Stvg Regulatory News (STVG)

23 Jun 2005 07:00

SMG PLC23 June 2005 SMG plc Restatement of financial information for financial year 2004 under InternationalAccounting Standards and International Financial Reporting Standards Highlights SMG will be publishing its Interim 2005 results for the six month period to 30June 2005 under International Accounting Standards (IAS) for the first time inSeptember 2005. This report sets out the impact of IAS on SMG's 2004 financial statementstogether with an explanation of the changes from UK GAAP. In summary these are:- • Share based payments (IFRS 2) Introduction of profit and loss charge of £0.9m for share based payments • Goodwill Under IAS there is no annual amortisation of goodwill. This increases profit before tax by £14.8m • Virgin Radio carrying value Unchanged at 31 December 2004 UK GAAP value of £163.8m • Capitalised development costs Previously capitalised costs of £0.4m now expensed under IAS • Dividends Timing of recognition moves from an accruals basis to a declared basis • No material impact from IAS19. IAS32/IAS39 to be implemented in 2005 • All changes are NON-CASH in nature The indicative impact on 2005 based on 2004 results and including the impacts ofIAS 32 and IAS 39 to be adopted in 2005 are:- Share based payments - IFRS 2 £0.9m CULS - IAS32 £0.4m Capitalised development costs £0.4m ----- £1.7m ----- • Under IAS there is no annual amortisation of goodwill. The indicative impact in 2005 will be to increase profit before tax by £14.8m. Introduction SMG currently prepares its primary financial statements under UK GenerallyAccepted Accounting Practice (UK GAAP). From 2005 onwards the Group will berequired to prepare its consolidated financial statements in accordance withInternational Accounting Standards (IAS) and International Financial ReportingStandards (IFRS) as adopted by the European Union (EU). This change applies toall financial reporting for accounting periods beginning on or after 1 January2005 and, consequently, SMG's first IFRS results will be its interim results forthe six months ended 30 June 2005. The Group's first annual report under IFRSwill be for the year ended 31 December 2005. The date for transition to IFRS forSMG is 1 January 2004, this being the start of the earliest period ofcomparative information. To explain how SMG's reported performance and financial position are affected bythis change, information previously published under UK GAAP is restated underIFRS in the attached appendices as follows: • Appendix I Reconciliations between IFRS and UK GAAP:- - at the transition date of 1 January 2004 - six months ended 30 June 2004 - for the financial year ended 31 December 2004 • Appendix II June 2004 interim accounts restated for IFRS • Appendix III December 2004 accounts restated for IFRS • Appendix IV Fair values of share options As noted below, these financial statements have been prepared on the basis ofIFRSs expected to be applicable at 31 December 2005. These are subject toongoing review and endorsement by the EU or possible amendment by interpretativeguidance from the IASB and are therefore still subject to change. In particular,the EU is yet to endorse the amendment to IAS 19 (Employee Benefits). SMG hasassumed that the amendment to IAS 19 is endorsed and intends to adopt it for its2005 financial reporting. We will update our restated information for any suchchanges when they are made. Basis of preparation The financial information has been prepared in accordance with IFRS. Theaccounting policies applied are set out in the restated IFRS accounts for theyear ended 31 December 2004 (Appendix III). Overview of impact Year ended 31 December 2004 IFRS UK GAAP Change % £m £m £m StatutoryProfit before tax 37.6 25.3 12.3 iii 49%EPS (pence) 12.0 7.7 4.3 56%HeadlineOperating profit * 28.0 29.3 (1.3) i -4%Profit before tax ** 15.0 17.5 (2.5) ii -14%EPS (pence) ** 4.7 5.0 (0.3) -6%Net assets 398.9 370.3 28.6 8% * before goodwill, exceptional items and associates.