Stvg Regulatory News (STVG)

28 Sep 2007 07:05

SMG PLC28 September 2007 28 September 2007 Interim Results 2007 Financial Highlights - Pre exceptionals and IFRS5 includes continuing anddiscontinued operations 2007 2006Revenue £89m £89mEBITDA £10m £15mOperating profit £7m £12mProfit Before Tax £1m £8mEarnings per Share 0.3p 2.0p Trading for the first half of 2007 has been in line with managementexpectations. The Group is on track to meet our expectations for the second halfof 2007, despite the moderate underperformance in Outdoor. We have identifiedfurther efficiencies in the TV business since the June Business Review, whichwill reduce 2008 costs by an additional £2.5m. Strategic Developments • Disposal of Primesight outdoor advertising business for up to £62m, with cash proceeds at completion of £52m which will be used to reduce debt • Delivering a 10% reduction in controllable costs in 2007 as per our June plan, with a further 10% reduction identified since then, the latter will reduce the ongoing costs in 2008 by a further £2.5m • Already delivering on turnaround plan -12 measurable Key Performance Indicators identified and embedded in business • Further strengthening of the TV management team to accelerate growth in advertising and sponsorship, through appointment of David Connolly - former Vice Chair of Starcom and Ofcom's CRR adjudicator - as Commercial Director • In line with our Content strategy, we plan to accelerate the Content Production business growth through small, accretive acquisitions • Restructuring of stv into Broadcasting, Content and Ventures divisions completed • Pearl & Dean remains a non-core asset and the sale process continues as management implement changes to improve the efficiency of the business. Onerous contract provision taken in this period of £11.4m • £22.4m Convertible Unsecured Loan Stock (CULS) refinanced Virgin Radio • Richard Huntingford will take over as Executive Chairman at Virgin Radio on 1 October, and assume full management responsibility for the business going forward • Virgin Radio continues to outperform other listed radio groups and leads the way in digital listening. Virgin Radio is performing ahead of budget going into the second-half, the 2008 forecast is for continuing strong performance; the Board believes this performance will enhance Virgin Radio's value. • An IPO remains an option and we confirm that there is significant interest in Virgin Radio from a number of potential buyers. • Book value of Virgin Radio goodwill written down to reflect the change in accounting methodology of the business as a discontinued activity Richard Findlay, Chairman, commented: "SMG is on track to deliver its turnaround plan. The disposal of Primesight willreduce debt significantly and, in Richard Huntingford, we have appointed a verystrong leader for Virgin Radio. stv remains our core focus, and the managementteam is making real headway in executing the plan we outlined in June." Rob Woodward, Chief Executive, said: "Despite difficult market conditions, we have delivered to plan over the lastthree months, disposing of Primesight, improving Virgin Radio's outlook andbeginning the turnaround of stv, our core business. In TV, further costreductions will benefit 2008. We are turning around the business, delivering onthe plan communicated in June and we look forward to the future withconfidence." 28 September, 2007 There will be a presentation for analysts at the offices of ABN AMRO, 250Bishopsgate, London EC2 today at 9.30am. An online video interview with Rob Woodward can be viewed at www.smg.plc.uk from7am. There is also a link to the circular sent to shareholders today regarding theproposed disposal of Primesight at www.smg.plc.uk Further enquiries: SMG plcRichard Findlay, Chairman Tel: 020 7882 1199Rob Woodward, CEOGeorge Watt, CFO Brunswick Group LLPJames Hogan Tel: 020 7404 5959Simon Sporborg OPERATIONAL REVIEW Overview The first half of 2007 has seen good progress on our turnaround plan, despitesome difficult market conditions and disappointments in the original 2007 budgetprepared by the previous Board. The Board recognises the current underperformance of the business, has taken aseries of decisive actions to address this weakness and remains confident ofachieving our strategic plan. As outlined in the business review in June,reduction of debt is central to SMG's strategy, whilst retaining a central focuson the TV business; our aim is to create the broadcaster of choice for viewersand advertisers in Scotland. We have met the revised expectations for the first half; and confirm that we areon track for the second half. Further cost reductions have been identified whichwill benefit 2008; making good progress on our 12 KPIs; and confirming the saleof Primesight for up to £62m - an uplift from the price on offer in April whenthe initial sale process was suspended. Trading Performance The first half saw continuing operations generate turnover of £55.6m (2006:£57.9m), statutory operating profit of £2.3m (2006:£9.0m) and a statutory lossafter tax of £7.1m (2006:£3.7m profit). The loss for the period on discontinuedoperations amounted to £34.5m (2006:£2.6m profit) and the total lossattributable to equity holders was £41.6m (2006:£6.3m profit). Underlying trading performance excluding exceptional items (in £m) is shownbelow. Turnover Operating Profit 2007 2006 2007 