interim results - carlton...interim report 1999 :page one carlton has continued to make progress...
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Interim Resultsfor the six months ending 31 March 1999
A leader in digital mediawww.carlton.co.uk
Summary of Results
for the six months to 31 March 1999
Sales up 10% to £1bn. Headline pre-tax profit up 5% to £170m. Headline eps up 6% to 17.7p.
Strategic review - focus on Carlton Media Group and Technicolor.
Over £150m planned investment in digital media this year, spanning:
• Technicolor now the world’s largest independent manufacturer of digital versatile discs (DVDs).
• Free ONdigital boxes driving subscriber numbers.
• Stake in Spanish Digital Terrestrial Television.
• ITV2, Carlton Online, five digital channels launched.
• Quantel pioneering digital technology.
Dividend up by 10% to 5.95p.
Interim Financial Highlights
1994
1995
1996
1997
1998
800.
6
847.
8
896.
0
920.
6
1009
.3
Turnover - £ million
1994
1995
1996
1997
1998
12.7
15.3
17.3
16.7
17.7
1994
1995
1996
1997
1998
3.72
4.37
4.90
5.40
5.95
1994
1995
1996
1997
1998
123.
0
143.
3
162.
6
162.
3
170.
0
Headline profit before tax- £ million*
Headline earnings per share- pence*
Dividends per share - pence
* Ex
clud
es e
xcep
tiona
ls an
d di
gita
l tel
evisi
on.
Interim Report 1999 : page one
Carlton has continued to make progress with both sales and headline profit ahead
of last year. Our two largest divisions, Carlton Television and Technicolor Video, grew
strongly. The Film Division came just short of last year’s record profits and Quantel
continued to be adversely affected by market conditions.
We took a number of significant steps in the first six months including the launch, on
schedule, of ONdigital, our multi-channel pay television business, and Carlton Online,
our start-up internet business.
ONdigital has made a good start and is consistently adding to its powerful line up
of channels and services. Our free set top boxes initiative has radically cut the cost for
consumers of going digital.The initial response has been very encouraging and we now
plan to grow the business even more rapidly. Carlton now expects to invest an
additional £100m before tax in ONdigital over the current and the next financial year.
The advance of digital technology and the internet is providing a wealth of
opportunities for leading media companies like Carlton, with huge audiences, strong
programme making capability and close links with the major Hollywood studios.
Steven Cain, our new Chief Executive, has led a review of our businesses and strategy
to make sure that Carlton is as well positioned in these new markets as we are in free-
to-air broadcasting and packaged media.
Taking the year as a whole, we expect to make progress with our existing businesses,
while continuing our digital investments to enhance Carlton’s potential for future
growth.We have increased the dividend by 10%.
“The advance of digital
technology and the internet is
providing a wealth of
opportunities for . . . Carlton.
Michael P GreenChairman
26 May 1999
Carlton Communications Plc
Chairman’s Statement
”
Mission and Strategy:
Focus on Carlton Media and Technicolor
As the new Chief Executive of Carlton, I have undertaken astrategic review of our businesses to see how best to exploitour existing positions and utilise our strong cash flows - with aview to setting the agenda for the next three years.The interimstatement provides the first available opportunity to set outour strategic thinking in some detail. Progress versus our 10point plan will be reviewed with shareholders every sixmonths.
Carlton is an exciting business in an exciting industry.We arestarting the next stage of Carlton’s development with two veryvaluable core assets: Carlton Television and Technicolor. CarltonTelevision is the leading commercial broadcaster in Britain andTechnicolor is the world’s leading supplier of packaged media(film, videocassettes and DVD). Building strong marketpositions has always been Carlton’s ambition and will continueto be so in the future.
Carlton Media Group
We are announcing the formation of the Carlton Media GroupBoard bringing together the management of our television,production, international distribution, internet and homefulfilment businesses. Most of these companies will be broughttogether in our new purpose-built media headquarters inLondon.
The key strategies over the next three years to achieve thismission are as follows:
1 Build and promote the Carlton brandIn an increasingly global market place, where brands arebecoming more important and some television companiesare household names, it is far more effective to market onename - Carlton.We have recently launched Carlton Videoand Carlton Online.We want to accelerate this process inthe year ahead.
2 Grow advertising revenue ahead of RPICarlton is the leading advertising sales business within ITVand has a track record of delivering growth ahead of RPI.The success of the new ITV schedule has arrested thedecline in viewing share experienced over recent years. Inorder to build on this achievement, we will need furtherreal investment in the programme budget, a successful ITV2and a number of other targeted ITV branded channels. Ouradvertising revenue from cinemas, digital channels andinternet sites is now running at over £50m a year.