** before goodwill and exceptional items. i. IFRS 2 charge £0.9m and capitalised costs £0.4m. ii. IFRS 2 charge £0.9m, capitalised costs £0.4m and associated tax reclassified £1.2m iii. Reverse goodwill £14.8m offset by associate tax reclassified £1.2m, IFRS 2 charge £0.9m and capitalised costs £0.4m. The most significant impacts, all non-cash in nature, from the transition toInternational Accounting Standards are: • Impact on operating profit of 4% for 2004 due mainly to the IFRS 2 charge in respect of share based payments to employees (£0.9m) • The cessation of annual goodwill amortisation of £14.8m • Virgin Radio's carrying value unchanged at the 31 December 2004 UK GAAP value (£163.8m) • Reclassification of tax on associates into profit before tax, which reduces profit before tax in 2004. This will not recur in 2005 as all associate holdings were sold in 2004 Transitional arrangements The rules for first time adoption of IFRS are set out in IFRS 1 "First-timeAdoption of International Financial Reporting Standards". In general a companyis required to determine its IFRS accounting policies and apply theseretrospectively to determine its opening balance sheet under IFRS. The standardallows a number of exceptions to this general principle to assist companies asthey move to reporting under IFRS. Where SMG has taken advantage of theseexemptions, they are noted below. Changes in accounting policies The changes in financial information noted above are as a result of SMG changingits accounting policies to comply with the requirements of IFRS. Significantchanges in policy, together with associated transitional arrangements, are setout below. The IFRS accounting policies applied are set out in the restated IFRS accountsfor the year ended 31 December 2004 (Appendix III). The resultant changes bystandard are quantified in Appendix I for the opening balance sheet at 1 January2004, the six months ended 30 June 2004 and for the year ended 31 December 2004. IFRS 2 Share based payments In accordance with IFRS 2, SMG has recognised a charge to income representingthe fair value of outstanding employee share options granted to approximately320 employees. The fair value has been calculated using both a Black & Scholesvaluation model and, for awards where a market condition is attached, a MonteCarlo valuation model. The charge to income is recognised over the relevantoption vesting periods, adjusted to reflect actual and expected levels ofvesting. SMG has not adopted the IFRS 1 optional transitional exemption. As SMG haspreviously publicly disclosed the fair value of equity schemes, IFRS 2 has beenfully applied retrospectively to all options granted, but not fully vested, atthe relevant reporting date. As a result, the share-based payment charge for2004 includes all options granted and not fully vested at 31 December 2004,rather than only the value of options granted since 7 November 2002 (theeffective date of IFRS 2). This approach is encouraged in the standard and givesa better indication of how past and future results are affected by IFRS 2. The operating profit impact in 2004 is a charge of £0.9m, offset by a deferredtax credit of £0.2m. The basis of calculation for deferred taxation is thedifference between market price at the date of the financial statements and theoption exercise price. As a result, the tax effect does not correlate to thecharge at the Group's effective tax rate. IAS 19 Employee benefits As SMG has previously applied FRS I7 there is no material impact from thetransition to IAS 19 in 2004. SMG has elected to take the optional transitional exemption, and has recognisedall cumulative actuarial gains and losses in respect of employee benefit schemesat the date of transition to IFRS. This is consistent with the Group accountingpolicy adopted under the amendment to IAS 19 issued on 16 December 2004 wherebyactuarial gains and losses are recognised in full in the period in which theyarise in the statement of recognised income and expenditure. The only balance sheet impact of this policy is the separate disclosure of thedeferred tax asset in relation to the pension liability. IFRS 3 Business Combinations IFRS 3 prohibits the amortisation of goodwill. The standard requires goodwill tobe carried at cost with impairment reviews, both annually and when there areindications that the carrying value may not be recoverable. Under the transitional arrangements of IFRS 1 a company has the option ofapplying IFRS 3 prospectively from the transition date to IFRS. SMG has chosenthis option rather than restate all previous business combinations. The impactof IFRS 3 and associated transitional arrangements on SMG are as follows: • all prior business combination accounting is frozen at the transition date • the carrying value of Virgin Radio was reassessed at 1 January 2004. Its value was then