2006Television 55.6 57.9 3.9 9.0 ------ ------ ----- -----Outdoor 11.5 11.1 0.8 1.6Radio 12.1 11.1 2.5 2.0Cinema 9.3 8.5 (0.3) (0.3) ----- ----- ------- ----- 32.9 30.7 3.0 3.3 ------ ------ ----- -----Total 88.5 88.6 6.9 12.3 ------ ------ ----- ----- Group revenue remained flat at £88.5m (2006: £88.6m). Within the televisionbusiness, Broadcast revenues fell 6% to £46.3m (2006: £49.4m) due to lowerairtime and telephone revenues. However, NAR share increased to 6.75% (2006:6.61%) as stv outperformed the ITV network. In Content, revenues increased 13%to £5.9m (2006: £5.2m) reflecting higher levels of programme deliveries in theperiod. Ventures revenues were also marginally up by 3% to £3.4m (2006: £3.3m). Outdoor sales increased by 4% to £11.5m (2006: £11.1m) with double digit Q1growth slowing in Q2, especially in June. With the cost base growing in terms ofpanel rents and overheads to support growth over recent years, operating profitsfell by £0.8m to £0.8m (2006: £1.6m). Radio revenues grew by 9% to £12.1m (2006: £11.1m) reflecting an excellentairtime sales performance and strong growth in online revenues. This flowedthrough to operating profit resulting in 25% growth to £2.5m (2006: £2.0m) andoperating margins improving to more than 20%. Cinema revenues were up 9% at £9.3m (2006: £8.5m) reflecting admissions andscreen growth. However, this growth was offset by increased rental payments toexhibitors resulting in flat operating losses of £0.3m (2006: £0.3m loss). Interest costs rose from £4.3m in 2006 to £5.9m, reflecting the Group's higheraverage debt levels across the period. Underlying pre-tax profits, excluding exceptionals, after taking all of theabove items into account, amounted to £1.0m (2006: £8.0m). In view of the performance of the business and the ongoing pressure on theGroup's balance sheet, the Board has decided not to recommend an interimdividend for the first half. When there is clear evidence of growth asanticipated in the turnaround plan, the Board will reconsider the payment of adividend. The first half ends with a further write down to the carrying value of VirginRadio, of £26.6m, resulting in a revised carrying value of the goodwill andother assets of £85.0m. This reflects the change in accounting methodologyapplied to the valuation of goodwill as the business was reclassified as adiscontinued activity. The goodwill is now valued using a market based approachreflecting comparable trading multiples. Within Pearl & Dean, the Board has concluded that the Vue contract is onerousand a provision to cover future losses has been made of £11.4m. Exceptionalfinance fees of £5.0m were incurred in both amending the Group's bankingagreement in April and pursuant to exceptional fees under the terms of thatagreement. Finally, an additional £1.6m exceptional reorganisation costprovision was made in the period following the announcement of additionalheadcount reductions in television. The Group's net debt amounted to £189.4m at 30 June 2007 (December 2006:£157.3m) with the increase from December due to a £16.0m seasonal workingcapital outflow in cinema and content which will reverse in the second half,interest payments and exceptional spend on debt negotiation and reorganisationcosts. We have announced today the refinancing of the Group's £22.4m ConvertibleUnsecured Loan Stock (CULS) with a facility to April 2009. Assuming this debtfacility was to be in place throughout 2008, the interest charge would be £2.5m. It is intended that the of the listing of CULS on the UK Listing Authority'sOfficial List will be cancelled and the CULS cease to trade on the London StockExchange's market for listed securities, in each case with effect from 8am on 1October 2007, following which redemption monies due to the holders of CULS willbe distributed by Capita Registars. In addition, following the agreement of a 10 year pension deficit fundingpattern announced in January between the Group and the trustees of the twodefined benefit pension schemes, deficit funding payments of £5.8m were made inthe period. These payments, together with improved asset returns and increasedbond yields, resulted in the IAS19 net deficit falling by over 55% to £14.3m(December 2006: £32.8m). Turnaround of core TV business The TV business has been underperforming in the first half and action has beentaken to address this. The Board has identified a further £2.5m reduction incontrollable costs within the TV business. £1.5m of this saving will be achievedthrough efficiencies in staff numbers as we continue to change the skills mixwithin the business to ensure that we are fit for purpose and aligned todelivering the challenging KPIs set out in June. In addition, the TV division'searnings are weighted to the second half of the year reflecting the seasonalnature of the advertising market and programme delivery. As outlined in June, the Board is committed to building a TV business which isthe broadcaster of choice in Scotland, with the goal of becoming Scotland's mostinfluential, relevant, innovative and trusted media brand. We announced 12 KPIsin June as part of the 100 day business review (see table below). The KPIs arebased around the three divisions of the TV business - Broadcast, Content andVentures. Since June, we have embedded the KPIs into the business and we willprovide an update on progress at our Preliminary results in 2008 and