Stvg Regulatory News (STVG)

3 Apr 2008 07:01

SMG PLC03 April 2008 3 April 2008 SMG Prelim Results 2007 - A Transformational Year Financial Highlights 2007 2006Revenue - continuing £119m £126m - discontinued £65m £65m £184m £191mOperating profit* - continuing £11m £16m - discontinued £5m £2m £16m £18mProfit Before Tax * £4.4m £10.0mEarnings per Share* 1.2pence 3.0penceNet debt £47m £157m *Pre exceptional items and IFRS5 benefits Trading for 2007 has met Board expectations and the business is on track to meet2008 targets. Strategic and Operational Developments •TV business restructured - £5m annualised cost saving achieved, audience share and advertising outperforming peers •Debt reduced to £47m (2006:£157m) through sale of Primesight and Rights Issue •Pension deficit decreased by 72% to £9.1m (2006: £32.8m) •New strategy delivering double-digit growth YTD with Scottish advertisers •Biggest ever commission in Content for 2008 •stv.tv relaunch underway, incorporating Brightcove video technology Non core businesses •Virgin Radio performing strongly with 87% increase in profit •Virgin Radio and Pearl & Dean disposals continue Richard Findlay, Chairman, commented: "2007 was a challenging year, but theresult has been a substantial transformation of the Company. The TV business hasbeen restructured and is outperforming the market. Virgin Radio's profit hasnearly doubled. The Primesight sale was a success in a difficult market and ourdebt burden has been reduced by two thirds. Although the economic outlook ischallenging, the business is now robustly positioned for profitable growth." Rob Woodward, Chief Executive, said: "In addition to the financial and operatingchanges we executed, 2007 was also a successful year of commercial and creativerestructuring. Our viewer and advertising share in Scotland continues tostrengthen, our Content business has had its biggest-ever commission and we areabout to re-launch our Online business. Our turnaround plan is firmly on track,and for 2008, we are focused on delivering the financial benefits ofrestructuring and growth." 3 April 2008 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 CEO, Rob Woodward can be viewed at www.smg.plc.ukin the Investor Section from 7am. Investor and Analyst Enquiries SMG plcGeorge Watt, Chief Financial Officer Tel: 020 7882 1199 Media Enquiries:SMG plcDebbie Johnston, Head of Communications Tel: 020 7882 1199 Brunswick Group LLPJames Hogan Tel: 020 7404 5959Ash Spiegelberg OPERATIONAL REVIEW Overview2007 has been a transformational year for the company. Much has happened in thewider media industry and a number of important actions have been taken withinSMG to re-create a financially stable company able to more fully develop andbuild on its broadcasting assets. Our turnaround plan, with the TV business atthe core, is founded on a three-pillar strategy of the sale of non-core assets;restructuring and cost reduction; and revenue maximisation. Our key aim is toprovide a new platform for growing the business and building shareholder value. Reducing debt was an immediate priority and the Board is pleased that this hasbeen achieved, primarily through the sale of Primesight and a successful RightsIssue which raised a gross £95.1 million in December last year. This was particularly well timed given the current environment. We also agreed a new 5-year £90million loan facility, on standard banking terms, with HBOS. The disposals of our other non-core businesses, Virgin Radio and Pearl & Deanare ongoing and the Board is satisfied with the progress being made. Due to ourposition of financial stability, we are not in a forced-seller position and theBoard will only dispose of these businesses at the right price for ourshareholders. Whilst they are non-core, we do have the option of retaining themuntil the market conditions are more favourable. Business PerformanceThe restructuring of the Group and the changes in strategic direction had someimpact on the results which cover the period 1 January to 31 December 2007 butthe full beneficial affects, particularly financial, will come through during2008 and beyond. The sale of Primesight, a successful rights issue which raiseda gross £95.1m and refinancing of the Group's remaining debt into a new £90.0m,five year bank facility gives the Group the financial stability and solidplatform necessary for growth. Underlying trading performance excluding exceptional items (in £m) is shownbelow. Revenue Operating Profit 2007 2006 2007 2006Television 119 126 11.1 15.8 ----- ----- ------ ------Radio 24 22 4.3 2.3Cinema 22 20 (0.7) (4.2)Outdoor (to Oct) 19 23 1.7 4.5 ----- ----- ------ ------Total 184 191 16.4 18.4 ----- ----- ------ ------ Total revenue, which comprises both continuing and discontinued activities,decreased by £7.2m to £184.0m (2006: £191.2m) due mainly to the sale ofPrimesight in October. Excluding Primesight, revenue was down 2% with declinesin Broadcasting (£3.9m), mainly due to lower national airtime revenues, andContent (£3.3m), due to lower secondary sales volume, offset by strong growth atVirgin Radio - up £2.3m - and growth in Pearl & Dean (£1.5m) due to increasedscreen numbers. Group operating profit, which comprises both continuing and discontinuedactivities before exceptional items and IFRS5, fell by £2.0m to £16.4m (2006:£18.4m). Television operating profits fell by £4.7m to £11.1m (2006: £15.8m) reflectingthe revenue decline in Broadcast and Content noted previously combined with theVentures business moving from a profit of £1.8m in 2006 to a loss of £1.0m in2007. This reflected a significant decline in the profitability of the Setantacontract. We are in discussions with Setanta about future work beyond theexisting contract which expires at the end of the 2007/2008 football season. The result was also impacted by the sale of Primesight (£2.8m impact) and theutilisation of the onerous contract provision in Pearl & Dean which saw the lossin this business reduce from £4.2m last year to £0.7m in 2007. The otherdiscontinued activity of Virgin Radio saw an 87% increase in operating profit to£4.3m (2006: £2.3m) reflecting strong revenue growth and lower AM license fees. Net interest expenses increased by £3.6m to £12.0m (2006: £8.4m) due to higheraverage debt levels and increased interest margins prior to rebanking. The IAS19non-cash finance credit was broadly similar to the prior year at £2.8m. Interestcosts are expected to fall significantly