adjusted downwards by £10.9m back to the 31 December 2004 UK GAAP value of £163.8m. The carrying value of Virgin Radio is therefore unchanged at 31 December 2004 under IAS and UK GAAP • the value of goodwill is frozen at 1 January 2004 and the amortisation previously reported under UK GAAP for 2004 is removed for IFRS restatements The operating profit impact in 2004 is a reduction in the amortisation charge of£14.8m. IAS 32 and IAS 39 Financial Instruments IAS 32 and IAS 39 address the accounting for, and financial reporting of,financial instruments. IAS 32 covers disclosure and presentation, whilst IAS 39covers recognition and measurement. SMG has taken the exemption from applying IAS 32 and IAS 39 to the comparativeinformation to be presented in the Group's first IFRS financial statements andwill adopt IAS 32 and IAS 39 with effect from 1 January 2005. As such the 2004information relating to financial instruments continues to be presented underthe current UK GAAP basis. Certain financial instruments ("compound instruments") are regarded under IAS 32as having both a debt and an equity component. IAS 32 requires that thecomponent parts be accounted for and presented separately according to theirsubstance. The allocation between debt and equity is made at issuance and is not revisedfor subsequent changes in market interest rates, share prices, or other events.The equity component is assigned the residual value after deducting from thefair value of the instrument as a whole the value separately determined for thedebt component on its own. SMG issued £23.3m of Convertible Unsecured Loan Stock ("CULS") in 1997 topart-finance the acquisition of Grampian Television. The CULS are convertible on30 April each year into SMG shares on the basis of 50.2808 SMG shares per £100nominal value. The CULS are unsecured, earn interest at 6.5% per annum and arerepayable in October 2007. At 31 December 2004, £22.8m of CULS remainedoutstanding. The CULS are therefore a compound instrument. However, the accounting for IAS 32will not be applied until 2005 as IAS 39 has not been applied to 2004. The general principle of IAS 39 is that financial assets should be recognised atfair value and financial liabilities should be recognised at amortised cost,although the IASB version has an option to fair value financial liabilities.Accounting for the movements in fair value is dependent on the designation ofthe relevant financial instrument. IAS 32 and IAS 39 will be introduced in 2005. The 2005 impact of IAS39 is notmaterial, while the IAS32 impact related to the CULS results in a charge toprofit of £0.4m and an opening reserves adjustment to create an equity reserveof £2.5m. IAS 10 Dividends Dividends to shareholders declared after the balance sheet date, but before thefinancial statements are authorised for issue, are not recognised as a liabilityat the balance sheet date but disclosed separately in the notes. Under UK GAAP,dividends for the accounting year were recognised as a liability at the balancesheet date. The effect of the change is an increase in equity at 31 December 2004 of £4.7m(£7.9m as of 1 January 2004) and a decrease in profit attributable toshareholders of £3.2m for 2004. IAS 12 Income Taxes IAS 1 requires separate disclosure of deferred tax assets and liabilities on theGroup's balance sheet. This has resulted in the reclassification of the deferredtax element of retirement benefit obligations. (£28.9m at 1 January 2004, £28.0mat 30 June 2004 and £31.0m at 31 December 2004). IAS 16 Property, Plant and Equipment Certain types of previously capitalised expenditure, such as development andtraining costs are required to be expensed under IAS. The impact of theseadjustments is to charge these costs to profit in 2004 (£0.4m). Recognition of acquired programming rights Under UK GAAP, SMG had a policy of recognising, within the cost of programmingrights in stock, contractual commitments in relation to acquired programmingrights where these were not yet available for transmission (e.g. film rights).Under IFRS, acquired programming rights are recognised at the level of paymentsmade until the asset is available for transmission, whereupon the full cost ofthe rights is recognised within programming rights in current assets. Thispolicy is in line with that of ITV plc and resulted in a reduction toprogramming rights held on the balance sheet, with a corresponding reduction intrade