regularlythereafter. Division KPIs Broadcast 1. increase regional advertising market share from 19% to 25% by 2010 (21% in 18 months) 2. grow sponsorship revenues by 50% by 2010 (30% in 18 months) 3. increase margins through better cost control and commercial management from 10% to 14% by 2010 (11.0% in 18 months)Content 4. grow produced hours from 45 hours to 130 hours by 2010 (60 hours in 18 months) 5. exploit the extensive content library to achieve 60% growth by 2010 (40% in 18 months) 6. grow rights exploitation business by 40% by 2010 7. maintain margins at 10%Ventures 8. develop our online presence through stv.tv by delivering compelling online content to target 200,000 visitors a day by 2010 (30,000 visitors a day in 18 months) 9. increase online advertising revenue to £2 million (£0.75 million in 18 months) 10. focus on regional transaction based consumer opportunities to build revenues of £2.5 million in 2010 (£1.0 million in 18 months) 11. expand into the Scottish classified advertising market to capture 3% of the total market in 2010 from a zero starting point (0.5% in 18 months) 12. increase margins from 5% to 30% by 2010 (10% in 18 months) Broadcast In our Broadcast division, the first half of 2007 has seen audience share rise.stv continues to be the most popular peak-time broadcaster in Scotland with ashare of 27% compared to the BBC share of 22%. Across the Top 50 commercialprogrammes in first half of 2007, stv showed 49 of the top 50 programmes foradults, housewives and women categories and compared to other terrestrialcommercial channels (C4 and five), stv is the best performing. stv's peak timecommercial impacts were down 3.1% in the first half, significantly outperformingC4 (down 14.4%) and five (down 22.3%). (Source: BARB) The news service has had a strong year. Ratings for Scotland Today and NorthTonight have grown year on year, up 10% to 24.6% and they regularly outperformBBC1's Six O'clock News whose ratings have fallen 4% year on year; the shareof BBC1's Reporting Scotland is also down 7% year on year. The sub-regional newsservice introduced in January gives an additional five minutes of local newseach weekday to Scotland Today audiences in West and East of Central Scotlandand to North Tonight viewers in Tayside and the North of Scotland. The servicedelivers high quality local news content, supported by dedicated web news pageson www.stv.tv further strengthening our links with local audiences. These newslots are delivering some of the highest five-minute ratings within these newsprogrammes. In the first six months of 2007, stv news outperformed the ITVnetwork by four share points. This was an increase from an outperformance of 2.5points in the previous year. Better serving our audience through an additional regional programme To build on the success of news, we will be introducing a new half hournews-driven programme in the 5.30pm slot in early 2008. This programme will be anews-led, magazine style format which will deliver topical discussion on what isimportant in Scotland. stv will take control of the schedule and provide adedicated hour of news for Scotland each weekday. We havea strong connection with our evening news audience and are confident that thisenhancement will be well received by our audience. The success of our broadcasting offering will help strengthen our position asthe broadcaster of choice in Scotland. David Connolly appointed Commercial Director We are delighted to confirm that David Connolly, the former OFCOM CRRadjudicator and Vice Chair of Starcom, joins the management team as CommercialDirector. David is a well respected senior advertising executive who brings awealth of experience and skills. David will lead our commercial activities andis tasked with delivering the advertising and sponsorship KPIs set out in June.His role will also support the commercialisation of our online strategy anddevelop opportunities in branded content. Accelerating growth in Content The Content division is positioned right at the heart of the TV business as allcreative talent is now centralised into one group. Content will focus on 360degree cross-platform programming; building new programme brands and becomingthe natural home for Scottish talent. In line with our content strategy, and once we are in a position to do so, weare planning to accelerate the growth in our content business through small,accretive acquisitions. We have identified a number of targets and will keep youapprised of progress. Content's commissioned hours currently total 50 (59 including Gaelic) which ison track for the 18 month KPI target. In Drama, there are six new Taggartepisodes and four new Rebus episodes for transmission in 2007. InFactual, the team have had commissions from Bravo, Sky Travel and UK History.Ginger Productions is also performing well with commissions including ITV2,Living and Virgin1. The Jack Osbourne, Adrenaline Junkie Series consistentlydelivers an average of over 800,000 viewers per week for ITV2. The stv library has around 200,000 hours of material and we are seeking tofurther commercialise our archive material. We will announce the appointment ofan external sales house shortly. Implementing new online strategy in Ventures The Ventures division has centralised all the new media growth opportunitiesinto one business to build a powerful online presence. This will be achieved