in 2008 following the Primesightdisposal and rights issue proceeds. Increased interest costs and the continuing effects of lower national ITVairtime revenues due to the Contract Rights Renewal mechanism resulted in profitbefore tax, exceptional items and IFRS5 benefits, declining to £4.4m (2006:£10.0m). However, the cost saving actions and growth initiatives implemented in2007, together with interest cost savings following the debt reduction duringthe year, will contribute to turning around the financial performance of SMG in2008. Exceptional items resulted in a net charge of £91.9m (2006: £84.0m) with themajor items being the non-cash writedown to the carrying value of goodwill atVirgin Radio (£49.2m) and the onerous contract provision related to the Vuecinema advertising contract at Pearl & Dean (£15.4m). In addition, there were a number of other items principally related to headcountreductions following the restructuring of the television business, (£5.6m), ITVNetwork stock writedowns (£2.2m), onerous property leases following the businessrestructuring (£2.0m) and the loss on sale of Primesight (£5.7m) which reflectsthe £5.0m contingent loan note not crystallising due to weak trading performancein the final quarter of 2007. The non-contingent £5.0m loan note remainspayable. In addition there were significant costs related to the Group's highdebt levels and refinancing during the year (£11.4m). The statutory loss for theyear, after tax and exceptional items was £84.6m (2006: £74.5m). EPS, pre-exceptional items and IFRS5 impacts decreased by 60% to 1.2p (2006:3.0p). This decrease was slightly larger than the decline in profit before taxon the same basis due to an increase in the Group's effective tax rate to 10%(2006: 5%). The lower 2006 rate benefited from higher releases of prior year taxprovisions. EPS on a statutory basis, including exceptional items and IFRS5benefits, was a loss of 25.0p (2006: 23.6p loss) with the IFRS5 benefit throughnot depreciating assets which are held for sale amounting to £3.7m (EPS impact1.0p). Balance sheet movements mainly reflected the significant strategic restructuringactions completed during the year - the sale of Primesight and the rights issue- combined with the writedown to Virgin Radio goodwill. These resulted insignificant movements in the assets "held for sale" category under IFRS5 andalso to the Group's share capital and share premium reserves. The net IAS19 pension deficit decreased by 72% to £9.1m (2006: £32.8m)reflecting an increase in the discount rate used to value the schemes'liabilities and cash contributions made by the Group. Since the 10 year deficitfunding pattern was agreed with the schemes' trustees in January 2007, grosspayments of £9.7m have been made into the two pension schemes- £5.8m in 2007 and a further £3.9m in Q1 2008. There have been no changes madeto mortality assumptions during the year and the next formal actuarial valuationis due on 1 January 2009. Net debt reduced by £110.2m in the year to £47.1m (2006: £157.3m) reflecting thedisposal proceeds from the sale of Primesight (£47.3m of net cash) and thesuccessful rights issue (£91.0m). Working capital reduced in the continuing television business by £3.3m andincreased by £3.9m in discontinued activties, mainly due to their sales growth.Capital expenditure fell significantly to £2.7m (2006: £9.7m). This reflectedthe disposal of Primesight which incurred high levels of expenditure to fundpanel estate expansion and the prior year including the final expenditure on thenew television facility in Glasgow. Capital expenditure will continue at thelower level seen during 2007 in 2008 and future years with the focus being oninvestment behind new media activities. This all resulted in free cash flowconversion rates of 111% for the Group as a whole and a very strong 130% intelevision. Other significant cash items in the year related to exceptional items such asdebt negotiation fees and re-organisation costs. DividendThe Board has previously decided that no dividends will be declared for 2007 andthat dividend payments will only recommence when there is further evidence ofthe success of the Group's turnaround plan. Cost ReductionAs targeted last summer we have achieved our cost reduction goals and reducedcosts by over £5.0m representing over 20% of our controllable cost base tobenefit 2007 and 2008. Going forward we continue to target further efficiency savings as a way ofde-risking our 2008 plan and underpinning our 2009 performance. Beyond the £5.0msavings already achieved, we have targeted other significant savings from the£17m cost of our enabling functions. We have made strong progress and continueto build a culture of responsibility throughout the business. stv - the Turnaround Plan In June, 2007 we announced the detail of a 100-day business review which set outa cohesive and transparent turnaround plan for the TV business with twelve KeyPerformance Indicators (KPIs) on which we would regularly report progress.Revenue growth is key in our three business divisions - Broadcasting, Contentand Ventures - each of which is charged with exceeding their KPI targets. We aremaking encouraging progress against all of our KPIs, as outlined below. Division KPIs STATUSBroadcasting 1. increase regional advertising market share from Outperforming 19% to 25% by 2010 (21% in 18 months) against target 2. grow sponsorship revenues by 50% by 2010 (30% in On track to 18 months) achieve target 3. increase margins through better cost control and Cost savings commercial management from 10% to 14% by 2010 underpin (11.0% in 18 months) targets Content 4. grow produced hours from 45 hours to 130 hours by Exceeding 2010 (60 hours in 18 months) target for 2008 5. exploit the extensive content library to achieve On track to 60% growth by 2010 (40% in 18 months) achieve target 6. grow rights exploitation business by 40% by 2010 On track to achieve target 7. maintain margins at 10% Well ahead of targetVentures 8. develop our online presence through stv.tv by On track to delivering compelling online content to target achieve 200,000 visitors a day by 2010 (30,000 visitors a target day in 18 months) 9. increase online advertising revenue to £2 million On track to (£0.75 million in 18 months) achieve target 10. focus on regional transaction based consumer Well on track opportunities to build revenues of £2.5 million to achieve in 2010 (£1.0 million in 18 