TIDMSPMG
26 April 2010
SPORT MEDIA GROUP PLC
("Sport Media", "SPMG", "or "the Company")
Preliminary announcement of results for the 17 months ended 31 December 2009
The Board of Sport Media Group plc (AIM: SPMG.L), the integrated multi-media
group that publishes the Sunday and Daily Sport newspapers and provides digital
content for internet and mobile channels, today announces preliminary results
for the 17 months to 31 December 2009
Financial highlights:
* Group generated revenue of GBP30.9m (12 months to 31 July 2008: GBP29.4m)
* Loss before tax after exceptional items of GBP29.2m (12 months to 31 July
2008: loss GBP18.2m).
* Underlying loss before tax (excluding non-recurring items, share option
cost, bad debts, amortisation and impairment) was GBP0.4m (12 months to 31
July 2008: profit GBP6.4m).
* The 5 month period to December 2009 showed a much improved performance at
the underlying profit level, producing an EBITDA of GBP551k.
* No final dividend.
Chairman's Statement
The period under review covers the 17 month period between 1 August 2008 and 31
December 2009. It was a dramatic period for Sport Media Group ("Group"), and
also encompasses much of the recent crisis period for the British economy. The
Group has had a turbulent experience, but has survived and is now profitable on
a monthly basis at the operating profit level. There is still a significant
level of debt within the Group and debt-servicing costs are a major cost but I
am delighted to report that our debt holders have agreed to extend their
facilities until 31 March 2013, which provides an important cornerstone to the
ongoing development of the business. We have cut our expenses significantly and
continue to seek efficiencies in the Group, and we are working hard to increase
revenues, which is the key to our future success. We have a stable platform from
which to build a strong position in our market place and are optimistic that,
through supportive debt holders, dedicated staff and interested shareholders, we
can look forward to a positive future.
In the extended reporting period to 31 December 2009, the Group generated
revenue of GBP30.9m (12 months to 31 July 2008: GBP29.4m) and a loss before tax
after exceptional items of GBP29.2m (12 months to 31 July 2008: loss GBP18.2m). The
underlying loss before tax (excluding non-recurring items, share option cost,
bad debts, amortisation and impairment) was GBP0.4m (12 months to 31 July 2008:
profit GBP6.4m). The 5 month period to December 2009 showed a rather better
performance at the underlying profit level, producing an EBITDA of GBP551k.
Total net debt at the period end stood at GBP11.9m (31 July 2008: GBP10.4m). Debt
provided by The Royal Bank of Scotland plc ("RBS") comprised a revolving credit
facility of GBP3.9m, a loan of GBP2.5m (further details below) and an invoice
discounting facility standing at GBP1.3m at the period end together with a further
GBP0.1m of net borrowings. This totalled GBP7.8m. Gold Group International ("GGI")
and Roldvale Limited, a company controlled by David Sullivan, provided loans of
GBP1.6m during the period to provide critical finance to the Group, and we are
grateful to them for their support. Without this finance it is unlikely that the
Group would have been able to continue to trade.
Deferred consideration with regard to the acquisition of Sport Newspapers, at
the date of acquisition and in favour of GGI, amounted to GBP5.0m. GBP2.5m is by way
of an outstanding liability to GGI, which together with the GBP1.6m owed to GGI
and Roldvale Limited and the GBP7.8m owed to RBS accounts for the Group's net debt
position of GBP11.9m. The remaining GBP2.5m of deferred consideration was settled
via the term loan from RBS for the same value. For the Group to secure this loan
GGI was required to maintain a charge of deposit for the same value and this
will remain in place for the duration of the term loan. The Group is paying
interest to RBS for the loan of GBP2.5m and interest to GGI for the charge of
deposit it is maintaining.
The Group has two main operating divisions, Print and Digital; Print being the
larger and incorporating Sport Newspapers Limited, publisher of the Daily and
Sunday Sport newspapers. Print revenues, including advertising, for the period
were GBP25.5m (12 months to 31 July 2008: GBP20.1m) and generated an underlying
operating profit of GBP0.3m (12 months to 31 July 2008: GBP2.4m).