byexploiting our regional position through the stv brand with the goal to dominatethe Scottish new media market from a local content angle. It is expected thatthe total Ventures division will generate revenues of £20m by 2010. Compellingcontent continues to increase on stv.tv with live streaming being successfullyincorporated into the site. Our interactive service - Watch To Win ('WTW') - has outperformed the nationaltrend and increased responses. This is a result of a combination of improvedscheduling on key soap nights, appealing cash prizes and captivating graphics.During September to date, the now once a week competition has driven more profitin one night than was previously generated in a week long campaign. Since ourWTW proposition was revamped in early May of this year, Q3 profits are 92%higher than Q1 and 55% higher than Q2. stv.tv/Bingo was relaunched this year with dedicated web pages created alongsideonscreen, print and a viral campaign. Since the relaunch in August, we generatedmore than 17 times the number of registrations in August than for the whole ofJuly. Also, to date, September registrations are 28% up on August. Progress on non-core businesses Primesight On 31 August, we announced the proposed disposal of Primesight to GMT, a leadingand long established provider of private equity for mid-market European buyoutsin the media and telecoms sectors, for a total consideration of up to £62.0million. The Board is satisfied with this outcome and that an uplift in value wasrealised over offers available during the Disposal process that we suspended inApril. The proceeds of the sale will strengthen SMG's balance sheet, whilefreeing the management team to concentrate on the turnaround of the televisionbusiness and the disposal of our other non-core businesses. The total consideration was made up of £52.0 million payable in cash oncompletion; a loan note of £5.0 million, payable at the earlier of five yearsfrom Completion or an exit of the business by GMT; and a further loan note of upto £5.0 million, payable on a similar basis and contingent upon Primesightachieving agreed target profits for the financial year ending 31 December 2007.Approximately £1.4m of the cash proceeds will be placed in a retention accountfor use by GMT in relation to certain costs associated with planning issues.Approximately £0.8m will be paid by GMT to SMG at completion of the Disposal inrespect of expected surplus working capital in Primesight. The Disposal circular has been issued to shareholders today for approval at theEGM on 15 October 2007. Irrevocable undertakings to vote in favour of theDisposal have been received from the Board and Hanover General Partner II,which together account for approximately 12.9% of the voting rightsattaching to the ordinary share capital of SMG. The proceeds from the sale of Primesight are not included in the half yearbalance sheet, but will significantly reduce the debt burden in the followingsix months. The sale is a clear indication that the Board is beginning todeliver on its three year plan. Virgin Radio There is a strong team in place to drive the business forward under theleadership of Richard Huntingford, who we are delighted to announce today asExecutive Chairman of Virgin Radio with effect from 1 October. Richard will takefull management responsibility for the business. The Board has been further strengthened with Rosemary Thorne as SeniorIndependent Director and David Palmer as Chief Financial Officer of VirginRadio. In addition we are delighted to announce the appointment of David Lloyd,formerly Managing Director of Galaxy and LBC - part of the Chrysalis Group PLC -as Programme Director and Andy Grumbridge, formerly of Channel 4, who recentlyjoined the management team as Head of New Media. These important appointmentsfurther bolster Virgin Radio's outstanding management team. The Board is pursuing the realisation of full value for Virgin Radio. An IPOremains an option that we will continue to explore, however, the currentsentiment in equity markets has meant a revision of the timetable. We have alsohad significant interest from a number of parties to buy Virgin Radio and wewill concentrate on moving this divestment process forward. Virgin Radio has had a strong half year, having outperformed the radio market;achieved its best performance in Rajars in hours and audience reach in 3 years;and is leading the field in digital listening with 20.5% of its audience beingdigital listeners against the industry average of 12.8%. On the back of therecent Rajar performance and strong leadership team, this business is wellplaced for continued growth in 2008. Pearl & Dean Pearl & Dean remains non-core and the sale process continues. The first half of2007 has seen P&D revenue up 9%, driven by admissions growth of 6% and a 6%increase in screens year on year largely from new builds. An onerous contract provision of £11.4m has been made for the loss makingcontract with Vue which runs until 2010. We will now seek to renegotiate theterms of this contract and will cut costs to address the losses being incurredin Pearl & Dean. Outlook Q3 Trading in each business - revenue growth YoY Q3 YTD Q3 October 07stv airtime +5% -3% -5%Radio +13% +10% +9%Cinema +8% + 9% +62%Outdoor -5% flat +1% TV is outperforming the ITV network, driven by a strong regional market whileRadio is also continuing to outperform