payables, of £5.2m at 31 December 2004 (£2.6m at 1 January 2004). Presentation of associate results IAS 1 requires that associate results be disclosed net of tax on the face of theincome statement. As such, £1.1m has been reclassified to share of associate'sresults at 31 December 2004 (£0.1m at 30 June 2004). Conclusion The IFRS information in this release has been prepared under the basis ofpreparation set out above and, in particular, is subject to the completion ofthe EU endorsement process. The most significant impacts of the transition to IFRS upon the restatedfinancial information is the charge for share-based payments not previouslyrecognised under the UK GAAP and the cessation of goodwill amortisation.However, these changes, and the other IFRS changes are all non-cash in nature.Net assets are impacted as a result of these non-cash changes, but there is noimpact upon the underlying cash balances within the business. George WattGroup Finance Director 23 June 2005 The financial information presented in the impact report and related appendicescontains details of the transitional adjustments required to restate the Group'sfinancial information under IFRS. Future presentation of restated financialinformation may be in a different format. The transitional adjustments presented have been calculated on the basis of thespecific facts of the transaction and should not be used as indicators of futureadjustments between UK GAAP and IFRS that will be required, due to the risk anduncertainty surrounding events in the future. Appendix I RECONCILIATIONS BETWEEN IFRS AND UK GAAP The following reconciliations provide a quantification of the effect of thetransition to IFRS. The reconciliation below provides an overview of the impacton total equity of the transition at 1 January 2004, 30 June 2004 and 31December 2004. There follows a further five reconciliations which providedetails of the impact of the transition on: • Equity at 1 January 2004 • Equity at 30 June 2004 • Equity at 31 December 2004 • Net income for the six months ended 30 June 2004 • Net income for the year ended 31 December 2004 Summary of equity reconciliations 1 Jan 2004 30 June* 2004 31 Dec 2004 £m Note £m Note £m Note Total equity under UK GAAP 66.8 65.6 77.1 Goodwill impairment (10.9) a (10.9) a (10.9) aGoodwill not amortised after date of transition - 7.4 b 14.8 c2003 final dividend not recognised as liability until declared 7.9 d - -2004 interim dividend not recognised as a liability until declared - 3.1 e -2004 final dividend not recognised as liability until declared - - 4.7 fCapitalised costs (1.5) g (1.7) g (1.9) gIFRS 2 opening adjustment and charge to income statement (4.3) h (4.7) h (5.2) hIFRS 2 reserve cerated 4.3 h 4.7 h 5.2 h Deferred tax adjustments 0.6 i 0.6 i 0.8 i ----- ----- ----- Total equity under IFRS 62.9 64.1 84.6 ------ ------ ------ * Restated for the UK GAAP prior year adjustment of £2.8m already reflected inthe 1 January 2004 and 31 December 2004 results. Notes to the summary equity reconciliation (a) Goodwill impairment writedown of Virgin Radio goodwill to reflect the 31 December 2004 UK GAAP carrying value.(b) Adjustment to goodwill amortised after date of transition (ie goodwill between 1 January 2004 and 30 June 2004).(c) Adjustment to goodwill amortised after date of transition (ie goodwill between 1 January 2004 and 31 December 2004).(d) Adjustment for 2003 proposed final dividend not recognised as a liability as not declared until after 31 December 2003.(e) Adjustment for 2004 interim dividend not recognised as a liability as not declared until after 30 June 2004.(f) Adjustment for 2004 proposed final dividend not recognised as a liability as not declared until after 31 December 2004.(g) Adjustment for capitalised costs.(h) Adjustment for IFRS 2 share based payments.