months) target 11. expand into the Scottish classified advertising On track to market to capture 3% of the total market in 2010 achieve from a zero starting point (0.5% in 18 months) target 12. increase margins from 5% to 30% by 2010 (10% in On track to 18 months) achieve target Broadcasting - stv stv continues to be the most popular peak-time broadcaster in Scotland with ashare of 26% versus BBC1 at 22%. In 2007, stv broadcast 49 of the top 50commercial programmes in Scotland and our commercial impacts were up 1.5%,outperforming the network at 1.1%. There has been notable success in ratings forour news output, we've developed new programmes and taken control of theschedule to ensure that we deliver content that our audiences want. We've alsotaken steps to better serve local advertisers and strengthen our relationshipwith ITV. At the heart of our broadcasting business is our unparalleled abilityin reaching Scottish audiences. It is this advantage that will form thecornerstone of our growth plans. Better serving our advertisers In 2007, local sales were up 12%, on target and outperforming the market and2008 has continued this positive trend. Increasing regional advertising shareand sponsorship is a priority for the sales team. The emphasis is onperformance, excellence in servicing agencies and clients and winning share fromcompetitors. Under new Commercial Director David Connolly's lead we areimproving commercial production quality and creativity introducing a new premiumaudience airtime package for local advertisers. We have merged our commercialproduction and local advertising sales teams so that responsibility for thesuccess of campaigns is in one place with a focus on increasing advertiserloyalty and retention. Better serving our audiences News is at the heart of our identity and is pivotal in defining the relationshipwith our audience. Our news programmes North Tonight and Scotland Today go fromstrength to strength with annual audience ratings at 25%, up 2 share points or a9% increase on 2006 against the network share of 19%. To build on the success ofthese news programmes we introduced a new half hour daily news driven magazineprogramme - the five thirty show - in January 2008. This, coupled with the mainnews programme, ensures that we dedicate 13.5 hours of live Scottish news andcontent every week day for our viewers across Scotland. The ratings have provedit a success with an increase in audience share and regularly winning the slotagainst Channel 4's Richard & Judy. The show also benefits from an integratedonline presence with a catch up service and extended interviews. Content Our aim in the Content business is to create and build new programmes brands,enhance our relationship with commissioners and other broadcasters and deepenour connection with talent, on and off screen. 2007 was a successful year interms of production hours. The current total of 72 hours is significantly aheadof the 18 month KPI target. In drama, six new Taggarts and four new Rebusepisodes were commissioned and delivered during the year. In February 2008 wesecured our biggest ever commission from ITV to produce ten Taggart episodes fordelivery in 2008. This takes the total number of episodes to over one hundred inthe programme's 25th anniversary year. We are continuing to develop our BAFTA winning drama Rebus brand and will unveilour plans later in the year. The Ginger Productions team, based in London, hadcommissions in 2007 from Living, ITV2 and Virgin 1 with offerings including JackOsbourne, Adrenaline Junkie and Take me to the Edge, with extreme adventurer LeoHoulding. We have also secured a collaborative agreement with Alexander McCall Smith tobring his work to TV and we are also working with Channel 4 on a major dramadevelopment working with an internationally renowned Holywood director. Inaddition we are launching a £2.5m investment fund to work with Scottish talentin order to help stimulate the Scottish production market and increase thesupply of high quality network projects. Advertising funded programmes will be an important theme for the future. Ourfirst major fully funded regional programme - Postcode Challenge - launched inNovember 2007 for a run of 40 shows. This weekly half-hour peak time, generalknowledge quiz show hosted by Carol Smillie is funded in partnership with theDutch organisation, The People's Postcode Lottery. This innovative, long-termrelationship where stv is the TV partner for a third party organisation is aunique commercial partnership creating compelling content for our viewers and amedia platform for the launch of The People's Postcode Lottery in Scotland. Theshow, which has had strong ratings in an important Monday evening slot, iscomplemented by a website featuring exclusive film material. We are currentlydiscussing plans for 2008 with our partners. We have also been working closely with GMS and are producing five new series forthe launch of the new Gaelic digital channel in 2008. Our productions continue to sell well internationally, with Taggart, Rebus, JackOsbourne, Unsolved and Jetset popular around the world. We are seekingopportunities for our back catalogue and recently sold 75 episodes of Scottishfavourite High Road to One Life as well as the complete Dr Finlay series. Alsoin 2007, 27 back catalogue Taggart episodes were added to our deal with UKTV. Ventures Our ventures business manages all on-line activity and our resource basedsolutions business. Our aim is to exploit our unrivalled regional position,through the stv brand, to dominate the Scottish new media market. In 2007 werefocused our on-line activity and concentrated on developing unique content foron-line audiences. During the year we have been laying the foundations for rapidgrowth in this area and will re-launch our on-line offerings later this year.Unique users are steady at 8,000 a day, with noticeable increasing volumes whenwe seed unique content. We expect to see this number increase once we relaunchand remarket the site in the summer of 2008. Our recent development andtechnical support deal with the US company Brightcove will be fundamental to therelaunch and online offering of the site. In January 2008, we appointed Alistair Brown as Head of New Media. Alistair ledthe successful on-line development and launch of online services atthelist.co.uk and scotsman.com. He will lead the commercialisation of the stv.tvand drive our daily visitor numbers to 200,000 