the national radio market. Cinema had agood performance in Q3 on the back of a strong film line up. The October figurereflects the strong film releases scheduled and reflects the movement of spendfrom later months. The Board confirms that these businesses are on track for therest of 2007. Following a weaker performance over the summer months as the sixsheet market has slowed, Outdoor will see operating performance moderately belowexpectations for the full year. We aim to deliver shareholder value based on a turnaround plan underpinned by aclear set of challenging KPIs now embedded within the new structure of the TVbusiness. We are delivering on the plan communicated in June and we look to thefuture with increasing confidence. We have identified further cost reductionswhich will benefit 2008, together with an accelerated growth strategy in ourContent business. Richard Findlay Rob WoodwardChairman Chief Executive 28 September, 2007 Consolidated income statementfor the six months ended 30 June 2007 6 months 6 months 31 December 2007 2006 2006 Note Underlying Exceptional Results Underlying Exceptional Results Results results items for results items for for period period year £m £m £m £m £m £m £mCONTINUING OPERATIONSRevenue 2 55.6 - 55.6 57.9 - 57.9 125.6 Netoperatingexpensesbeforeexceptional costs (51.7) - (51.7) (48.9) - (48.9) (109.8)Reorganisationcosts 4 - (1.6) (1.6) - - - (2.6)Writedown ofstock 4 - - - - - - (6.5) ------- -------- -------- ------- ------- -------- -------Netoperating expenses (51.7) (1.6) (53.3) (48.9) - (48.9) (118.9) ------- -------- -------- ------- ------- -------- ------- Operatingprofit 3.9 (1.6) 2.3 9.0 - 9.0 6.7 Gain ondisposal ofinvestment 4 - - - - - - 0.4Loss ondisposal ofproperty 4 - - - - - - (0.4) ------- -------- -------- ------- ------- -------- ------- - - - - - - - ------- -------- -------- ------- ------- -------- ------- Profit beforefinancing 3.9 (1.6) 2.3 9.0 - 9.0 6.7Interest 0.2 - 0.2 0.1 - 0.1 0.2incomeFinance costs 4,5 (6.1) (5.0) (11.1) (4.4) - (4.4) (8.6) ------- -------- -------- ------- ------- -------- -------(Loss)/profit before tax (2.0) (6.6) (8.6) 4.7 - 4.7 (1.7)Taxcredit/(charge) 7 1.0 0.5 1.5 (1.0) - (1.0) 3.0 ------- -------- -------- ------- ------- -------- -------(Loss)/profitfor the periodfromcontinuingoperations (1.0) (6.1) (7.1) 3.7 - 3.7 1.3 DISCONTINUEDOPERATIONSProfit/(loss)for the periodfromdiscontinuedoperations 6 3.5 (38.0) (34.5) 2.6 - 2.6 (75.8) ------- -------- -------- ------- ------- -------- -------Profit/(loss)attributableto equityholders 2.5 (44.1) (41.6) 6.3 - 6.3 (74.5) ----- -------- -------- ------- ------- -------- -------Earnings perordinary share- basic anddiluted 9 0.8p (13.1p) 2.0p 2.0p (23.6p)Earnings perordinary sharefrom continuingoperations- basic anddiluted 9 (0.3p) (2.2p) 1.2p 1.2p (17.9p) Underlying (pre IFRS 5) Note Operating profit 15 6.9 12.3 17.5Profit before tax 15 1.0 8.0 9.1Earnings per share - basic 0.3p 2.0p 2.7p Consolidated statement of recognised income and expensefor the six months ended 30 June 2007 6 months 6 months 31 2007 2006 December 2006 £m £m £m (Loss)/profit for the period (41.6) 6.3 (74.5) ------- -------- -------- Actuarial gain recognised in the pension schemes 19.1 6.1 4.1Deferred tax charge to equity (6.1) (1.8) (1.2)Cash flow hedges - - 0.8 ------- -------- --------Net profit recognised directly in equity 13.0 4.3 3.7 ------- -------- --------Total recognised (expense)/income for the period (28.6) 10.6 (70.8) ------- -------- -------- Consolidated balance sheetat 30 June 2007 30 June 30 June 31 December 2007 2006 2006 Note £m £m £mASSETSNon-current assetsGoodwill 8.7 222.1 113.5Property, plant and equipment 14.7 37.7 18.2Deferred tax asset 8.6 14.1 14.8 -------- -------- ------ 32.0 273.9 146.5 -------- -------- ------Current assetsInventories 41.1 42.1 36.1Trade and other receivables 40.2 65.8 42.6Cash and cash equivalents - 7.7 8.7Short-term bank deposit - 2.5 2.5Derivative financial instruments 10 0.3 - 0.3 -------- -------- ------ 81.6 118.1 90.2 -------- -------- ------ Non-current assets classified as held forsale 6 173.8 - 76.7 -------- -------- ------ Total assets 287.4 392.0 313.4 -------- -------- ------ EQUITYCapital and reserves attributable to theCompany's equity holdersShare capital 11 7.9 7.9 7.9Share premium 11 61.0 59.5 60.2Merger reserve 173.4 173.4 173.4Equity reserve 2.5 2.5 2.5Other reserve 12 2.0 5.3 3.2Hedging reserve 0.3 - 0.3Retained earnings 12 (234.7) (120.2) (202.0) -------- -------- --------Total equity 12.4 128.4 45.5 -------- -------- -------- LIABILITIESNon-current liabilitiesBorrowings 170.6 139.2 149.3Convertible unsecured loan stock - 22.4 -Other financial liabilities 0.3 0.8 1.1Retirement benefit obligation 14 20.5 46.0 46.7 -------- -------- -------- 191.4 208.4 197.1 -------- -------- --------Current LiabilitiesTrade and other payables 32.0 42.2 35.6Borrowings 2.4 - -Convertible unsecured loan stock 22.4 - 22.5Other financial liabilities 0.7 - -Tax liabilities - 6.6 1.5Provisions 0.8 1.0 1.4Dividends payable - 5.4 - -------- -------- -------- 58.3 55.2 61.0 -------- -------- -------- Liabilities directly associated withnon-current assets classified as held forsale 6 25.3 - 9.8 -------- -------- -------- Total liabilities 275.0 263.6 267.9 -------- -------- -------- Total equity and liabilities 287.4 392.0 313.4 -------- -------- -------- Consolidated