(i) Deferred tax relating to adjustments (g) - (h). Reconciliation of equity at 1 January 2004 Effect of Previous transition Note GAAP to IFRS IFRS £m £m £mASSETSNon-current assetsGoodwill a 233.0 (10.9) 222.1Property, plant and equipment b 34.8 (0.8) 34.0Investments 87.3 - 87.3Deferred tax asset c,e - 32.7 32.7 ------- ------- -------- 355.1 21.0 376.1 ------- ------- --------Current assetsDeferred tax asset c 3.2 (3.2) -Inventories d 22.7 (2.6) 20.1Trade and other receivables b 46.5 (0.7) 45.8Short term bank deposit 10.0 - 10.0 ------- ------- -------- 82.4 (6.5) 75.9 ------- ------- -------- Total assets 437.5 14.5 452.0 ------- ------- -------- EQUITYCapital and reserves attributable toequity shareholdersCalled up share capital 7.8 - 7.8Share premium account 58.8 - 58.8Merger reserve 173.4 - 173.4Other reserves e - 4.3 4.3Retained earnings a,b,e,f (173.2) (8.2) (181.4) ------- ------- -------- Total equity 66.8 (3.9) 62.9 ------- ------- -------- LIABILITIESNon-current liabilitiesBorrowings 198.4 - 198.4Convertible unsecured loan 22.8 - 22.8 stockRetirement benefit obligation c 62.8 28.9 91.7Other non-current liabilities d 2.1 (1.0) 1.1Provisions 0.3 - 0.3 ------- ------- -------- 286.4 27.9 314.3 ------- ------- --------Current LiabilitiesBorrowings 30.2 - 30.2Trade and other payables d 35.4 (1.6) 33.8Tax liabilities 9.1 - 9.1Provisions 1.7 - 1.7Proposed dividend f 7.9 (7.9) - ------- ------- -------- 84.3 (9.5) 74.8 ------- ------- -------- Total liabilities 370.7 18.4 389.1 ------- ------- -------- Total equity and liabilities 437.5 14.5 452.0 ------- ------- -------- Notes to the reconciliation of equity at 1 January 2004 a) Goodwill was tested for impairment at 1 January 2004 and a decision made to writedown Virgin Radio goodwill to £163.8m.b) Capitalised costs of £0.8m within Property, plant and equipment and £0.7m within Trade and other receivables were written off.c) Reclassification of deferred tax asset and deferred tax asset element of retirement benefit obligations.d) Derecognition of film stock and associated creditor £2.6m.e) IFRS 2 share based payments (and related deferred tax).f) 2003 proposed final dividend not recognised as a liability until declared. Reconciliation of equity at 30 June 2004 Effect of Previous Transition to IFRS Note GAAP* Opening** Other IFRS £m £m £m £mASSETSNon-current assetsGoodwill a 225.6 (10.9) 7.4 222.1Property, plant and b 29.6 (0.8) (0.1) 28.7equipmentInvestments 8.2 - - 8.2Deferred tax asset c,d - 32.7 (1.5) 31.2 -------- --------- -------- -------- 263.4 21.0 5.8 290.2 -------- --------- -------- --------Current assetsDeferred tax asset c 2.6 (3.2) 0.6 -Inventories e 26.7 (2.6) 1.9 26.0Trade and other receivables b 56.1 (0.7) (0.1) 55.3Short term bank deposit 7.5 - - 7.5 -------- --------- -------- -------- 92.9 (6.5) 2.4 88.8 -------- --------- -------- --------Total assets 356.3 14.5 8.2 379.0 -------- --------- -------- -------- EQUITYCapital and reserves attributable to equityshareholdersCalled up share capital 7.8 - - 7.8Share premium account 58.8 - - 58.8Merger reserve 173.4 - - 173.4Other reserve d - 4.3 0.4 4.7Retained earnings a,b,d,f (174.4) (8.2) 2.0 (180.6) -------- --------- -------- --------Total equity 65.6 (3.9) 2.4 64.1 -------- --------- -------- -------- LIABILITIESNon-current liabilitiesBorrowings 144.5 - - 144.5CULS 22.8 - - 22.8Retirement benefit obligation c 62.1 28.9 (0.9) 90.1Other non-current e 2.1 (1.0) 0.3 1.4liabilities -------- --------- -------- -------- 231.5 27.9 (0.6) 258.8 -------- --------- -------- --------Current LiabilitiesBorrowings 2.8 - - 2.8Trade and other payables e 37.3 (1.6) 1.6 37.3Tax liabilities 7.3 - - 7.3Provisions 0.8 - - 0.8Proposed dividend f 11.0 (7.9) 4.8 7.9 -------- --------- -------- -------- 59.2 (9.5) 6.4 56.1 -------- --------- -------- --------Total liabilities 290.7 18.4 5.8 314.9 -------- --------- -------- --------Total equity and 356.3 14.5 8.2 379.0liabilities -------- --------- -------- -------- * Restated for the UK GAAP prior year adjustment of £2.8m reflected in the 31December 2004 financial statements.** Opening adjustments detailed in the Reconciliation of equity at 1 January2004. Notes to the reconciliation of equity at 30 June 2004a) Goodwill not amortised after date of transition £7.4m.b) Capitalised costs of £0.1m within property, plant and equipment and £0.1m within trade and other receivables written off.c) Reclassification of deferred tax asset and deferred tax asset element of retirement benefit obligations.d) IFRS 2 share based payments - income charge for six months to 30 June 2004.e) Derecognition of film stock and associated creditor of £0.7m.f) 2004 interim dividend of £3.1m not recognised and 2003 proposed final dividend of £7.9m recognised as a liability. Reconciliation of equity at 31 December 2004 Effect of Previous Transition to IFRS Note GAAP Opening* Other IFRS £m £m £m £mASSETSNon-current assetsGoodwill a 218.2 (10.9) 14.8 222.1Property, plant and b 32.2 (0.8) (0.2) 31.2equipmentDeferred tax asset