3 Double programme productionCarlton accounts for 34% of ITV’s advertising revenue butonly produces 17% of ITV’s output. Steve Hewlett and hisnew team of programme controllers, including the recentlyappointed Polly Bide, Mark Wells and Nick Symons, arecommitted to increasing our share every year.
Carlton produces almost 3,000 hours of programming forChannels 4 and 5, the BBC, Sky, Cable and ONdigital. Theacquisition of Planet 24 in April has brought The BigBreakfast and a dynamic creative team to Carlton. WaheedAlli, formerly managing director of Planet 24, has takenresponsibility for all of Carlton’s television production,including our five digital channels and Action Time.
We aim to double Carlton’s output for ITV and otherchannels within the next three years.
4 Exploit television brands and library globallyThe acquisition of the ITC library, which will now becompleted at the end of June, means that Carlton will havethe largest English language film library outside Hollywoodwith over 2,000 titles. We have over 18,000 hours of other
Carlton Media Group - Mission
Interim Report 1999 : page two Carlton Communications Plc
Chief Executive’s Review
Create, broadcast and exploithigh quality television and
internet-based entertainmentbrands globally.
2 million ONdigitalsubscribers
Grow advertisingrevenues ahead
of RPI
Build and promoteCarlton brand
Profitable onlinedestination sites
Exploit television brands globally
Double program-ming output
Interim Report 1999 : page three
programmes, including valuable children’s brands such asThunderbirds and Captain Scarlet and more recent titles suchas Tots TV.We are currently working with Nigel Stone, thecreator of the new ITV kids cartoon, Dream Street, toexploit video and television opportunities around theworld. Almost 100 lines of merchandise are currently beingdeveloped for the Carlton/Henson co-productionMopatop’s Shop and will be available in time for Christmas.We will establish closer links with international broadcastpartners and develop our merchandising capability.
5 Grow ONdigital subscriber numbers to 2 millionThe advent of free boxes, integrated digital televisions,increased coverage, an exciting programme line-up andenhanced interactivity will establish ONdigital as a leadingservice provider to the home.
Carlton will also invest in digital platforms around theworld using our expertise and gaining access to distributionfor our content. Recent developments include ourinvestment in Onda Digital, the Spanish Digital TerrestrialTelevision business.
6 Profitable on-line destination sitesGoing forward we will promote our internet sites onCarlton Television and develop complementary program-ming streams on our digital channels with a view toincreasing both advertising and transaction revenues. Wewill focus on the food, home & garden, health & beauty,entertainment and advertising categories.
Within entertainment, we already have a home shoppingfulfilment service, which sources, packages and distributesentertainment products, including books, video, computergames and DVDs, for all the major home catalogueoperators in the UK.We have the added advantage in thismarket of also manufacturing many of the DVDs, CDs andvideos.
Technicolor Group
Technicolor is a powerful and under-exploited brand, pioneer-ing colour film, videocassettes and now DVDs.
7 Global fulfilment in all packaged media formatsMost of Technicolor’s major customers are global playerswho are expecting much of their future growth to come
from the Far East and emerging markets. Technicolor isprimarily based in the US and Western Europe. Recentdevelopments include the purchase of the other 50% of ourjoint venture in Mexico and further international expansionwill follow.
8 Lower total supply chain costs for customersTechnicolor is already the lowest cost producer of highquality packaged media. We will be innovating with newtechnology, such as dye transfer, and extending ourdistribution and other services in order to reduce costs forour customers and allow them to focus on their coreactivities.
9 Full service provider for cinemasCarlton sells almost 70% of cinema advertising in the UK.During the next three years we will establish an advertisingand merchandising operation servicing the needs of cinemaowners in America. We already deliver film, posters andpromotional material to cinemas across the US.
10 Digital media asset management and distributionTechnicolor currently distributes packaged media. Quantelis a leader in digital technology and its applications.Whilstwe are enthusiastic about the future of film, we believe thatdigital media distribution to the cinema and home could bean exciting business opportunity over the next 10 years.Technicolor plans to play a key role in this development,meeting all our customers’ needs from manufacturing anddistributing packaged media to full digital delivery.
Carlton Communications Plc
Digital assetmanagement and
distribution
Global fulfilment in all formats
Full service provider for
cinema
Lower customer supply chain costs
Global, high quality, piracy-free,low cost service partner for film and
programme makers, software developers and cinema owners
Technicolor Group - Mission
Interim Report 1999 : page four Carlton Communications Plc
Results
Carlton Media Group - record advertising growth - ITV winning viewersTurnover in the Television Division increased by 2% to £420.7m(1998: £410.9m) and operating profit rose by 15% to £87.8m(1998: £76.2m). Given the reduction of the Channel 4 fundingformula and the increase in ITV’s programme budget, thisrepresents an excellent performance.