In August 2008, at the beginning of the reporting period, we were achieving
circulation figures of an average of 79,500 per day for the Daily, 51,000 for
the Saturday and 77,500 for the Sunday. In the period January to Easter 2010
circulation has averaged around 73,700 for the Daily, 49,000 for the Saturday
and 66,400 for the Sunday. It has been widely reported that this has been a
torrid time for most national newspapers, with falls in circulation and falls in
advertising revenues. Our advertising revenues have been arguably less impacted
than most newspapers, as we have little advertising targeted at the residential,
automotive or employment markets. Nonetheless, advertising revenues in the
period January to Easter 2010 are approximately 14% lower than in the same
period in 2009. Our production costs have been reduced and the paper is
produced by far fewer staff. This business is now stable and profitable.
However, with unemployment likely to rise further, and few signs of recovery in
the sectors that employ our readers, the outlook remains difficult. We believe
that our newspaper product is much improved, with more news items, better
quality pictures and that it represents good value to our readers. However, the
price war between the larger "red-tops" remains a constraint on our revenue
opportunities. We will continue to seek efficiencies, as well as selective
marketing opportunities to increase circulation.
The other division of the Group, the Digital Division, should help us increase
circulation, as their expertise in the digital space, including mobile phones
and the internet, can be used to alert potential readers to news items and to
develop web products that can be monetised to increase revenues. We are the only
National newspaper in the UK to make revenues by giving away DVDs in our Sunday
newspaper, thanks to our "lock 'n' pay" technology, and we are experimenting
with developing this technology in new ways. Equally, the logic of combining the
Digital Division with the newspaper that it uses to generate customers remains
persuasive. However, for the period under review, this business suffered a very
significant fall in revenues. Revenues in the entire adult industry have fallen
dramatically in the last two years, as a consequence of "free" adult internet
content supported by advertising. Our digital division, which markets its
products across various platforms, including mobile and internet, and delivers
products sold over the internet by traditional post, lost customers and margin,
as well as some key support contracts as the market declined. In the period the
Digital Division achieved revenues of GBP5.4m (12 months to 31 July 2008: GBP9.3m).
This division employs 19 people, but costs have been reduced and the division is
seeking further efficiencies. It has also been developing new products and
initiatives. In particular the formation of Telecom2, a tier-2 level telecoms
business, which now provides routing, aggregation and internet hosting services
to the rest of the Group, as well as developing a customer base of its own,
further enhances the Group's ability to leverage content.
The Group is not in a position to resume paying dividends as yet, and we expect
to use our net cash flow to reduce debt as we believe that will deliver the
greatest benefit to our shareholders.
The new financial year has carried on much as we finished 2009, albeit the bad
winter weather impacted both newspaper distribution and readers working in the
building sector. However, we are optimistic that we can trade the business
profitably and progressively reduce our debt to deliver enhanced value to our
shareholders. We will continue to explore all opportunities to achieve this.
Chief Executive's Statement
The results are presented for the 17 month period to 31 December 2009. In August
2009, Telecom2 was formed following the acquisition of assets from a business in
liquidation and results for the subsequent five months of trading are included.
Trading
In the 17 months ended 31 December 2009 Group revenues were GBP30.9m (12 months to
31 July 2008: GBP29.4m).
The Group recorded a loss before tax for the period of GBP29.2m (12 months to 31
July 2008: loss GBP18.2m). The underlying loss for the period excluding
non-recurring items, share option cost, amortisation and impairment was GBP0.4m
(12 months to 31 July 2008: profit GBP6.4m).
Total net debt at the period end stood at GBP11.9m (31 July 2008: GBP10.4m). Debt
provided by The Royal Bank of Scotland plc ("RBS") comprised a revolving credit
facility of GBP3.9m, a loan of GBP2.5m (further details below) and an invoice
discounting facility standing at GBP1.3m at the period end together with a further
GBP0.1m of net borrowings. This totalled GBP7.8m. Gold Group International ("GGI")
and Roldvale Limited, a company controlled by David Sullivan, provided loans of
GBP1.6m during the period to provide critical finance to the Group. Deferred
consideration with regard to the acquisition of Sport Newspapers, at the date of
acquisition and in favour of GGI, amounted to GBP5.0m. GBP2.5m is by way of an
outstanding liability to GGI which together with the GBP1.6m owed to GGI and
Roldvale Limited and the GBP7.8m owed to RBS accounts for the Group's net debt
position of GBP11.9m. The remaining GBP2.5m of deferred consideration was settled
via the term loan from RBS for the same value. For the Group to secure this loan
GGI was required to maintain a charge of deposit for the same value and this
will remain in place for the duration of the term loan. The Group is paying
interest to RBS for the loan of GBP2.5m and interest to GGI for the charge of
deposit it is maintaining.
