningfully be allocated by revenuestream. Excluding goodwill and other intangible assets arising on consolidation,the principal tangible fixed assets utilised in the newspapers business consistof computer equipment and fixtures and fittings, which are utilised in theproduction of the titles. All of the group's newspaper activities are currentlycarried out in the United Kingdom and republic of Ireland. Group overheads Group overheads consist of the costs of retaining the Company's Stock Exchangelisting, investor relations activities and some central functions which are notrecharged to the operating divisions. An analysis of revenues and costs and assets employed is set out below: 6m to Digital content 31 Jan 2008 6m to 12m to £'000s Newspapers Total 31 Jan 2007 31 July 2007 £'000s £'000s £'000s £'000s Unaudited UnauditedRevenues:Mobile telephony 3,338 7 3,345 3,789 7,688Internet 1,290 126 1,416 1,320 3,675Wholesale - 5,116 5,116 - -Advertising - 4,487 4,487 - - Total 4,628 9,736 14,364 5,019 11,363 Operating profit 2,268 2,037 5,291 Finance income 54 65 107 Profit before tax 2,322 2,102 5,398 Intangible assets 1,561 63,371 64,932 1,057 1,100Other assets 2,279 7,035 9,314 4,790 6,278Liabilities (2,226) (22,863) (25,089) (1,981) (2,432) Net assets employed 1,614 47,543 49,157 3,866 4,946 3. Earnings per share The calculation of the basic earnings per share is based on the earningsattributable to ordinary shareholders of the Company divided by the weightedaverage number of shares in issue during the year. The calculation of dilutedearnings per share is based on the basic earnings per share, adjusted to allowfor the issue of shares and the post tax effect of dividends and/or interest, onthe assumed conversion of all dilutive options and other dilutive potentialordinary shares. Reconciliations of the earnings and weighted average number of shares used inthe calculations are set out below: 6 months to 31 January 2008 Weighted Average number of Per share Earnings shares amount £'000s PenceContinuing and total operationsProfit after tax 1,545 85,451,545 -----------------------Earnings attributable to ordinary shareholders 1,545Weighted average number of shares (used for basic earnings per share) 85,451,545Dilutive effect of options - 3,754,802Dilutive effect of share bonus schemes - 6,779,604 -----------------------Diluted weighted average number of shares (usedfor 1,545 95,985,951diluted earnings per share)Basic earnings per share 1.81p ============= Diluted earnings per share 1.61p ============= 6 months to 31 January 2007 Weighted Average number of Per share Earnings shares Amount £'000s PenceContinuing and total operationsProfit after tax 1,434 38,495,252 -----------------------Earnings attributable to ordinary shareholders 1,434Weighted average number of shares (used for basic earnings per share) 38,495,252Dilutive effect of options - 3,754,802 -----------------------Diluted weighted average number of shares (usedfor 1,434 42,250,054diluted earnings per share)Basic earnings per share 3.73p ============= Diluted earnings per share 3.39p ============= Year to 31 July 2007 Weighted Average number of Per share Earnings shares amount £'000s PenceContinuing and total operationsProfit after tax 3,690 38,550,066 -----------------------Earnings attributable to ordinary shareholders 3,690Weighted average number of shares (used for basic earnings per share) 38,550,066Dilutive effect of options - 3,754,802 -----------------------Diluted weighted average number of shares (usedfor 3,690 42,304,868diluted earnings per share)Basic earnings per share 9.57p ============= Diluted earnings per share 8.72p ============= Adjusted basic and diluted earnings per share In order to understand the underlying trading performance, the directorsconsider it appropriate to disclose earnings per share before and afteramortisation of acquired intangible assets and the costs of share basedpayments. The calculation of adjusted earnings per share is set out below: 6 months to 6 months to 31 Year to 31 Jan Jan 31 July 2008 2007 2007 Restated Restated Unaudited UnauditedEarnings attributable to ordinary shareholders(£'000s) 1,545 1,434 3,690Post-tax amortisation of acquired intangibleassets (£'000s) 293 33 77Post-tax cost of share based payments (£'000s) 329 14 42 Adjusted profit on ordinary activities aftertaxation (£'000s) 2,167 1,481 3,809 Weighted average number of shares inissue - basic 85,451,545 38,495,252 38,550,066- diluted 95,985,951 42,250,054 42,304,868 Basic earnings per share (pence) 1.81 3.73 9.57Amortisation of acquired intangible assets(pence) 0.34 0.09 0.20Cost of share based payments (pence) 0.40 0.04 0.11 Adjusted earnings per share (pence)- basic 2.55 3.86 9.88- diluted 2.35 3.52 9.03 4. Additions and disposals of intangible assets The following tables show the significant additions and disposals to intangibleassets. Indefinite Customer Other lived assets relationships Goodwill intangibles Total £'000s £'000s £'000s £'000s £'000s UnauditedCarrying amount at1 August 2007 - 130 200 770 1,100Acquisitions 31,751 3,662 24,500 2,632 62,545Additions - - - 1,705 1,705Amortisation - (233) - (185) (418) ------------- ------------- ------------- ------------- -------------Carrying amount at 31,751 3,559 24,700 4,922 64,93231 January 2008 ============= ============ ============ ============ ============ Indefinite Customer Other lived assets relationships Goodwill intangibles Total £'000s £'000s £'000s £'000s £'000s UnauditedCarrying amount at1 August 2006 - - - 216 216Additions - 150 166 572 888Amortisation - (5) - (42) (47) ------------- ------------- ------------- ------------- -------------Carrying amount at31 January 2007 - 145 166 746 1,057 ============= ============ ============ ============ ============ Indefinite Customer Other lived assets relationships Goodwill intangibles Total £'000s £'000s £'000s £'000s £'000s UnauditedCarrying amount at1 February 2007 - 145 166 746 1,057Additions - 82 24 106Amortisation - (15) (48) - (63) ------------- ------------- ------------- ------------- -------------Carrying amount at31 July 2007 - 130 200 770 1,100 ============= ============ ============ ============ ============ 5. Dividends 6 months to 6 months to Year to 31 31 Jan 31 Jan 2007 July 2007 2008 Restated Restated Unaudited Unaudited Unaudited £'000s £'000s £'000sDividends paid 2006 final dividend - 4.00 pence per share - 1,538 1,5382007 interim dividend - 3.00 pence per - - 1,158share2007 final dividend - 4.00 pence per share 1,544 - - -------------------- -------------------- -------------------- 1,544 1,538 2,696 ================ ================ ================= 6. Share issue During the period to 31 January 2008 58,266,667 'A' ordinary shares were issuedin a share placement arrangement. The 'A' ordinary shares rank pari passu inall respects with the ordinary shares except in that they did not carry anentitlement to participate in dividend payments in respect of the year ended 31July 2007. Shares issued and authorised for the period to 31 January 2008 aresummarised as follows: 6 months to 31 January 2008 Number £'000sAt 1 August 2007 38,584,880 96Issue of 'A' ordinary shares 58,266,667 146 ________ ________At 31 January 2008 96,851,547 242 ================ ================ 6 months to 31 January 2007 Number £'000sAt 1 August 2006 38,450,438 96Issue of shares 134,442 - ________ ________At 31 January 2007 38,584,880 96 ================ ================ Year to 31 July 2007 Number £'000sAt 1 August 2006 38,450,438 96Issue of shares 134,442 - ________ ________At 31 July 2007 38,584,880 96 =============== ================ The share issue during the period yielded approximately £40 million in cash netof placing costs and increased equity by the same amount. The weighted averageshare price at the date of issue was £0.75p. 7. Share options and share based payments Share options held by directors, employees and third parties are as follows: Granted Exercised First Final Outstanding during during Outstanding Exercise Date of date of date of 01.08.07 period period 31.01.08 price grant exercise exercise 463,972 - - 463,972 73p 08.05.06 08.05.07 08.05.10 1,345,765 - - 1,345,765 73p 08.05.06 08.05.06 08.05.11 1,237,699 - - 1,237,699 73p 08.05.06 08.05.06 08.05.16 707,366 - - 707,366 79.25p 01.11.06 01.11.09 01.11.16 __________________________________________________________ 3,754,802 - - 3,754,802 __________________________________________________________ A modified Black-Scholes model has been used to determine the fair value of theshare options on the date of grant. The fair value is expensed to the profit andloss account on a straight line basis over the vesting period, which isdetermined annually. The model assesses a number of factors in calculating thefair value. These include the market price on the date of grant, the exerciseprice of the share options, the expected share price volatility of the marketsector in which the group operates, the expected life of the options, the riskfree rate of interest and the expected level of dividends in future periods. The inputs into the model were as follows: Granted Unapproved Other 2006 Other 2006 EMI 2007 Weighted average share price 73.00p 73.00p 73.00p 79.25pWeighted average exercise price 73.00p 73.00p 73.00p 79.25pExpected volatility 25% 25% 25% 46%Expected life 2 years 5 years 10 years 10 yearsRisk-free rate 4% 4% 4% 4%Expected dividend yield 6% 6% 6% 6% Expected volatility was determined at the date of grant of the earlier optionsbased on the directors' estimates of volatility of similar quoted stocks. Inrespect of later grants the directors have estimated the actual volatility atthe date of grant by reference to the company's share price since admission toAIM. New schemes During the period three directors and one senior employee of the group weregranted rights to acquire new ordinary shares under new schemes as follows:the Executive Share Bonus Plan ('ESBP')the Executive Incentive Plan ('EIP')the Non Executive Share Bonus Plan ('NESBP')the Non Executive Incentive Plan ('NEIP') The terms of the ESBP, EIP, NESBP and NEIP were set out in the Company's AIMadmission document dated 8 August 2007. At 31 January 2008 the following rightsto acquire shares had been granted under the schemes: Scheme Rights over shares awarded Vesting periodESBP 1,452,771 18 monthsEIP 3,631,932 36 monthsNESBP 484,257 18 monthsNEIP 1,210,644 36 monthsTotal 6,779,604 Shares awarded under the ESBP and the NESBP will be forfeited if the recipientscease continuous employment with the group in the eighteen month periodfollowing grant of rights. Shares awarded under the EIP and the NEIP are subject to continuous employmentwith the group and performance conditions which must be satisfied over a threeyear period from the date of grant of rights. Performance conditions are basedon a target share price on a sliding scale between £1.20 and £1.60 with 2.5 percent vesting for each penny increase in the share price. Subject tosatisfaction of the defined performance criteria and to continuous employmentawards will vest in equal instalments on the first, second and thirdanniversaries of the award. The fair value of the share awards on the date of grant has been determined byreference to the market value of shares at that date and the application of anappropriate discount factor to take into account the probability of theperformance conditions being met. The fair value is expensed to the profit andloss account on a straight line basis over the vesting period, which isdetermined annually. 8. Business combinations Fair value adjustments have been made to the book value of the assets andliabilities in the Sport Newspapers Limited group of companies ('SportNewspapers') to adjust, where applicable, the carrying value of certain assetsand liabilities. The fair values below are preliminary and will be furtherreviewed based on additional information available at 31 July 2008. On 5 September 2007 the Company completed the acquisition of Sport Newspapers.The acquired assets and liabilities of Sport Newspapers were: Book Fair value Provisional Value adjustment fair value £'000s £'000s £'000s Newspaper mastheads, publishing rightsand imprints - 31,751 31,751Content library - 1,982 1,982Websites - 650 650Customer relationships and contracts - 3,662 3,662Property, plant and equipment 300 - 300Investments 450 (200) 250Inventories 5 - 5Trade and other receivables 4,768 - 4,768Cash at bank 1,959 - 1,959Trade and other payables (3,544) - (3,544)Deferred tax - (11,413) (11,413) ---------------- ---------------- ----------------Net assets acquired 3,938 26,432 30,370Goodwill 24,500 ----------------Consideration 54,870 ========Satisfied by:Cash 40,000Deferred consideration 5,000Loan notes 5,000Acquisition costs 4,870 ---------------- 54,870 ======== The material provisional fair value adjustments to the net assets of SportNewspapers were: Intangible assets in the form of the newspaper mastheads, publishing rights andimprints, trade name and marks of Sport Newspapers as well as certain existingcustomer relationships and contracts, website development costs and contentrights are recognised based on the Directors' assessment of their value takinginto consideration the future cash flows that are expected to be derived fromthem plus the related provision for deferred tax on all separately identifiedintangible assets. 9. Explanation of transition to IFRS Full details of the impact of the Group's transition to IFRS are set out in theIFRS Transition Document. As required by IFRS 1 in relation to the content ofinterim reports, set out below are a reconciliation of equity as previouslyreported at 31 January 2007 and a reconciliation of profits and losses aspreviously reported in the period ended 31 January 2007. Reconciliation of equity at 31 January 2007 UK GAAP a b c d e IFRS £'000s £'000s £'000s £'000s £'000s £'000s £'000sNon-current assetsProperty, plant and equipment 122 - - - - - 122Customer relationshipsand contracts - - - 145 - - 145Goodwill 313 - 3 (150) - - 166Other intangible assets 483 - - - 263 - 746Deferred tax assets - 8 - - - - 8 ------------ ------------ ------------ ------------ ------------ ------------ ------------Total non-current assets 918 8 3 (5) 263 - 1,187 ------------ ------------ ------------ ------------ ------------ ------------ ------------Current assetsTrade and other receivables 2,435 - - - - (162) 2,273Cash and cash equivalents 2,387 - - - - - 2,387 ------------ ------------ ------------ ------------ ------------ ------------ ------------Total current assets 4,822 - - - - (162) 4,660 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Total assets 5,740 8 3 (5) 263 (162) 5,847 ------------ ------------ ------------ ------------ ------------ ------------ ------------Current liabilitiesTrade and other payables 1,263 - - - - - 1,263Short-term borrowings 326 - - - - - 326Current tax payable 370 - - - 22 - 392 ------------ ------------ ------------ ------------ ------------ ------------ ------------Total current liabilities 1,959 - - - 22 - 1,981 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Total liabilities 1,959 - - - 22 - 1,981 ------------ ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- -------------- ------------ ------------- ------------- --------------Net assets 3,781 8 3 (5) 241 (162) 3,866 ====== ====== ====== ====== ====== ====== ======EquityShare