Advertising revenue in Carlton’s three ITV regions grew by£33m or 11%.The market was buoyant throughout the periodwith particularly strong demand from telecommunications, newmedia, supermarkets and cars. In the first four months of theyear, ITV has averaged a peaktime share of over 40%, above the39% target for the year as a whole. ITV has taken share fromthe BBC and Channel 4, increasing its lead over BBC 1 duringpeaktime from 6 to 11 percentage points.
Who Wants To Be A Millionaire? won record audiences for a quizshow of over 19 million, and ITV’s exclusive live coverage of theUEFA Champions’ League has regularly attracted more than 11million viewers. ITV2, launched in December 1998, is nowavailable through ONdigital and in almost 1m cable homes.
In programme making, Carlton’s dramas Peak Practice and TheVice won over 40% shares and both have been re-commissioned for the autumn. Goodnight Mister Tom, the mostsuccessful new single drama for over two years, won thePeople’s Award at BAFTA and has sold over 100,000videocassettes. Kavanagh QC was a flagship of the new schedulein March and achieved its highest share since 1995. Carltonsupplies more children’s programmes to ITV than any othercompany. The popular series Mopatop's Shop has beencommissioned until 2001, making it ITV’s largest ever pre-school commission.
In the children’s Christmas video sell through market, CarltonVideo hit number 1 in the charts with the runaway successRudolph The Red Nose Reindeer, which sold over 430,000 copiesin the UK alone.
Our US-based joint venture, Hamdon Entertainment, co-fundsan average of 12 US made-for-television movies each year.Tworecent productions, And The Beat Goes On:The Sonny and CherStory and Love After Death with Walter Matthau scored excellentratings on CBS and ABC and look set to achieve strong sales ininternational markets.
Other recent developments include co-produced pilots for themajor US network, ABC, of the Carlton series Babes In TheWood and Neighbours From Hell. Our co-funded cinema film,Complicity, will be released in the autumn and subsequently bepremiered on ITV.
Digital television - free digital boxes driving subscribernumbersONdigital signed up more than 110,000 subscribers in its firstfour months of operation.There are now 30 channels availableas well as interactive games. In May, we were the first toannounce that our boxes would be given away free with anytelevision set costing over £199 and this week we announcedfree boxes and no connection charge.
Future developments include the launch of integrated digital TV(idTV) sets for less than £300 by a leading manufacturer, and arange of new channels and programmes including MTV, SkySports 2, exclusive coverage of next season’s EuropeanChampion’s League, and Coronation Street and Emmerdalespecials. ONdigital expects to be the first digital TV service to launch free e-mail in the autumn this year. Further inter-active services, including ISP and search engine developments,will follow.
With the news that the main satellite broadcaster is switchingoff its analogue signal in the next three years, and cable likely tofollow, we look forward to the Government announcing a datefor the end of analogue terrestrial broad-casting.
Carlton’s five digital channels launched successfully inNovember and Carlton Cinema is already the most popularmovie channel available through ONdigital. A new televisionadvertising campaign was launched in March to raise aware-ness of Carlton Cinema, Carlton Kids and the Carlton FoodNetwork. Carlton Select and Carlton Food Network are alsoavailable in over 1.5m cable homes and throughout SouthAfrica.
Carlton Online’s three destination sites - covering games,(www.jamba.co.uk), food (www.simplyfood.co.uk), and films(www.popcorn.co.uk) - have been backed by over 40advertisers and are growing strongly. Jamba, the UK’s leadinggames site, has already signed up its 100,000th registered user.Carlton Online has signed distribution deals with leadingservice providers AOL, MSN, Freeserve and Breathe and is inadvanced negotiations with many others.
Interim Report 1999 : page five
In May we announced our intention to take a stake in SpanishDigital Terrestrial Television, using our expertise in the newtechnology and providing another outlet for Carlton’s libraryand production teams.
Technicolor - the world’s largest independent DVDmanufacturerWorldwide sales and operating profit before exceptionals forFilm and Video combined were up 20% to £516.6m and 17% to£83.6m respectively. Strong sales of discs and videocassetteswere partially offset by the end of the US Sony film contract,which resulted in lower sales at Technicolor Film.
Turnover in the Video Division increased by 33% to £350.4m(1998: £262.6m) and operating profit before exceptionals roseby 32% to £52.9m (1998: £40.1m). The figures include a sixmonth contribution from Nimbus adding £52.2m to turnoverand £8.9m to operating profit.We are on target to achieve fullyear cost savings of £6m from the integration of Technicolorand Nimbus.