Interest charges remain a significant burden on the business and opportunities
to improve the position through profitable trading and debt repayment remain a
priority for the directors. Interest charges in the period were GBP1.4m, (12
months to 31 July 2008: GBP0.3m).
Working capital
Cash generated from operations during the period was GBP1.3m with a further GBP1.5m
inflow from net financing activities. The Group ended the year with a cash
position of GBP0.3m.
Balance sheet
The carrying value of the Group's goodwill and intangible assets relate
predominantly to the balances arising on the acquisition of Sport Newspapers
Limited and Flip Media and encompass: newspaper mastheads, publishing rights &
imprints, trade marks & names, and customer relationships & contracts. The
principal assets of Flip Media were disposed of during the period and
consequently the carrying values of goodwill and intangible assets were fully
impaired with a charge of GBP1m in the period. The directors assessed the carrying
values of goodwill and intangible assets of Sport Newspaper Limited through
value in use calculations as detailed in note 16. This assessment resulted in a
full impairment of goodwill from its carrying value of GBP18.0m and an impairment
charge of GBP0.5m against intangible assets. Amortisation and impairment charges
for the period amounted to GBP23.8m.
As a consequence of the impairment charges the Group has a negative net assets
balance of GBP0.2m.
As detailed in the Chairman's Statement, RBS, GGI and Roldvale Limited agreed to
extend the terms of their existing facilities until 31 March 2013. At 31
December 2009 these facilities were all reported as current liabilities as they
were due for repayment in November 2010. The extract of the balance sheet below
shows the reported position and a pro forma presentation for the movement
between current and non-current liabilities had the agreed extension been in
place at 31 December 2009 which has the effect of reducing net current
liabilities from GBP12.4m to GBP2.5m.
Extract from the Consolidated Balance Sheet as at 31 December 2009
Pro forma Actual
2009 2009
GBP'000 GBP'000
Current assets 3,709 3,709
Total assets 19,767 19,767
Current liabilities
Trade and other payables 4,190 4,190
Short term borrowings 2,045 11,957
Current tax liabilities
6,235 16,147
Net current liabilities (2,526) (12,438)
Non-current liabilities
Long term borrowings 9,912 -
Deferred tax liabilities 3,835 3,835
13,747 3,835
Total liabilities 19,982 19,982
Net liabilities (215) (215)
Business review
2008/09 has seen a significant transformation of Sport Media Group, as it
tackled falling revenues across all divisions, question marks over its banking
facilities and a comprehensive restructuring of facilities and operations,
against the backdrop of a depressed economic climate.
It has been a period of consolidation within the business, with the priority
being to minimise management distractions wherever possible to allow operational
focus on the core publishing and digital businesses.
The restructuring that took place to secure the renewal of banking facilities
for the Group in April 2009 again saw comprehensive cost savings and
efficiencies achieved, albeit with significant exceptional costs incurred.
Print Division
At the start of the period, the Print Division consisted of Sport Newspapers
Limited, publisher of the Daily and Sunday Sport, Moresport Limited publisher of
magazine titles and Flip Media Limited, publisher of Front magazine (which was
acquired in June 2008).
As a result of the operational restructuring, the assets of Flip Media Limited
were disposed of in July 2009, to allow management to focus on the operational
changes required at the core newspaper business.
The newspaper suffered significant falls in both sales and advertising revenues
in November 2008, which worsened over the Christmas 2008 period, and its
loss-making position resulted in the Group breaching one of its banking
covenants in January 2009.