by 2010. Unique user numbers are key to increasing advertising revenues from the website.Alistair Brown and David Connolly, our Commercial Director are implementing astrategy that will maximise our earnings through on-line banner and sponsorshipand video display advertising. Classified advertising is another area of revenuepotential. The Scottish classified market is worth around £200m and our aim isto capture 3% of that by 2010. I will report on progress with this later in theyear. Whilst many other PRTS offerings are under pressure, our onscreen weeklyinteractive service Watch to Win has bucked the national trend due to thesimplified focus on scheduling, large cash prizes and regular seasonalofferings. In on-line, our Bingo gaming site stv.tv/bingo, has performed well ina highly competitive marketplace. The site was relaunched in August 2007 with anonscreen and on-line advertising campaign featuring Scottish favourites TheKrankies. This has increased registration figures by 75%. Our price comparisonwebsites, peopleschampion.com and smartycars.com are part of our new mediaoffering and as we've said previously, both are currently under review. Our solutions business continues to provide outside broadcast and postproduction facilities to a number of clients. In 2007, the team won an EMMY forthe post production work carried out on 'Stephen Fry - The Secret Life of aManic Depressive'. We continue to work with sports broadcaster Setanta and arecurrently in discussions about future work beyond the existing contract whichexpires at the end of the 2007/08 football season. Update on non-core businesses Virgin Radio In 2007, Virgin Radio saw an 87% increase in operating profit to £4.3m (2006:£2.3m) due to revenue strength and a reduction in AM licence fees. Virgin Radiohas significantly outperformed the radio advertising market in the past threeyears enjoying year-on-year revenue growth of 11% in 2007 against industrygrowth of 3%. Senior radio figure, Richard Huntingford was appointed Executive Chairman andhas full management responsibility for the business. Other senior Boardappointments included Rosemary Thorne as Senior Independent Director. Rosemaryhas held Board positions at many FTSE 100 PLCs including Ladbrokes and JSainsbury. David Palmer was also appointed as Chief Financial Officer. Themanagement team has been strengthened more recently by the appointments of DavidLloyd former MD of LBC and Galaxy as Programme Director and Channel 4's AndyGrumbridge as Head of Digital Media. The disposal process of Virgin Radio is making good progress and we are pleasedwith the level of interest in the business. We will keep shareholders updated onthis disposal process and as previously stated we are not in a forced sellerposition and will only sell the business when it is appropriate to do so. Pearl & Dean Our cinema advertising business Pearl & Dean remains non-core and a sale processcontinues. In 2007, Pearl & Dean saw revenue growth of £1.5m from a 4% increasein admissions. The terms of our contract with our major exhibitor chain, VueCinemas, remain onerous and resulted in an exceptional provision of £15.4m beingmade in 2007 to provide against all future losses under the contract. This remains a difficult business, however, the cinema advertising market iscurrently in flux driven largely by our main competitor CSA. We believe thatthese changes in the industry create a more positive environment for thedisposal of Pearl & Dean. Primesight In October, we disposed of Primesight with the proceeds of the sale included inthe 2007 accounts resulting in a significant reduction in our debt levels. Trading Outlook 2008 Q1 Trading in each business - revenue growth YoY Q1 2008 April 2008 YTDstv airtimeregional +16% +8% +14%national -3% -2% -2%Radio +5% -5 to -10% +1% to -1%Cinema -13% flat -11% Our regional sales team have had a strong 2008 so far with expectations forcontinued double digit growth going into April and May. National advertising isdown but remains a better performance than ITV1. The Board remains cautious forthe future, however, we have put in a de-risking process should the marketdeteriorate. In Radio, we are already seeing a strong performance, however,there is variability across the months and we expect the market to slow slightlygoing into May. In Cinema, the Q1 revenues were down 13% with poor film productsduring the first quarter. However, this quarter traditionally generates lessrevenue and there are strong films expected for the busy summer market. Although the media market continues to be challenging, the combination of ourstrategy of putting stv at the heart of our Scottish-centric business and ourhealthy balance sheet provide a sound foundation for our turnaround. We continueto seek opportunities in the Scottish media sector to enhance our brand andensure that we reach our goal as the broadcaster of choice in Scotland. Thecurrent regulatory initiatives combined with a renaissance of Scottish identityprovide both challenges and opportunities for our company. We are doing what we set out to achieve and we are delivering. The company is ina far stronger position than this time last year and we have created a strongplatform for growth. Richard Findlay Rob WoodwardChairman Chief Executive 3 April 2008 Consolidated income statementfor the year ended 31 December 2007 2007 2006 Note Underlying Exceptional Results for Underlying Exceptional Results for results items year results items year £m £m £m £m £m £mCONTINUING OPERATIONSRevenue 2 119.0 - 119.0 125.6 - 125.6 Net operating expenses before exceptional costs (107.9) (107.9) (109.8) - (109.8)Goodwill impairment 3 (0.6) (0.6) - - -Cost of change 3 - (5.6) (5.6) - (2.6) (2.6)Writedown of inventory 3 - (2.2) (2.2) - (6.5) (6.5)Onerous lease contracts 3 - (2.0) (2.0) -------- --------- -------- -------- -------- --------Net operating expenses (107.9) (10.4) (118.3) (109.8) (9.1) (118.9) -------- --------- -------- -------- -------- -------- Operating profit 11.1 (10.4) 0.7 15.8 (9.1) 6.7Gain on disposal of investment 3 - - - - 0.4 0.4Loss on disposal of property 3 - - - - (0.4) (0.4) -------- --------- -------- -------- -------- -------- - - - - - - -------- --------- -------- -------- -------- -------- Profit before financing 11.1 (10.4) 0.7 15.8 (9.1) 6.7Interest income 0.9 - 0.9 0.2 - 0.2Finance costs 4 (12.9) (11.4) (24.3) (8.6) - (8.6) -------- --------- -------- -------- -------- --------(Loss)/profit