c,d - 32.7 0.6 33.3 -------- -------- -------- -------- 250.4 21.0 15.2 286.6 -------- -------- -------- --------Current assetsDeferred tax asset c 1.5 (3.2) 1.7 -Inventories e 30.7 (2.6) (2.6) 25.5Trade and other b 59.7 (0.7) (0.2) 58.8receivablesCash and cash 20.5 - - 20.5equivalentsShort term bank deposit 7.5 - - 7.5 -------- -------- -------- -------- 119.9 (6.5) (1.1) 112.3 -------- -------- -------- --------Total assets 370.3 14.5 14.1 398.9 -------- -------- -------- -------- EQUITYCapital and reserves attributable to equityshareholdersCalled up share capital 7.8 - - 7.8Share premium account 58.8 - - 58.8Merger reserve 173.4 - - 173.4Other reserve d - 4.3 0.9 5.2Retained earnings a,b,d,f (162.9) (8.2) 10.5 (160.6) -------- -------- -------- --------Total equity 77.1 (3.9) 11.4 84.6 -------- -------- -------- -------- LIABILITIESNon-currentliabilitiesBorrowings 139.0 - - 139.0CULS 22.8 - - 22.8Retirement benefit c 69.2 28.9 2.1 100.2obligationOther non-current e 4.5 (1.0) (2.5) 1.0liabilities -------- -------- -------- -------- 235.5 27.9 (0.4) 263.0 -------- -------- -------- --------Current LiabilitiesTrade and other payables e 41.0 (1.6) (0.1) 39.3Tax liabilities 8.6 - - 8.6Provisions 0.3 - - 0.3Proposed dividend f 7.8 (7.9) 3.2 3.1 -------- -------- -------- -------- 57.7 (9.5) 3.1 51.3 -------- -------- -------- --------Total liabilities 293.2 18.4 2.7 314.3 -------- -------- -------- --------Total equity and 370.3 14.5 14.1 398.9liabilities -------- -------- -------- -------- * Opening adjustments detailed in the Reconciliation of equity at 1 January2004. Notes to the reconciliation of equity at 31 December 2004 a) Goodwill not amortised after date of transition £14.8m.b) Capitalised costs of £0.2m within property, plant and equipment and £0.2m with trade and other receivables written off.c) Reclassification of deferred tax asset and deferred tax asset element of retirement benefit obligations.d) IFRS 2 share based payments - income charge for year to 31 December 2004 of £0.9m and related deferred tax of £0.2m.e) Derecognition of film stock and associated creditor of £5.2m.f) 2004 proposed final dividend of £4.7m not recognised and 2003 proposed final dividend of £7.9m recognised as a liability. Reconciliation of net income for six months ended 30 June 2004 Effect of Previous transition Note GAAP to IFRS IFRS £m £m £mRevenue 88.5 - 88.5Net operating expenses b,c (76.6) (0.6) (77.2) -------- ------- -------- Operating profit 11.9 (0.6) 11.3 Share of associates e 1.7 (0.1) 1.6 -------- ------- -------- Profit from operations 13.6 (0.7) 12.9 Net finance costs (excluding (8.1) - (8.1)exceptionals) -------- ------- -------- Profit before tax and exceptionals 5.5 (0.7) 4.8 Goodwill amortisation a (7.4) 7.4 -Goodwill amortisation on associates d (0.2) 0.2 -Gain on disposal of subsidiary (2.5) - (2.5)undertakingGain on disposal of associate d 10.1 (0.2) 9.9undertakingNet finance costs on exceptionals (3.6) - (3.6) -------- ------- --------Profit before tax 1.9 6.7 8.6 -------- ------- --------Tax e - 0.1 0.1 -------- ------- --------Profit after tax 1.9 6.8 8.7 -------- ------- -------- Earnings per share (pence) 0.6p 2.8p HeadlineProfit before tax 5.5 (0.7) 4.8EPS 1.6p 1.4p Notes to the reconciliation of profit for the six months ended 30 June 2004 a) Goodwill not amortised after date of transition £7.4m.b) Share based payments charge to income of £0.4m for the six months ended 30 June 2004.c) Capitalised costs of £0.2m written off for the six months ended 30 June 2004.d) Goodwill on associates not amortised after date of transition £0.2m.e) Share of associates tax of £0.1m reclassified (share of associates now disclosed net of tax). Reconciliation of net income for year ended 31 December 2004 Effect of Previous transition Note GAAP to IFRS IFRS £m £m £mRevenue 201.2 - 201.2Net operating expenses b,c, (171.9) (1.3) (173.2) -------- ------- --------Operating profit 29.3 (1.3) 28.0 Share of associates e,f 3.5 (1.1) 2.4 -------- ------- --------Profit from operations 32.8 (2.4) 30.4 Net finance costs (excluding f (15.3) (0.1) (15.4)exceptionals) -------- ------- -------- Profit before tax and exceptionals 17.5 (2.5) 15.0 Goodwill amortisation a (14.8) 14.8 -Goodwill amortisation on associates d (0.3) 0.3 -Gain on disposal of property 1.0 - 1.0Gain on disposal of subsidiary (2.5) - (2.5)undertakingGain on disposal of associate d 31.1 (0.3) 30.8undertakingNet