During Q1 2009, the business undertook a complete operational review and was
able to present and deliver the strategic and tactical changes necessary to
return it to profitability by July 2009. This involved the provision of loans to
the company of GBP1.6m from Roldvale Limited and GGI in return for the issue of
9.68m options over ordinary shares at 3.5p per share to David Sullivan and the
appointment of David Sullivan as Honorary Publisher of the Group.
Headcount
The annual headcount cost removed from the business as a result of the
restructuring amounted to GBP614k per annum, and these efficiencies were gained
across the whole business.
At period end the Group had 97 staff in employment, from a high of 138 in
October 2008 (31 July 2008: 118).
Editorial
Monthly content costs now average GBP130k, a reduction of 35% on pre-restructuring
levels, and average monthly casual staffing costs are now immaterial, compared
to c. GBP11k in 2009.
Whilst circulation peaked in August 2009 the averages achieved in January to
Easter 2010 of 73,700 for the Daily, 49,000 for the Saturday and 66,400 for the
Sunday are in line with budget.
We are currently assessing the establishment of dedicated studio facilities to
further reduce content costs in this area. More importantly, this will allow us
to significantly increase the volume of wholly owned content within the Group
and take greater advantage of opportunities for new revenue streams driven by
this content across all platforms.
Supply chain
Despite lower overall sales volumes the number of retailers selling the paper
remains at c. 40,000 per day. Following the business failure of Dawson News in
August 2009 the wholesale market is now serviced by Smiths News and Menzies and
is more streamlined as a consequence. The Dawson News administration has exposed
the business to GBP200k of bad debt and whilst this has been fully provided for,
it remains unclear whether there will be a return of funds against this from the
administrator.
Cost savings within the distribution side of the business have been achieved
through improved distribution contracts and renegotiated retail and wholesale
terms.
As a result of the current sales levels, waste levels are currently at 52%
(Daily), 58% (Saturday) and 55% (Sunday), and are in line with our budget.
Advertising
Advertising revenues for the period were GBP10.7m (12 months to 31 July 2008:
GBP9.1m) and currently remain stable and in line with budget.
Online
We now provide a full subscription-based electronic version of the newspaper
online, and although revenues are small in this area they are growing, and
providing us with useful data to tailor the future development of both our
online and printed offerings.
The introduction of our own studio facilities will significantly improve the
opportunity to provide exclusive video and still content online, to complement
the printed products.
Digital Division
The Digital Division's revenues are derived primarily from the sale of adult
content over a number of different platforms. However the rapid increase in
usage of the adult 'tube' internet sites, offering free content in an
advertising funded environment, along with lower average newspaper sales
volumes, has had an adverse impact on revenues across this division.
A reflection of the changing environment, Locked DVD revenues overtook mobile
content revenues for the first time in October 2009, and, although the DVDs are
profitable, they provide a smaller margin revenue stream than mobile content.
The changes to the content stream being put into place in the Print Division
will feed an improved supply of wholly-owned content to the Digital Division to
help reinvigorate the mobile side of the business.
In reaction to this changing landscape, the Group formed a new company, Telecom2
out of the liquidation of an unconnected communications company, which has given
the Group a carrier-level (tier 2 grade) telecoms provider and internet service
provider (ISP) for a small capital outlay.
Telecom2 was formed in August 2009, and provides call termination, routing and
billing facilities to the Group and third party customers (previously, all of
the Group's telecoms termination and aggregation had to be done through third
parties). Its services include voice over internet protocol (VoIP) and
switchboard services, discount national and international call routing,
non-geographical (0844), follow-me (070) and other number services, as well as
ISP-grade hosting. Telecom2 employs two people and is an extremely low overhead
business.
Utilising the services of Telecom2 across the Group has generated advantages and
these will continue to be sought as the business develops. A new billing engine
has now been rolled out, a key milestone in allowing Telecom2 to compete for
business in this market.
In its first five months, Telecom2 contributed GBP340k to revenues and recovered
its setup costs.
Cost control remains a priority across the Digital Division, and savings
achieved in January 2010 of c. GBP20k per month are helping to ensure this side of
the business remains profitable and cash generative. The Digital Division now
employs a total of 19 staff across its four companies (2008: 22).
Board changes
Following the restructuring activity in the early part of the period, and the
improvements in reporting and structure instigated by the current Chairman,
David Bailey announced his intentions to step down to make way for a new
Chairman to build on the solid foundation created and drive the Group forward.