before tax (0.9) (21.8) (22.7) 7.4 (9.1) (1.7)Tax credit 5 1.8 0.5 2.3 0.5 2.5 3.0 -------- --------- -------- -------- -------- -------- Profit/(loss) for the year fromcontinuing operations 0.9 (21.3) (20.4) 7.9 (6.6) 1.3 DISCONTINUED OPERATIONSProfit/(loss) for the year from discontinued operations 2,6 6.4 (70.6) (64.2) 1.6 (77.4) (75.8) -------- --------- -------- -------- -------- -------- Profit/(loss) for the year 7.3 (91.9) (84.6) 9.5 (84.0) (74.5) -------- --------- -------- -------- -------- -------- Attributable to:Equity holders of the parent 7.5 (91.9) (84.4) 9.5 (84.0) (74.5)Minority interest (0.2) - (0.2) - - - -------- --------- -------- -------- -------- -------- 7.3 (91.9) (84.6) 9.5 (84.0) (74.5) -------- --------- -------- -------- -------- -------- Earnings per ordinary share - basic and diluted 8 2.2p (25.0p) 3.0p (23.6p)Earnings per ordinaryshare from continuing operations - basic and diluted 8 0.3p (6.0p) 2.5p 0.4p Underlying (pre IFRS 5) Note Operating profit 18 16.4 18.4Profit before tax 18 4.4 10.0Earnings per share - basic 18 1.2p 3.0p Consolidated statement of recognised income and expensefor the year ended 31 December 2007 2007 2006 £m £m Loss for the year (84.6) (74.5) -------- -------- Actuarial gain recognised in the pension schemes 24.7 4.1Deferred tax charge to equity (7.7) (1.2)Cash flow hedges 0.3 0.8 -------- --------Net profit recognised directly in equity 17.3 3.7 -------- -------- Total recognised expense for the year (67.3) (70.8) -------- -------- Attributable to:Equity holders of the parent (67.1) (70.8)Minority interest (0.2) - -------- -------- (67.3) (70.8) -------- -------- Consolidated balance sheetat 31 December 2007 Note 2007 2006 £m £mASSETSNon-current assetsGoodwill and other intangible assets 9 8.3 113.5Property, plant and equipment 10 15.3 18.2Deferred tax asset 4.9 14.8 --------- -------- 28.5 146.5 --------- --------Current assetsInventories 40.3 36.1Trade and other receivables 35.7 42.6Cash and cash equivalents 10.8 8.7Short-term bank deposit 11 1.4 2.5Derivative financial instruments - 0.3 --------- -------- 88.2 90.2 --------- -------- Non-current assets classified as held for sale 6 79.6 76.7 --------- -------- Total assets 196.3 313.4 --------- -------- EQUITYCapital and reserves attributable to the Company'sequity holdersShare capital 13 23.8 7.9Share premium 13 136.3 60.2Merger reserve 173.4 173.4Equity reserve 2.5 2.5Other reserve 13 1.2 3.2Hedging reserve 13 - 0.3Minority interest 13 (0.2) -Retained earnings 13 (273.3) (202.0) --------- --------Total equity 63.7 45.5 --------- -------- LIABILITIESNon-current liabilitiesBorrowings 62.0 149.3Trade and other payables 0.3 -Provisions 2.2 -Other financial liabilities - 1.1Retirement benefit obligation 17 14.0 46.7 --------- -------- 78.5 197.1 --------- --------Current liabilitiesTrade and other payables 30.7 35.6Convertible unsecured loan stock 12 - 22.5Current tax liabilities - 1.5Provisions 3.9 1.4 --------- -------- 34.6 61.0 --------- -------- Liabilities directly associated with total assetsclassified as held for sale 6 19.5 9.8 Total liabilities 132.6 267.9 --------- -------- Total equity and liabilities 196.3 313.4 --------- -------- Consolidated cash flow statementfor the year ended 31 December 2007 Note 2007 2006 £m £mOPERATING ACTIVITIESCash generated by operations 15 11.7 11.8Taxes received/(paid) 0.6 (4.0)Interest paid (30.0) (10.6)Pension deficit funding (5.8) - --------- -------- Net cash used by operating activities (23.5) (2.8) --------- -------- INVESTING ACTIVITIESInterest received 1.9 0.2Disposal of discontinued operations 14 47.3 -Purchase of property, plant and equipment (2.7) (9.7) --------- -------- Net cash generated/(used) by investing activities 46.5 (9.5) --------- --------FINANCING ACTIVITIESDividends paid (3.8) (5.3)Net proceeds from rights issue 91.0 -Repayment of existing borrowings (149.3) -Repayment of CULS and loan notes (23.6) -Net borrowings drawn 62.0 0.2Net release of cash on deposit 1.1 2.5 --------- -------- Net cash used by financing activities (22.6) (2.6) --------- -------- Movement in cash and cash equivalents 0.4 (14.9) Net cash and cash equivalents at beginning of year 13.1 28.0 --------- --------Net cash and cash equivalents at end of year 16 13.5 13.1 --------- -------- Reconciliation of movement in net debtfor the year ended 31 December 2007 Note 2007 2006 £m £m Opening net debt (157.3) (139.1)Movement in cash and cash equivalents in the year 0.4 (14.9)Decrease/(increase) in debt financing 87.3 (0.2)IFRS increase in CULS liability - (0.3)Repayment of CULS and loan note liabilities 23.6 (0.3)Net movement in Escrow cash (1.1) (2.5) --------- -------- Closing net debt 16 (47.1) (157.3) --------- -------- Notes to the preliminary announcementfor the year ended 31 December 2006 1. Basis of preparation The financial information set out in the preliminary announcement does notconstitute the Group's statutory accounts within the meaning of Section 240 ofthe Companies Act 1985 and has been extracted from the full accounts for theyears ended 31 December 2007 and 31 December 2006 respectively. The informationfor the year ended 31 December 2006 does not constitute statutory accounts asdefined in section 240 of the Companies Act 1985. A copy of the statutoryaccounts for that year has been delivered to the Registrar of Companies. Theauditors' report on the financial statements was unqualified and did not includea statement under section 237(2) or (3) of the Companies Act 1985. The statutoryfinancial statements for the year ended 31 December 2007 have yet to be signed.They will be finalised on the basis of the financial information presented bythe directors in this preliminary announcement and will be delivered to theRegistrar of Companies in due course. The accounting policies adopted in thepreparation of the preliminary announcement are consistent with those applied inthe preparation of the Group's statutory accounts for the year ended 31 December2006. 