The acquisition of Ginger Media Group was completed in March and both Virgin Radio and Ginger Television have been quickly, and effectively, integrated into the Group. In addition, we were able, at the beginning of the year, to increase our holding in GMTV to 25%, further strengthening our position in UK media.
Our existing businesses, as well as those we have acquired, have performed well in the first six months, resulting in pre-tax profit (excluding exceptional items and FRS10) growing by 25% to £30.0 million (1999: £24.0 million), a new record. Turnover across the same period grew by 37% to £152.7 million. Earnings per share (excluding exceptional items and FRS10) increased from 6.7 pence in 1999, on a restated basis, to 7.8 pence, a growth of some 16%. The Board has also agreed an interim dividend of 2.3 pence (1999: 2.2 pence).
The change of the group’s name to SMG took place in June, following the completion of a corporate restructuring and a four-for-one share split. These changes ensure that SMG is now appropriately structured, and branded, to continue its development as a leading player in the UK information and entertainment marketplace.
Today, simultaneously with the publication of our interim results, we have announced that we are proposing to raise up to £45.0 million (net of expenses) through a cash placing of 14.6 million new ordinary shares, representing approximately 5% of SMG’s issued share capital. This will strengthen the group’s balance sheet and provide us with the necessary flexibility to finance and execute new investment and acquisition opportunities quickly.
Television
With advertising revenues across our Broadcasting business growing by 7%, and as a result of initial savings from staff reductions, we have been able to improve operating margins to 29%. In addition, our network programme production business benefited from a first time contribution from Ginger Television. Overall, Television profits in the first half increased to £19.5 million, from £16.4 million in the same period last year, a growth of 19%.
Although advertising growth was ahead of expectations, we were not able to match the exceptional growth across ITV nationally which was fuelled by a surge of dot.com advertising in the South East of England, and an unprecedented level of self-promotion by the larger ITV groups. We believe these factors to be largely temporary but it did result in our Net Advertising Revenue (NAR) share reducing from 6.2% to 5.8% in the period. We expect to regain some market share in the second half as these factors recede and other major advertisers rebalance their campaigns.
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Our continued investment in new technology and improved efficiency in programme making has inevitably resulted in a need for fewer staff. Early in the year we introduced a redundancy programme and have set aside an exceptional reorganisation provision of £5.0 million for the group as a whole. We therefore expect to see continued benefit from reduced costs across the remainder of the year and into 2001.
Both Scottish Television and Grampian Television maintained their market leading positions in their respective regions with a peak-time audience share of 37%, on par with 1999, despite the growth in multi-channel homes. This performance was ahead of ITV and we substantially outperformed our nearest rival, BBC Scotland, by a sizeable 11 percentage points.
Network programme production now comprises Scottish Television Enterprises (STE) and Ginger Television, which together make SMG the sixth largest programme producer in the UK. STE’s repositioning in 1999 has allowed us to start the process of successfully rebuilding the level of commissioned programmes and, importantly, its development slate. Ginger Television has contributed strongly to first half profits in the four months since acquisition and has won a further commission for The Priory which will start its third series on Channel 4 next month. TFI Friday will end its five year run in December and we have been asked by Channel 4 to develop a replacement show as well as other programming featuring Chris Evans.
Publishing
With newspaper advertising on our established titles (The Herald and Evening Times) growing ahead of the market at 7%, and continued attention to cost control, we were able to improve profits within Publishing to £9.1 million, from £8.6 million in the equivalent period last year. This improvement was achieved despite the costs of an extra five publication days of the Sunday Herald, launched in February last year.
Advertising revenues showed renewed signs of growth after the slowdown in the first half of 1999, with recruitment and property advertising particularly strong as a result of faster growth in the local economy. Motoring remains weak, given the uncertainty in the new and second-hand markets due to the ongoing review of pricing in the motor industry.
The Scottish newspaper market has become increasingly competitive in 2000, with the launch of Metro, a free daily tabloid, and The Scotsman and The Times significantly cutting cover prices in an attempt to increase market share. While we have seen some impact on circulation from these initiatives, The Herald and Evening Times have largely been able to withstand this pressure. We have therefore maintained cover prices and supported the products through improved editorial, new designs and increased promotion. However, we will continue to monitor our competitors’ current activities to determine if a more direct response to discounted cover prices is necessary.
The Sunday Herald is now firmly established in the Sunday market with an audited circulation of 55,000 copies per week, and a market share of approximately 25%, making it Scotland’s third best-selling Sunday broadsheet. It is now regularly on advertisers’ planning schedules and we have seen good advertising growth in the period. We continue to develop and improve the product, supported by substantial promotional and marketing activities. Losses in the first half of 2000 amounted to £1.3 million, in line with 1999 while covering an additional five weeks of production.
Radio
Our Radio Division was established following the acquisition of Virgin Radio, part of Ginger Media Group. The exceptional growth potential of the radio sector, which we identified prior to the acquisition, has been strongly evident since we took control with radio advertising revenues growing by 31% year-on-year in our first four months of ownership. A significant element of this improvement has come from dot.com advertisers who, in addition to regarding radio as internet friendly, were attracted to Virgin Radio’s excellent audience demographics and national reach. This led to a strong operating performance, with Virgin Radio contributing £6.0 million of profit in our first half results.