As previously announced, Martin Robinson joined the Board in January 2010 as
non-executive Deputy Chairman, the intention being for Martin to take up the
Chairmanship following the Group's next annual general meeting. David will
continue as a non-executive director and I'd like to take this opportunity on
behalf of the board to thank David for his efforts and I look forward to his
ongoing contribution to the business.
At the same time, Rob Johnson, Managing Director of the Group's Digital Division
was appointed to the board as an Executive Director.
Andrew Fletcher, CFO, left the business in July 2009, and Neil Robertson,
finance director of Sport Newspapers Limited, was appointed to the Board as
Group Finance Director in October 2009.
I now believe both the board and the business are well placed to take advantage
of the opportunities available to us in the coming year.
During what has been a challenging period I would like to take the opportunity
to thank our staff for their ongoing commitment and effort.
Outlook
Securing a consistent, high quality stream of low-cost content for the business
is now a priority, as a means to leverage our various technology platforms in
the most advantageous way. The development of a studio to deliver a content
archive as a core asset of the business opens up a wealth of new revenue
possibilities: from merchandising to syndication, web streaming to high quality
video. It also paves the way for the development of in-house girl management
facilities to help us find, promote and more importantly monetise the stars of
the future. Whilst the outlook for advertising revenues, circulations and
consumers' response to services remains poor, access to exclusive content that
allows us to innovate quickly and efficiently on current and future technology
platforms will help to secure our future in an uncertain climate.
Sport Media Group plc
Consolidated Income Statement - Period ended 31 December 2009
17 month
period ended Year to
31 December 31 July
2009 2008
GBP'000 GBP'000
Revenue 30,937 29,394
Cost of sales (25,627) (16,095)
________ ________
Gross profit 5,310 13,299
Administrative costs (5,750) (6,865)
________ ________
Underlying operating (loss)/profit* (440) 6,434
Depreciation (208) (225)
Finance income 38 103
Finance costs (1,638) (309)
________ ________
Underlying (loss)/profit before tax** (2,248) 6,003
Share based payment charges (1,613) (1,026)
Reorganisation and re-launch charges - (1,489)
Negative goodwill on acquisitions - 279
Amortisation of intangibles (2,000) (1,316)
Impairment of goodwill and other intangibles (21,827) (20,676)
Non-recurring operating expenses (1,476) -
________ ________
Loss before tax (29,164) (18,225)
Taxation credit 2,508 191
________ ________
Loss for the period from continuing operations (26,656)
(18,034)
Profit/(loss) attributable to minority interests 13 (65)
______ ______
Loss for the period attributable to equity holders of
the parent
(26,643) (18,099)
______ ______
Earnings per share:
Basic loss per share (27.38)p (19.87)p
______ ______
Adjusted (loss)/earnings per share (2.29)p 5.72p
______
Diluted loss per share (27.38)p (19.87)p
______ ______
* Operating (loss)/profit before non-recurring items, amortisation and
impairment of intangibles, share based payment charges, interest and taxation
** (Loss)/Profit before tax and non-recurring items, amortisation and impairment
of intangibles and share based payment charges
Consolidated Statement of Changes in Equity - Period ended 31 December 2009
Share Share premium Other Retained Total
capital account reserves earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 100 3,401 4,784
July 2007 96 1,187
Loss for the - (18,099) (18,099)
year - -
Share-based - 1,026 1,026
payments - -
Total - (17,073) (17,073)
recognised
income and
expense - -
Dividends - - - (3,480) (3,480)
Issue of share - - 43,700
capital 146 43,554
Cost of shares - - (3,204)
issued - (3,204)
Balance at 31 100 (17,152) 24,727
July 2008 242 41,537
Net loss for - (26,643) (26,643)
the period - -
Share-based - 1,613 1,613
payments - -
Total
recognised
income and
expense (25,030) (25,030)
Issue of share - - - 5
capital 5
Balance at 31 100 (42,182) (298)
December 2009 247 41,537
======= ========== =========== ========= ========
There are no items of recognised income and expense other than the loss for the
period.