2. Business segments During the year, for management purposes the Group was organised into fouroperating divisions - Television, Radio, Cinema and Outdoor. These divisions arethe basis on which the Group reports its primary segment information with theexception of Television which is further broken down into Broadcasting, Contentand Venture segments. Principal activities are as follows:Television - the production and broadcasting of television programmes and associated enterprises.Radio - the operation of commercial radio in the UK.Cinema - the provision of advertising space within cinema complexes.Outdoor - the provision of advertising solutions across various outdoor media. On 13 September 2006, the Group put its Outdoor and Cinema businesses up forsale, followed by Radio on 12 April 2007. The completion of the Outdoor disposaloccurred on 30 October 2007. Radio and Cinema continue to meet all theconditions to be classified as held for sale and are therefore classed asdiscontinued operations. Segment information about these businesses is presented as follows: SEGMENT REVENUES External sales 2007 2006 £m £mContinuing operationsBroadcasting 95.3 99.2Content 18.1 21.4Ventures 5.6 5.0 -------- --------Television 119.0 125.6 -------- -------- Discontinued operationsRadio 24.0 21.7Cinema 22.1 20.6Outdoor 18.9 23.3 -------- -------- 65.0 65.6 -------- -------- -------- -------- 184.0 191.2 -------- -------- Independent Television Commission ("ITC") qualifying revenue was £94.0m (2006:£97.0m)Turnover in 2007 includes £1.8m of revenues from sources outside the UK (2006:£2.2m). 2. Business segments (cont'd) SEGMENT RESULTS Underlying segment result Exceptional items Segment result 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m Continuing operationsBroadcasting 9.0 10.0 (5.8) (5.9) 3.2 4.1Content 3.1 4.0 (0.6) (0.7) 2.5 3.3Ventures (1.0) 1.8 (3.2) (0.3) (4.2) 1.5 -------- -------- -------- -------- -------- --------Television 11.1 15.8 (9.6) (6.9) 1.5 8.9 -------- -------- -------- -------- Cost of change costsattributable to Group (0.8) (2.2) -------- -------- Operating profit 0.7 6.7Gain on disposal ofinvestment - 0.4Loss on disposal ofproperty - (0.4)Financing (12.0) (8.4)Exceptional financingcosts (11.4) - -------- -------- Loss before tax (22.7) (1.7)Tax credit 2.3 3.0 -------- -------- (Loss)/profitfor the year fromcontinuing operations (20.4) 1.3 -------- -------- Discontinued operationsRadio 4.9 2.3 (49.2) (59.6) (44.3) (57.3)Cinema (0.5) (4.2) (15.7) (18.0) (16.2) (22.2)Outdoor 4.6 4.5 - - 4.6 4.5 -------- -------- -------- -------- -------- -------- 9.0 2.6 (64.9) (77.6) (55.9) (75.0) Attributable tax(charge)/credit (2.6) (1.0) - 0.2 (2.6) (0.8) -------- -------- -------- -------- -------- -------- 6.4 1.6 (64.9) (77.4) (58.5) (75.8) -------- -------- -------- -------- Loss on disposal ofdiscontinued operations (5.7) - -------- -------- Loss for the year fromdiscontinued operations (64.2) (75.8) -------- -------- Net loss attributableto equity shareholders (84.6) (74.5) -------- -------- Operating profit in 2007 includes £1.0m arising outside the UK (2006: £1.3m). The above result of discontinued operations for 2007 includes an IFRS 5adjustment relating to depreciation of £3.7m (2006: nil) which ceased to becharged when the businesses were classified as held for sale. In 2007, the exceptional items in Broadcasting relate to £2.2m for stockwritedown, £1.6m for cost of change provision and £2.0m of onerous leaseprovisions (2006: £5.8m stock writedown and £0.1m cost of change provision), inContent £0.6m for cost of change provision (2006: £0.7m stock writedown) and inVentures £2.6m cost of change provision and £0.6m for goodwill impairment (2006:£0.3m cost of change provision). The exceptional items in the Radio division in 2007 relate to a goodwillimpairment and asset writedown loss of £49.2m (2006: £0.8m Ofcom settlement andgoodwill impairment of £58.8m) and in the Cinema division the exceptional itemsrelate to the Vue onerous contract provision of £15.4m and cost of changeprovision of £0.3m (2006: £18.0m goodwill impairment). 3. Exceptional items i) Goodwill impairment A goodwill impairment loss of £0.6m has been recognised in 2007 in accordance with IAS36 on the carrying value of Peopleschampion. ii) Cost of change A provision of £5.6m has been provided in 2007 following the announcement of restructuring plans principally across all areas of the Group's Television business in relation to the execution of the new turnaround strategy. In 2006 a provision of £2.6m was made in relation to headcount reductions in Television, following the move to Pacific Quay, Glasgow and in corporate functions following the announcement of the Outdoor and Cinema disposals. iii) Writedown of inventory During the year a stock writedown of £2.2m has been provided, £2.1m relating to ITV1 network stock write offs and the remaining £0.1m relates to regional drama stock. A stock writedown of £6.5m was provided in 2006. £5.4m related to network stock that had not been transmitted and would not be transmitted on ITV1 in the future. £0.8m related to regional drama stock following Ofcom's decision to reduce the future annual commitment for regional transmission. The remaining £0.3m related to a writedown of deficit funded stock following a review of the future sales prospects for the deficit funded material. iv) Onerous lease contracts A provision of £2.0m has been provided in 2007 in respect of the leases on two non-core properties. v) Gain on disposal of investment In 2006, the write back of a provision for legal and professional fees relating to the sale of the Group's stake in Heart of Midlothian plc resulted in a net gain of £0.4m. vi) Loss on disposal of property A net loss on disposal of £0.4m was recognised in 2006 following the exit from the Group's Cowcaddens, Glasgow property. vii) Financing costs Exceptional fees and costs of £11.4m incurred as a result of the amended banking agreement dated April 2007 and the costs of the CULS replacement facility entered into in September 2007 were written off in the period. 4. Finance costs 2007 2006 £m £mInterest expense:Bank borrowings 14.6 9.8CULS and loan note interest 1.1 1.5 --------- --------- 15.7 11.3Pension finance credit (2.8) (2.7) --------- ---------Finance costs excluding exceptional items 12.9 8.6Exceptional financing costs (note 3) 11.4 - --------- ---------Finance costs 24.3 8.6 --------- --------- 5. Tax 2007 2006 £m £mThe credit for tax on continuing operations is as follows: --------- ---------Tax on profit on ordinary activities excluding exceptionalitems at 10% (2006: 3%) (1.8) (0.5)Tax effect of exceptional items (0.5) (2.5) --------- --------- (2.3) (3.0) --------- --------- The effective tax rate for the Group excluding exceptional items is 10% (2006:5%). The tax charge is lower than the standard rate of 30% due to adjustmentsfor prior year provisions and certain tax planning initiatives. 