cash flow statementfor the six months ended 30 June 2007 6 months 6 months 31 December 2007 2006 2006 Note £m £m £mOPERATING ACTIVITIESCash (used) /generated by operations 13 (7.9) 1.5 11.8Taxes paid - (4.4) (4.0)Interest paid (12.5) (5.2) (10.6)Pension deficit funding (5.8) - - -------- -------- ---------Net cash used by operating activities (26.2) (8.1) (2.8) -------- -------- ---------INVESTING ACTIVITIESInterest received 0.2 0.1 0.2Purchase of property, plant andequipment (2.0) (4.9) (9.7) -------- -------- ---------Net cash used by investing activities (1.8) (4.8) (9.5) -------- -------- ---------FINANCING ACTIVITIESDividends paid (3.8) - (5.3)Net borrowings drawn/(repaid) 20.9 (9.9) 0.2Release of cash on deposit 2.5 2.5 2.5Net repayment of loan notes/stock (0.1) - - -------- -------- ---------Net cash generated/(used) by financingactivities 19.5 (7.4) (2.6) -------- -------- --------- Movement in cash and bank overdrafts (8.5) (20.3) (14.9) Net cash and bank overdrafts atbeginning of period 13.1 28.0 28.0 -------- -------- ---------Net cash and bank overdrafts at end ofperiod 4.6 7.7 13.1 -------- -------- --------- Reconciliation of movement in net debt 6 months 6 months 31 December 2007 2006 2006 £m £m £m Opening net debt (157.3) (139.1) (139.1)Movement in cash and bank overdrafts inthe period (8.5) (20.3) (14.9)Net cash (inflow)/outflow from(increase) /decrease in debt financing (21.3) 9.9 (0.2)Net movement in Escrow cash (2.5) (2.5) (2.5)IFRS decrease /(increase) in CULSliability 0.1 (0.2) (0.3)Movement in loan note liabilities 0.1 - (0.3) -------- -------- ---------Closing net debt (189.4) (152.2) (157.3) -------- -------- --------- Notes to the interim statementfor the six months ended 30 June 2007 1. Basis of preparation This financial information comprises the consolidated balance sheets as of 30June 2007 and 30 June 2006 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 2006. The group has chosen not to fully adopt IAS 34, 'Interim financial statements',in preparing its 2007 interim statements and, therefore, this interim financialinformation is not in compliance with IFRS. The information for the year ended 31 December 2006 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 basison which the Group reports its primary segment information. 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 media. On 13 September 2006, the Group put its Outdoor and Cinema businesses up forsale and on 12 April 2007 also announced its intention to float Virgin Radio.The disposal groups meet all the conditions to be classified as held for saleand are therefore classed as discontinued operations. Segment information about these businesses is presented below. SEGMENT REVENUES External sales 6 months 6 months 2007 2006 £m £mContinuing operations Television 55.6 57.9 -------- --------Discontinued operationsOutdoor 11.5 11.1Cinema 9.3 8.5Radio 12.1 11.1 -------- -------- 32.9 30.7 -------- -------- 88.5 88.6 -------- --------SEGMENT RESULTS Underlying segment result Exceptional items Segment result 6 months 6 months 6 months 6 months 6 months 6 months 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £mContinuing operationsTelevision 3.9 9.0 (0.8) - 3.1 9.0 -------- -------- -------- -------- Reorganisation costs attributable to Group (0.8) - -------- ------Operating profit 2.3 9.0Financing (5.9) (4.3)Exceptional financing costs (5.0) - -------- ------ (Loss)/profit before tax (8.6) 4.7Tax credit/(charge) 1.5 (1.0) -------- ------(Loss)/profit for the period from continuing operations (7.1) 3.7 -------- ------ Discontinued operationsOutdoor 2.6 1.6 - - 2.6 1.6Cinema (0.2) (0.3) (11.4) - (11.6) (0.3)Radio 2.7 2.0 (26.6) - (23.9) 2.0 -------- -------- -------- -------- -------- ------ 5.1 3.3 (38.0) - (32.9) 3.3 -------- -------- -------- -------- -------- ------ Tax (charge) (1.6) (0.7) - - (1.6) (0.7) -------- -------- -------- -------- -------- ------Profit for theperiod from discontinued 3.5 2.6 (38.0) - (34.5) 2.6operations -------- -------- -------- -------- -------- ------ Net (loss)/profit attributable to equity shareholders (41.6) 6.3 -------- ------ The above underlying result of discontinued operations includes an IFRS 5adjustment relating to depreciation which ceased to be charged when thebusinesses were classified as held for sale. 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 2007. 4. Exceptional items i) Reorganisation costs In July 2006 the Group initiated a further restructure following the move of stvto new premises in Pacific Quay, Glasgow. In December 2006, the Group alsoannounced plans to restructure the corporate function in light of theannouncement of the sale of both the Outdoor and Cinema businesses in September2006. Both decisions culminate in a reduction in headcount within theorganisation, resulting in the creation of a provision for exceptional costs of£2.6m. A further provision of £1.6m was made in the six month period to 30 June 2007following the announcement of additional restructure plans. ii) Writedown of stock A stock writedown of £6.5m was provided in 2006. £5.4m relates to network stockthat has not been transmitted and will not be transmitted on ITV1 in the future.