Consolidated Balance Sheet - as at 31 December 2009
2009 2008
GBP'000 GBP'000
Non-current assets
Property, plant and equipment 163 286
Indefinite lived assets 10,517 11,452
Customer relationships and contracts 1,774 3,102
Goodwill 200 18,194
Other intangible assets 1,617 3,390
Investments - 3
Deferred tax asset 1,787 430
16,058 36,857
Current assets
Inventories 89 102
Trade and other receivables 3,352 6,812
Cash and cash equivalents 268 534
3,709 7,448
Total assets 19,767 44,305
Current liabilities
Trade and other payables 4,190 4,066
Short term borrowings 11,957 10,430
Current tax liabilities - -
16,147 14,496
Net current liabilities (12,438) (7,048)
Non-current liabilities
Deferred tax liabilities 3,835 4,986
3,835 4,986
Total liabilities 19,982 19,482
Net (liabilities)/assets (215) 24,823
Equity
Share capital 247 242
Share premium account 41,537 41,537
Other reserves 100 100
Share option reserve 2,707 1,094
Retained earnings (44,889) (18,246)
Equity shareholders' (deficit)/funds (298) 24,727
Minority interests 83 96
Total equity (215) 24,823
The financial statements were approved by the board of directors and authorised
for issue on 23 April 2010.
Consolidated Cash Flow Statement - Period ended 31 December 2009
17 month period ended Year to
31 December 31 July
2009 2008
GBP'000 GBP'000
Cash flows from operating activities
Underlying operating (loss)/profit (440) 6,434
Adjustments for:
Decrease in trade and other receivables 3,094 2,484
Decrease/(increase) in inventories 13 (62)
Increase/(decrease) in trade & other payables 123 (1,806)
Profit on disposal of investment - (106)
Cash generated from operations before
non-recurring costs 2,790 6,944
Reorganisation and re-launch costs - (1,489)
Non-recurring items (1,476) -
Cash generated from operations 1,314 5,455
Interest received 38 103
Interest paid (1,373) (309)
Other finance charges (265) -
Income taxes received/(paid) 372 (1,015)
Net cash generated from operating activities 86 4,234
Cash flows from investing activities
Acquisitions of subsidiaries net of cash acquired - (47,256)
Purchase of property, plant and equipment (106) (83)
Proceeds from disposal of property, plant and equipment 17 -
Purchase of intangible assets (1,797) (2,063)
Capitalised development expenditure - (1,304)
Sale/(purchase) of trade investment - 356
Net cash used in investing activities (1,886) (50,350)
Cash flows from financing activities
Cash proceeds from issue of share capital 5 41,100
Share issue costs settled in cash - (604)
Proceeds from new borrowings 1,959 8,500
Repayment of borrowings (430) (570)
Payment of equity dividends - (3,480)
Net cash from financing activities 1,534 44,946
Net decrease in cash and cash equivalents (266) (1,170)
Cash and cash equivalents at beginning of period 534 1,704
Cash and cash equivalents at end of period 268 534
============== ==============
For further information, please contact:
Sport Media Group plc
David Bailey, Chairman
Andrew Fickling, Chief Executive Officer
Neil Robertson, Group Finance Director
Tel: + 44 (0) 7836 258 558
Tel: + 44 (0) 161 236 4466
www.sportmediagroup.co.uk <http://www.sportmediagroup.co.uk/>
Daniel Stewart & Company plc
Simon Leathers/Oliver Rigby
Tel: + 44 (0) 20 7776 6550
www.danielstewart.co.uk <http://www.danielstewart.co.uk/>
Notes to Editor:
On the 5th September 2007 Interactive World Plc acquired the entire issued share
capital of Sport Newspapers Limited by way of a reverse takeover. At this time
the name of the Company was changed to Sport Media Group Plc and the enlarged
issued share capital was admitted to trading on AIM.
The Group has grown to become a recognised UK branded tabloid newspaper,
publishing various titles including the Daily Sport and Sunday Sport. The Sport
titles are sold to approximately 39,000 retail outlets around the UK by a
network of wholesalers, both commercial and independent.
The Group's other activities include the sales of digital media content through
mobile telephones and via the internet.
[HUG#1407898]
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