6. Discontinued operations On 30 October 2007, the disposal of the Group's Outdoor business, Primesight,was completed. 2007 2006 £m £m Post tax results from discontinued operations (see note 2) (64.2) (75.8) ---------- ---------- Exceptional items included within the results are as follows: Cost of change provisionA provision of £0.3m has been provided in 2007 within Cinema division. Onerous contract provisionA provision of £15.4m has been made to cover future losses expected from the Vuecontract within Cinema division. Goodwill impairment and asset writedownA further £49.2m goodwill impairment and asset writedown loss has beenrecognised during the year on the carrying value of Virgin Radio to reflect thecurrent market value. 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 weaker trading performance experienced in bothbusinesses in 2006. Loss on disposal of discontinued operationsOn 30 October 2007, the Group completed the sale of its Outdoor business,Primesight, to GMT Communications Partners ("GMT") for a gross consideration of£62.0m. The consideration was made up of £52.0m cash and two £5.0m loan notespayable at the earlier of five years from Completion or an exit from thebusiness by GMT. One of the loan notes was contingent on the 2007 results ofPrimesight and as the performance triggers were not reached this amount will notnow be received. The remaining deferred loan note has a discounted value of£3.6m resulting in a net consideration of £55.6m and a loss on disposal of£5.7m. Ofcom settlementIn 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. Cash flows from discontinued operations 2007 2006 £m £m Net cash flows from operating activities 3.9 6.0Net cash flows from investing activities 1.2 1.9 ---------- ---------- 5.1 7.9 ---------- ---------- The major classes of assets and liabilities comprising the operations classifiedas held for sale are as follows: 2007 £m Goodwill 55.8Property, plant and equipment 3.6Trade and other receivables 17.5Cash and cash equivalents 2.7 ----------Total assets classified as held for sale 79.6 ---------- Trade and other payables 9.2Provisions for liabilities and charges 10.3 ----------Total liabilities associated with assets classified as held for sale 19.5 ---------- Net assets of disposal group 60.1 ---------- 7. Dividends 2007 2006 £m £mAmounts recognised as distributions to equity holders in the period:Final dividend for the year ended 31 December 2005 of 1.7p - 5.3Interim dividend for the year ended 31 December 2006 of 1.2p 3.8 - ----- --------- 3.8 5.3 ----- --------- No dividend is proposed by the Board for the year ended 31 December 2007 (2006:1.2p). 8. Earnings per share 2007 2006 Weighted Weighted average average number number Earnings of Per share Earnings of Per share £m shares (m) Pence £m shares (m) PenceBasic underlying EPSEarnings attributable to ordinary shareholders 7.5 337.4 2.2p 9.5 315.3 3.0p ------- -------- ------- ------- -------- --------Earnings per share from continuing operationsBasic EPS 7.5 337.4 2.2p 9.5 315.3 3.0pPre tax (profit) from discontinued operations (9.0) (2.7p) (2.6) (0.8p)Tax relating to discontinued operations 2.6 0.8p 1.0 0.3p ------- -------- ------- ------- -------- --------Basic underlying EPS from continuing operations 1.1 337.4 0.3p 7.9 315.3 2.5p ------- -------- ------- ------- -------- --------Basic EPSEarnings attributable to ordinary shareholders(including exceptional items) (84.4) 337.4 (25.0p) (74.5) 315.3 (23.6p) ------- -------- ------- ------- -------- --------Earnings per share from continuing operationsBasic EPS (84.4) 337.4 (25.0p) (74.5) 315.3 (23.6p)Pre tax loss/(profit)from discontinued operations 61.6 18.2p 75.0 23.8pTax relating to discontinued operations 2.6 0.8p 0.8 0.3p ------- -------- ------- ------- -------- --------Basic EPS from continuing operations (20.2) 337.4 (6.0p) 1.3 315.3 0.4p ------- -------- ------- ------- -------- -------- Earnings per share from discontinued operationsBasic EPSPre tax(loss)/profit from discontinued operations (61.6) 337.4 (18.2p) (75.0) 315.3 (23.8p)Tax relating to discontinued operations (2.6) (0.8p) (0.8) (0.3p) ------- -------- ------- ------- -------- --------Basic EPS from discontinued operations (64.2) 337.4 (19.0p) (75.8) 315.3 (24.0p) ------- -------- ------- ------- -------- -------- There is no difference between basic and diluted EPS as there is no materialimpact from dilutive share options. 9. Goodwill and other intangible assets Goodwill Other Total £m £m £mCostAt 1 January 2007 227.7 - 227.7Additions - 0.4 0.4Classified as held for sale (217.1) - (217.1) --------- ---------- ---------At 31 December 2007 10.6 0.4 11.0 --------- ---------- --------- Accumulated amortisationAt 1 January 2007 114.2 - 114.2Impairment writedown 49.8 - 49.8Classified as held for sale (161.3) - (161.3) --------- ---------- ---------At 31 December 2007 2.7 - 2.7 --------- ---------- --------- Net book amount at 31 December 2007 7.9 0.4 8.3 --------- ---------- --------- Net book amount at 31 December 2006 113.5 - 113.5 --------- ---------- --------- Goodwill comprises capitalised goodwill on acquisitions completed since 1January 1998. Other intangible assets of £0.4m (2006: nil) relate to capitalisedsoftware costs. 10. Property, plant and equipment Plant, Land and technical buildings equipment leasehold and other Total £m £m £mCostAt 1 January 2007 2.5 53.6 56.1Additions - 2.6 2.6Disposals - 0.7 0.7Classified as held for sale (2.1) (3.1) (5.2) --------- ---------- ---------At 31 December 2007 0.4 53.8 54.2 --------- ---------- --------- Accumulated depreciation and impairmentAt 1 January 2007 1.0 36.9 37.9Charge for year 0.1 2.3 2.4Disposals - 0.6 0.6Classified as held for sale (1.0) (1.0) (2.0) --------- ---------- ---------At 31 December 2007 0.1 38.8 38.9 --------- ---------- --------- Net book value at 31 December 2007 0.3 15.0 15.3 --------- ---------- --------- Net book value at 31 December 2006 1.5 16.7 18.2 --------- ---------- --------- Disposals relate to fair value adjustments held at Group in relation toPrimesight. 11. Short-term bank deposit The short term bank deposit relates to £1.4m placed in Escrow for use by GMT inrelation to certain planning consents currently being sought by Primesight. The remaining £2.5m placed in Escrow in respect of certain of SMG's pensionrelated indemnity obligations given under the sale and purchase agreement of thePublishing division disposed of on 4 April 2003 was released during 2006. 