£0.8m relates to regional drama stock following Ofcom's decision to reduce thefuture annual commitment for regional transmission. The remaining £0.3m relatesto a writedown of deficit funded stock following a review of the future salesprospects for the deficit funded material. iii) Gain on disposal of investment In 2006, the write back of a provision for legal and professional fees relatingto the sale of the Group's stake in Heart of Midlothian plc resulted in a netgain of £0.4m. iv) Loss on disposal of property A net loss on disposal of £0.4m was recognised in 2006 following the exit fromthe Group's Cowcaddens, Glasgow property. v) Financing costs Exceptional fees and costs of £5.0m incurred as a result of the amended bankingagreement dated 5 April 2007 were written off in the period. 5. Finance costs 6 months 6 months Full year 2007 2006 2006 £m £m £mInterest expense:Bank borrowings 6.7 4.5 9.8CULS and loan note interest 0.8 0.9 1.5 -------- -------- -------- 7.5 5.4 11.3Pension finance credit (1.4) (1.0) (2.7) -------- -------- --------Finance costs excluding exceptional items 6.1 4.4 8.6Exceptional financing costs (note 4) 5.0 - - -------- -------- --------Finance costs 11.1 4.4 8.6 -------- -------- -------- 6. Discontinued operations 6 months 6 months Full year 2007 2006 2006 £m £m £m Post tax results from discontinuedoperations (34.5) 2.6 (75.8) Included within results for the period to 30 June 2007 are exceptional items asfollows: Onerous contract provision A provision of £11.4m has been made to cover future losses expected from the Vuecontract within Cinema division. Goodwill impairment and asset writedown A further £26.6m goodwill impairment and asset writedown loss has beenrecognised in the 6 months on the carrying value of Virgin Radio to reflect thecurrent market value. Included within the full year 2006 results are exceptional items as follows: OFCOM settlement In previous years the Group believed that £0.8m of analogue licence fees hadbeen overpaid to OFCOM. During 2006 the Group decided to write this amount offfollowing a decision to accept the revised analogue licence terms. Goodwill impairment Goodwill impairment losses of £76.8m were recognised in 2006 in accordance withIAS36 on the carrying value of Virgin Radio (£58.8m) and Pearl & Dean(£18.0m). These writedowns were due to the weaker trading performanceexperienced in both businesses in 2006. Cash flows from discontinued operations 6 months 6 months Full year 2007 2006 2006 £m £m £m Net cash flows from operating activities (5.7) (0.9) 7.9Net cash flows from investing activities (0.7) (2.4) (4.3) -------- -------- -------- (6.4) (3.3) 3.6 -------- -------- -------- The major classes of assets and liabilities comprising the operations classifiedas held for sale are as follows: June 2007 £m Goodwill 110.8Property, plant and equipment 24.4Inventories 0.2Trade and other receivables 31.4Cash and cash equivalents 7.0 --------Total assets classified as held for sale 173.8 -------- Trade and other payables 10.3Tax balances 3.6Provisions 11.4 --------Total liabilities associated with assets classified as held for sale 25.3 -------- Net assets of disposal group 148.5 -------- 7. Tax 6 months 6 months Full year 2007 2006 2006 £m £m £mThe (credit)/charge for tax on continuingoperations is as follows: Tax on profit on ordinary activitiesexcluding exceptional items at 20% (1.0) 1.0 (0.2)(2006: 21%)Tax effect of exceptional items (0.5) - (2.8) -------- -------- -------- (1.5) 1.0 (3.0) -------- -------- -------- The tax (credit)/charge is higher/(lower) than the standard rate of 30% due toadjustments for prior year provisions. The effect of the changes enacted in the 2007 Finance Act is to reduce thedeferred tax asset provided at 30 June 2007. This decrease in the deferred taxasset is due to the reduction in the corporation tax rate from 30% to 28% and isreflected in the Consolidation Statement of recognised income and expense. 8. Dividends 6 months 6 months Full year 2007 2006 2006 £m £m £mAmounts recognised as distributions to equityholders in the period:Final dividend for the year ended 31December 2005 of 1.7p - 5.4 5.3Interim dividend for the year ended 31December 2006 of 1.2p 3.8 - - -------- -------- -------- 3.8 5.4 5.3 -------- -------- -------- 9. Earnings per share 6 months 6 months Full year 2007 2006 2006 £m £m £mUnderlying EPS: Basic EPSEarnings attributable to ordinaryshareholders 2.5 6.3 9.5 -------- -------- -------- Weighted average number of shares in issue 316.8m 314.8m 315.3m EPS 0.8p 2.0p 3.0p -------- -------- -------- EPS from continuing operationsBasic EPS 2.5 6.3 9.5Pre-tax (profit) from discontinuedoperations (5.1) (3.3) (0.3)Tax relating to discontinued operations 1.6 0.7 0.3 -------- -------- --------Basic underlying EPS from continuingoperations (1.0) 3.7 9.5 -------- -------- -------- Weighted average number of shares in issue 316.8m 314.8m 315.3m EPS (0.3p) 1.2p 3.0p -------- -------- -------- EPS including exceptional items: Basic EPSEarnings attributable to ordinaryshareholders (including exceptional items) (41.6) 6.3 (74.5) -------- -------- -------- Weighted average number of shares in issue 316.8m 314.8m 315.3m EPS (13.1p) 2.0p (23.6p) -------- -------- -------- EPS from continuing operationsBasic EPS (41.6) 6.3 (74.5)Pre-tax loss/(profit) from discontinuedoperations 32.9 (3.3) 17.7Tax relating to discontinued operations 1.6 0.7 0.3 -------- -------- --------Basic EPS from continuing operations (7.1) 3.7 (56.5) -------- -------- -------- Weighted average number of shares in issue 316.8m 314.8m 315.3m EPS (2.2p) 1.2p (17.9p) -------- -------- -------- EPS from discontinued operationsBasic EPSPre-tax profit/(loss) from discontinuedoperations 5.1 3.3 (17.7)Tax relating to discontinued operations (1.6) (0.7) (0.3) -------- -------- --------Basic EPS from discontinued operations 3.5 2.6 (18.0) -------- -------- -------- Weighted average number of shares in issue 316.8m 314.8m 315.3m EPS 1.1p 0.8p (5.7p) -------- -------- -------- There is no difference between basic and diluted EPS as there is no materialimpact from dilutive share options. 