finance costs on exceptionals (6.7) - (6.7) -------- ------- --------Profit before tax 25.3 12.3 37.6 -------- ------- --------Tax b,c,e (1.2) 1.4 0.2 -------- ------- --------Profit after tax 24.1 13.7 37.8 -------- ------- --------Earnings per share (pence) 7.7p 12.0p HeadlineProfit before tax 17.5 (2.5) 15.0EPS 5.0p 4.7p Notes to the reconciliation of profit for the year ended 31 December 2004 a) Goodwill not amortised after date of transition £14.8m.b) Share based payments charge to income of £0.9m for the year ended 31 December 2004 and related deferred tax £0.2m.c) Capitalised costs of £0.4m written off for the year ended 31 December 2004.d) Goodwill on associates not amortised after date of transition £0.3m.e) Share of associates tax reclassified £1.2m (share of associates now disclosed net of tax).f) Share of associates interest reclassified £0.1m. Appendix IIJUNE 2004 INTERIM ACCOUNTS RESTATED FOR IFRS Consolidated income statementfor the six months ended 30 June 2004 6 months 2004 Note £mContinuing Operations Revenue 2 88.5 Net operating expenses (77.2) -------Operating profit 11.3 Share of result of associates 1.6 ------- Profit from operations 2 12.9 Gain on disposal of subsidiary undertaking 4 (2.5)Gain on disposal of associate undertaking 4 9.9 -------Profit before finance costs 20.3 -------Net finance costs 5 (11.7) -------Profit before tax 8.6Tax 6 0.1 ------- Profit for the period attributable to equity shareholders 10 8.7 ------- Earnings per ordinary share - basic 8 2.8p HeadlineOperating profit 11.3Profit before tax 4.8Earnings per share 1.4p There are no recognised income and expenses for the six months ended 30 June2004 other than those already dealt with in the income statement above. Consolidated balance sheetat 30 June 2004 Note 30 June 2004 £mASSETSNon-current assetsGoodwill 222.1Property, plant and equipment 28.7Investments 9 8.2Deferred tax asset 31.2 --- -------- 290.2 --- -------Current assetsInventories 26.0Trade and other receivables 55.3Short term bank deposit 7.5 --- ------- 88.8 --- ------ Total assets 379.0 ------- EQUITYCapital and reserves attributable to the Company's equity holdersCalled up share capital 7.8Share premium 58.8Merger reserve 173.4Other reserve 4.7Retained earnings (180.6) --- -------Total equity 10 64.1 --- ------- LIABILITIESNon-current liabilitiesBorrowings 144.5Convertible unsecured loan stock 22.8Retirement benefit obligation 90.1Other non-current liabilities 1.4 --- ------- 258.8 --- ------- Current LiabilitiesBorrowings 2.8Trade and other payables 37.3Tax liabilities 7.3Provisions 0.8Proposed dividend 7.9 --- ------- 56.1 --- ------- Total liabilities 314.9 ------- Total equity and liabilities 379.0 ------- Consolidated cash flow statementfor the six months ended 30 June 2004 Note 6 months 2004 £mOPERATING ACTIVITIESCash used by operations 11 (4.9)Interest paid (6.4)Income taxes paid (0.2)Payment to Caledonian Publishing Pension (2.8)Scheme -------- Net cash used in operating activities (14.3) --------- INVESTING ACTIVITIESInterest received 0.1Dividends received from associate 2.2undertakingsDisposal of associate undertaking 89.0Proceeds from sale of property, plant and 5.1equipmentPurchase of property, plant and equipment (3.3) --------Net cash from investing activities 93.1 -------- FINANCING ACTIVITIESRepayment of existing bank (83.9)borrowingsRelease of cash on deposit 2.5 --------Net cash used in financing activities (81.4) -------- Movement in cash and bank overdrafts (2.6) Bank overdraft at beginning (0.2)of period -------Net cash and bank overdrafts (2.8)at end of period ------- Reconciliation of movement in net debt 6 months 2004 £m Opening net debt (242.5) Movement in cash and bank overdrafts in the period (2.6)Net decrease in debt financing 81.4 Closing net debt (163.7) Notes to the interim statementfor the six months ended 30 June 2004 1. Basis of preparation The interim financial report has been prepared in accordance with InternationalFinancial Reporting Standards (IFRSs). The accounting policies set out below have been applied consistently inpresenting this financial information and in preparing an opening IFRS balancesheet at 1 January 2004 for the purpose of transition to IFRS, and at 31December 2004. 