capital 96 - - - - - 96Share premium account 1,262 - - - - - 1,262Other reserves 100 - - - - - 100Share option reserve - 28 - - - - 28Retained earnings 2,309 (20) 3 (5) 241 (162) 2,366 -------------- -------------- -------------- ------------ ------------- ------------- --------------Equity shareholders' funds 3,767 8 3 (5) 241 (162) 3,852 Minority interest 14 - - - - - 14 -------------- -------------- -------------- ------------ ------------- ------------- --------------Total equity 3,781 8 3 (5) 241 (162) 3,866 ====== ====== ====== ====== ====== ====== ====== Reconciliation of profit for the six months ended 31 January 2007 UK GAAP a b c d e IFRS £'000s £'000s £'000s £'000s £'000s £'000s £'000sContinuing operationsRevenue 5,109 - - - - - 5,109Cost of sales (2,368) - - - 72 - (2,296) ---------------- ------------- -------------- ------------ ------------- ------------- --------------Gross profit 2,741 - - - 72 - 2,813 Administrative costs (729) (20) - (5) (22) - (776) ---------------- ------------- ------------- -------------- ------------- ------------- --------------Operating profit 2,012 (20) - (5) 50 - 2,037 Interest received 65 - - - - - 65Finance costs - - - - - - - ---------------- ------------- ------------- -------------- ------------- ------------- --------------Profit before tax 2,077 (20) - (5) 50 2,102 Income tax expense (644) 8 - - (22) - (658) ---------------- ------------- ------------- -------------- ------------- ------------- --------------Profit for the period from continuingoperations 1,433 (12) - (5) 28 - 1,444 Minority interest (10) - - - - - (10) ---------------- ------------- ------------- -------------- ------------- ------------- --------------Profit for the period 1,423 (12) - (5) 28 - 1,434 ======== ======== ======== ======== ======== ======== ======== Notes to the reconciliations a) Under UK GAAP, the Group applied FRS 20, "Share-Based Payment" for the firsttime in the year ended 31 July 2007. However, under IFRS 2, the equivalentinternational standard, retrospective adjustments are required at 31 July 2006and 31 January 2007. The values of these changes were £8,000 and £20,000respectively before adjustments for deferred tax. For presentational purposesthe resultant entries are presented within equity as movements on a share optionreserve. b) Goodwill recognised by the Group on the acquisition of Strictly Broadbandprior to 31 July 2007 under UK GAAP was amortised over a period of 15 years.Under IFRS goodwill is not amortised, but tested annually for impairment. Thegoodwill amortisation charged in 2007 in accordance with UK GAAP has beenwritten back. c) The Group acquired a controlling interest in Strictly Broadband on 4 December2006. Application of IFRS 3 to this business combination resulted in theidentification of a number of customer relationships and contracts. Under IFRSthese have been recognised separately in the balance sheet at their fair valueat the date of the combination. Under UK GAAP these intangible assets weresubsumed within goodwill. The result of these adjustments is to decrease goodwill and increase intangibleassets at the combination date. At 31 January 2007 and 31 July 2007 thecarrying value of other intangible assets was increased by £145,000 and £130,000respectively. The value of goodwill at 31 January 2007 and 31 July 2007 wasreduced by £150,000. Goodwill recognised by the Group on the acquisitions of the Strictly Broadbandunder UK GAAP was amortised over a period of 15 years. Under IFRS goodwill isnot amortised, but tested annually for impairment. The goodwill amortisationcharge recognised in accordance with UK GAAP in 2007 has been written back.However, intangible assets other than goodwill identified on these businesscombinations in accordance with IFRS as described above are amortised inaccordance with the accounting policy explained in note 3. The result of theseadjustments is to increase the amortisation charge in the income statement forthe six months ending 31 January 2007 by £5,000 and by £20,000 for the yearending 31 July 2007 and increase the carrying value of total intangible assetsby the same amounts. d) Under UK GAAP the Group expensed the cost of developing its bespoke softwareapplications as they were incurred. Under IFRS the development costs which meetthe recognition criteria set out in IAS38 are capitalised in the balance sheetand amortised over their expected useful life of five years. The result of these adjustments is to increase other intangible assets at 1August 2006 by £216,000. At 31 January 2007 and 31 July 2007 the carrying valueof other intangible assets was increased by a further £72,000 less amortisationcharged of £25,000 and at 31 July 2007 the carrying value of other intangibleassets was increased by a further £72,000 less further amortisation charged of£32,000. e) In carrying out an assessment of the fair values of financial instruments atthe date of transition to IFRS an adjustment was made to reduce the carryingvalue of certain trade receivables by £162,000. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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