10. Derivative financial liability The derivative financial asset at 30 June 2007 is £0.3m (£nil at 30 June 2006;£0.3m at 31 December 2006) and has arisen as a result of an interest rate swap.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 2007 was £60.0m. At 30 June 2007 the fixed interest rates are 4.94%(fixed until 2007) and floating rates are 5.93% (3 month LIBOR). Any net gain orloss deferred in equity will reverse this year being the life of the swap. 11. Share capital During the six months to 30 June 2007, the Group has issued new ordinary sharesof 2.5p each which has resulted in a £0.8m increase in share premium. 12. Statement of changes in reserves Other Retained reserve earnings £m £m At 1 January 2007 3.2 (202.0)Net loss - (41.6)Dividends - (3.8)Movement in share-based payments (1.2) -Allotment of own shares - (0.3)Actuarial gain - 19.1Deferred tax thereon - (6.1) -------- --------At 30 June 2007 2.0 (234.7) -------- -------- There have been no movements in the merger reserve, equity reserve and hedgingreserve during the six months ended 30 June 2007. 13. Notes to cash flow statement 6 months 6 months Full year 2007 2006 2006 £m £m £m Operating profit (before exceptional items) 3.9 9.0 15.8Depreciation and other non-cash items 0.5 1.7 1.6 -------- -------- --------Operating cash flows before movements inworking capital 4.4 10.7 17.4 Increase in inventories (5.0) (8.3) (9.0)Decrease/(increase) in trade and otherreceivables 4.7 (6.9) (7.5)(Decrease)/increase in trade and otherpayables (4.2) 9.0 7.1Reorganisation costs (2.1) (2.1) (4.1) -------- -------- --------Cash (used)/generated by continuingoperations (2.2) 2.4 3.9 -------- -------- -------- Discontinued operationsOperating profit (before exceptional items) 5.1 3.3 2.6Depreciation and other non-cash items 0.1 2.0 3.4 -------- -------- --------Operating cash flows before movements inworking capital 5.2 5.3 6.0 (Increase)/decrease in trade and otherreceivables (8.5) (3.7) 2.3(Decrease)/increase in trade and otherpayables (2.4) (2.1) -Reorganisation costs - (0.4) (0.4) -------- -------- --------Cash (used)/generated by discontinuedoperations (5.7) (0.9) 7.9 -------- -------- --------Cash (used)/generated by operations (7.9) 1.5 11.8 -------- -------- -------- 14. 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 2007 2006 2006 £m £m £m Equities 8.4% 148.1 8.0% 140.0 8.4% 145.9Bonds 4.6- 5.2% 116.3 4.1- 4.9% 111.0 4.6- 5.2% 114.7 ------ ------ ------Fair value ofschemes' assets 264.4 251.0 260.6 Present value ofdefined benefitobligations (284.9) (297.0) (307.3) ------ ------ ------ Deficit in theschemes (20.5) (46.0) (46.7) ------ ------ ------ A related offsetting deferred tax asset of £6.2m is shown under non-currentassets. Therefore the net pension scheme deficit amounts to £14.3m at 30 June2007 (£32.4m at 30 June 2006; £32.8m at 31 December 2006). 15. Reconciliation of underlying results pre IFRS 5 Continued Discontinued Group underlying results 6 6 31 6 6 31 6 6 31 months months December months months December months months December 2007 2006 2006 2007 2006 2006 2007 2006 2006 £m £m £m £m £m £m £m £m £m Operatingprofit 3.9 9.0 15.8 3.0 3.3 1.7 6.9 12.3 17.5(Loss)/profit beforetax (2.0) 4.7 7.4 3.0 3.3 1.7 1.0 8.0 9.1 16. Post balance sheet events On 31 August 2007, the Group announced the conditional sale of its Outdoordivision, Primesight to GMT Communications Partners ("GMT") for a totalconsideration of up to £62.0m. The total consideration is made up of £52.0mpayable in cash at Completion; a loan note of £5.0m payable at the earlier offive years from Completion or an exit from the business by GMT; and a furtherloan note payable on a similar basis of up to £5.0m contingent upon Primesightachieving agreed target profits for the financial year ending 31 December 2007.The Disposal is conditional upon shareholder approval. 17. Availability A copy of this statement is being sent to all shareholders by inclusion in thecircular dated 28 September 2007 relating to the Disposal of Primesight and willbe available for inspection by members of the public at the Company's registeredoffice at Pacific Quay, Glasgow, G51 1PQ. Independent review report to SMG plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprises consolidated income statement,consolidated statement of recognised income and expense, consolidated balancesheet, consolidated cash flow statement and related notes. We have read theother 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 Financial Services Authority 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 group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. 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 2007. PricewaterhouseCoopers LLPChartered AccountantsGlasgow28 September 2007 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 Exchange