2. Business segments For management purposes the Group is currently organised into three operatingdivisions - Television, Out of Home and Radio. These divisions are the basis onwhich 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. Out of Home - the provision of advertising solutions across various out of homemedia. Segment information about these businesses is presented below. Six months ended Television Radio Out of Home Group30 June 2004 2004 2004 2004 2004 £m £m £m £mREVENUEExternal sales 58.0 10.2 20.2 88.4Inter-segment sales 0.1 - - 0.1 ------- ------- ------- -------Total revenue 58.1 10.2 20.2 88.5 ------- ------- ------- ------- PROFITSegment result 8.1 2.3 2.0 12.4 ------- ------- ------- ------- Unallocated pension costs (1.1)Share of associates (i) 1.6 -------Profit from operations 12.9 Loss on disposal of subsidiary undertaking (ii) (2.5)Gain on disposal of associate undertaking (iii) 9.9Finance costs (11.7) --------Profit before tax 8.6Tax 0.1 -------- Profit after tax 8.7 -------- i) Attributable to Television segment ii) Publishing division discontinued in 2003iii) Attributable to Radio segment 3. Operations in the interim period Owing to the nature of the Group's operations, it is not anticipated that thereare any external factors which will significantly alter the results in thesecond half of the financial year, nor any seasonal effects which will result ina material increase or decrease in revenues and profits in that period. 4. Exceptional items i) Gain on disposal of subsidiary undertakingIn 2003, the disposal of the Company's Publishing division resulted in aprovisional gain on sale of £33.0m. In line with the sale and purchase agreementfinal agreement was reached with Gannet in July 2004 on the completion account'snet assets. This resulted in a net payment due to Gannet and the provisionalgain on sale was adjusted by £2.5m during the first half of 2004. ii) Gain on disposal of associate undertakingThe disposal of the Company's investments in Scottish Radio Holdings ("SRH") on16 January 2004 resulted in a gain on disposal of £9.9m (see note 9). iii) Finance costs£3.6m of unamortised bank facility arrangement fees relating to the Group'scurrent facility have been offset against the gain on sale of SRH following thereduction of the Group's bank debt and facilities from the proceeds of thissale. 5. Net finance costs 6 months 2004 £mInterest expense:Bank borrowings 6.7CULS and loan note interest 0.8 ----- 7.5Interest income (0.6) ------Net interest payable 6.9Pension finance cost 1.2 ------Net finance costs excluding exceptional items 8.1Exceptional finance costs 3.6 -------Net finance costs 11.7 ------- 6. Tax 6 months 2004 £mThe charge for tax is as follows:Tax on profit on ordinary activities excludingexceptional items at 10% 0.4Tax credit on exceptional items (0.5) ------- (0.1) ------- 7. Dividends 6 months 2004 £mAmounts recognised as distributions to equity holders in theperiod:Final dividend for the year ended 31 December2003 of 2.5p per share 7.9 ----- The proposed interim dividend is subject to approval by the Board and has notbeen included as a liability in these financial statements. 8. Earnings per share Basic earnings per share (EPS) excluding exceptional items is calculated asfollows: 6 months 2004 £mAttributable profit for the financial period 8.7(including exceptional items)Effect of exceptionals (4.3) -------Attributable profit for the financial period 4.4 ------- Weighted average number of shares in issue 314.3mEarnings per ordinary share 1.4p ------- Basic EPS inclusive of exceptional items in the six months to 30 June 2004 is2.8p. There is no difference between basic and diluted EPS as there is no impact fromdilutive share options. 9. Investments On 16 January 2004 the Group sold its 27.8% shareholding in SRH to Emap plc. Thesale of 9,729,361 ordinary shares in SRH raised cash proceeds of £90.5m, or 930pper share, resulting in a net gain on disposal of £9.9m after disposal costs of£2.1m. 10. Reconciliation of movements in equity shareholders' funds 6 months 2004 £m Profit for the period 8.7Dividends (7.9) -------Retained profit for the period 0.8Movement in reserve for share based payments 0.4 -------Net movement in shareholders' funds 1.2 -------Opening shareholders' funds 66.8IFRS opening balance adjustments (3.9) -------Opening shareholders' funds as restated 62.9 -------Closing equity shareholders' funds 64.1 ------- 11. Notes to cash flow statement 6 months 2004 £mOperating profit (before exceptional items) 11.3Adjustments for:Depreciation and other non-cash items 3.8