12. Convertible unsecured loan stock The CULS were repaid on 28 September 2007. 13. Statement of changes in shareholders' equity Share Share Other Hedging Minority Retained Capital Premium reserve reserve interest earnings £m £m £m £m £m £m 1 January 2007 7.9 60.2 3.2 0.3 - (202.0) Net loss - - - - - (84.6)Dividends - - - - - (3.8)Shares issued during the period 0.1 0.9 - - - -Rights issue 15.8 75.2 - - - -Movement in IFRS 2 reserve - - (2.0) - - -Movement in own shares - - - - - (0.2)Actuarial gain - - - - - 24.7Deferred tax thereon - - - - - (7.7)Movement in minority interest - - - - (0.2) -Release of hedging reserve - - - (0.3) - 0.3 -------- ------- -------- ------- ------- --------At 31 December 2007 23.8 136.3 1.2 - (0.2) (273.3) -------- ------- -------- ------- ------- -------- There have been no movements in the merger reserve and equity reserve during theyear ended 31 December 2007. On 19 December 2007, a two for one rights issue was completed resulting in theissue of 633,850,240 ordinary shares of 2.5p each for a net consideration of£91.0m (£95.1m gross). 14. Disposal of discontinued operations As referred to in note 6, on 30 October 2007 the Group disposed of its interestin Primesight. The assets of Primesight at the date of disposal and at 31 December 2006 were asfollows: 30 October 2007 2006 £m £m Property, plant and equipment 19.6 20.4Inventories 0.2 0.2Trade and other receivables 5.8 19.3Cash and cash equivalents (0.3) 4.4Trade and other payables (0.4) (8.3)Tax liabilities (1.8) (1.5)Attributable goodwill 32.4 32.4Working capital adjustment agreed as part of disposal 1.1 - --------- -------- 56.6 66.9 -------- Disposal expenses 3.3 Loss on disposal (5.7) --------- Total consideration 54.2 --------- Satisfied by:Cash 52.0Funds placed in Escrow (1.4)Deferred consideration (discounted £5.0m deferred loan note) 3.6 --------- 54.2 --------- Net cash inflow arising on disposal:Cash consideration 47.3 --------- 15. Cash flow from operating activities 2007 2006 £m £mContinuing operationsOperating profit (before exceptional items) 11.1 15.8Depreciation and other non-cash items 1.4 1.6 --------- -------- Operating cash flows before movements in working capital 12.5 17.4 Increase in inventories (5.6) (9.0)Decrease/(increase) in trade and other receivables 6.5 (7.5)Increase in trade and other payables 2.4 7.1Cost of change costs (4.1) (4.1) --------- --------Cash generated by continuing operations 11.7 3.9 --------- -------- Discontinued operationsOperating profit (before exceptional items) 9.0 2.6Depreciation and other non-cash items (5.1) 3.4 --------- -------- 3.9Operating cash flows before movements in working capital 6.0 (Increase)/decrease in trade and other receivables (2.2) 2.3Decrease in trade and other payables (1.7) -Cost of change and onerous contract costs - (0.4) --------- --------Cash flow for discontinued operations - 7.9 --------- -------- Cash generated by operations 11.7 11.8 --------- -------- 16. Analysis of movements in net debt At At 1 January Cash 31 December 2007 flow 2007 £m £m £m Cash and cash equivalents 8.7 2.1 10.8Cash and cash equivalents included inthe disposal groups held for sale (note 6) 4.4 (1.7) 2.7 ---------- --------- ---------- 13.1 0.4 13.5 Bank borrowings (149.3) 87.3 (62.0)Short-term deposits 2.5 (1.1) 1.4Convertible unsecured loan stock (22.5) 22.5 -Unsecured loan notes (0.5) 0.5 -Secured loan notes (0.6) 0.6 - ---------- --------- ----------Net debt (157.3) 110.2 (47.1) ---------- --------- ---------- 17. Retirement benefit schemes The Group operates two defined benefit pension schemes. The schemes are trusteeadministered and the schemes' assets are held independently of the Group'sfinances. Pension costs are assessed in accordance with the advice of anindependent professionally qualified actuary. The schemes are the Scottish and Grampian Television Retirement Benefit Schemeand the Caledonian Publishing Pension Scheme. They are closed schemes andtherefore under the projected unit method the current service cost will increaseas the members of the scheme approach retirement. A full actuarial valuation of the schemes was carried out at 1 January 2007 andupdated to 31 December 2007 by a qualified independent actuary. The majorassumptions used by the actuary were: At 31 December At 31 December 2007 2006 Rate of increase in salaries 3.6% 3.3%Rate of increase of pensions in payment 3.1% 2.8%Discount rate 6.0% 5.1%Inflation 3.1% 2.8% Assumptions regarding future mortality experience are set based on advice,published statistics and experience in each territory. The average life expectancy in years of a pensioner retiring at age 65 on thebalance sheet date is as follows: At 31 December At 31 December 2007 2006 Years Years Male 15.0 15.0Female 17.9 17.9 The fair value of the assets in the schemes, the present value of theliabilities in the schemes and the expected rate of return at each balance sheetdate was: At 31 December At 31 December At 31 December At 31 December 2007 2006 2005 2004 £m £m £m £m Equities 143.2 145.9 146.2 131.8Bonds 121.9 114.7 109.6 90.1 -------- -------- -------- --------Fair value of schemes' assets 265.1 260.6 255.8 221.9 Present valueof defined benefitobligations (279.1) (307.3) (308.8) (322.1) -------- -------- -------- -------- Deficit in theschemes (14.0) (46.7) (53.0) (100.2) -------- -------- -------- -------- Equities 8.0% 8.4% 8.0% 8.0%Bonds 4.4%- 6.1% 4.6%-5.2% 4.1%-4.9% 4.5%-5.3% A related offsetting deferred tax asset of £4.9m (2006: £13.9m) is shown undernon-current assets. Therefore the net pension scheme deficit amounts to £9.1m at31 December 2007 (£32.8m at 31 December 2006). 18. Reconciliation of underlying results (pre IFRS 5) Group underlying Continuing Discontinued results 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m Operating profit 11.1 15.8 5.3 2.6 16.4 18.4(Loss)/profit before tax (0.9) 7.4 5.3 2.6 4.4 10.0 EPS is calculated based on profit adjusted for tax at 10% (2006: 5%) using theweighted average number of shares in issue per note 8. 19. Mailing A copy of the annual report is being sent to all shareholders on 16 April 2008and will be available for inspection by members of the public at the Company'sregistered office at Pacific Quay, Glasgow, G51 1PQ. This information is provided by RNS The company news service from the London Stock Exchange