The video market is buoyant, with our customers Disney,Warner and DreamWorks all releasing popular titles. Thedirect-to-video market continues to expand, and all ourcustomers plan to maximise the value of their back cataloguesacross both videocassette and DVD.
The DVD market is growing rapidly, with forecasters expectingsome 6m DVD homes and over 150m discs sold worldwide bythe end of this calendar year. In addition DVD drives are nowbecoming an increasingly common feature in PCs for the home.Technicolor is now the largest independent producer of DVDswith the capability of producing all of the key formats, includingDIVX and DVD-9, and servicing all of the major markets in theUS, Continental Europe and the UK. Technicolor is alreadyworking with Disney, DreamWorks and Microsoft and areconfident of expanding our market share in the years ahead.
Turnover in the Film Division was 2% lower at £166.2m (1998: £169.4m) and operating profit was 3% lower at £30.7m(1998: £31.6m). Excluding Sony, volumes were up strongly year-on-year as our major customers continued to release filmsmore quickly on a worldwide basis and the number of cinemascontinued to increase. The number of releases in the earlysummer months is being held back this year by strong marketexpectations for the new Star Wars film.
Technicolor Entertainment Services, our distribution business,now delivers film and promotional merchandise to some34,000 cinema screens in America on behalf of all but two ofthe major studios.
Quantel - pioneering digital technologyTurnover for Quantel and SSL was 15% lower at £59.4m (1998:£69.6m) and operating profit was 64% lower at £5.1m (1998:£14.1m). The trends which began in the first half of last yearhave continued into 1999 with both the US and Far Eastmarkets remaining subdued.
Whilst Quantel’s profits are lower, the volume of boxes soldhas increased, mainly due to the success of Editbox. However,the higher end of the market, particularly for products such as Henry and Domino has remained difficult. Overheads have been cut and staff numbers have been reduced by morethan 10%.
Quantel is tackling the uncertainty about high definition in theUS head-on by setting out a step-by-step move to digital andhigh definition television.The company has demonstrated howits current range of products can work with the new digitalstandards and has announced plans for the Editbox Chaser,allowing users to work in standard definition and high definitionside by side, and the Monty, enabling full high definition editingand special effects.
The company has continued to open up its platforms so thatcustomers can combine the power and speed of Quantelequipment with software written by third parties. The newQuantel, Editbox FX, for example, comes with over 200 ‘plug-in’applications.
Quantel is the market leader in the application of digitaltechnology for the film, video and television industries. Withthe worldwide explosion in the number of digital televisionchannels and the likely emergence of internet basedbroadcasting we continue to believe that Quantel has realpotential for future growth. As a result we will be increasingexpenditure on research and development and have recentlyappointed a new marketing director.
Steven Cain, Chief Executive26 May 1999
Carlton Communications Plc
Interim Report 1999 : page six Carlton Communications Plc
Six months to 31 March 1999
Operating profit (before exceptionals)
Associates, before digitalNet interest, before digital
Headline profit before tax
Exceptional (charges)/income
Digital Television
Profit before tax
1999 (£m)
170.0
5.1
170.0
159.8
110.2
1998 (£m)
157.13.41.8
162.39.6
171.9
165.7
Finance Director’s Review
“Our investment in Digital Television has been
supported by strong cash generation and the
overall growth of our existing businesses”.
Overview. The increase in operating profits before digital andexceptional charges to £170.0m (1998: £157.1m) was driven bystrong growth in Television and Video, offset by reductions inFilm and Products. Organic growth in turnover and operatingprofit (before Digital Television and exceptionals) was 4% and3% respectively. Our investment in Digital Television has beensupported by strong cash generation and the overall growth ofour existing businesses.
Profit before tax.Headline profit of £170m is after associatesand interest (but before exceptionals and digital), as set out inthe table below:
Associates and joint ventures. The share of associates andjoint ventures operating profits (excluding Digital Television)increased from £3.4m in the first half of 1998 to £5.1m in 1999.The principal increases were from 20% owned Meridian andGMTV, both of which had the initial benefit of the renewal oftheir licences on new 10-year terms. Digital Television jointventures and associates includes the 50% share of ONdigital’snet costs and the 37.7% share of ITV2.
Exceptional items relate to the sale of CHE’s audio businessincluding £8.0m of goodwill reinstated and the cost ofrestructuring the US optical disc plants following theintegration of Nimbus with Technicolor. CHE, now CarltonVideo, will be based in Carlton’s new television centre and will be included in the Television Division from the start of next year.
Television:major movements.Within Television there werea number of significant changes. Carlton Television received£7.0m (1998: £13.5m) under the Channel 4 funding formula.The cost of the ITV schedule increased to £125.5m (1998£118m). Licence payments rose marginally as higher advertisingrevenue increased our percentage of qualifying revenue (PQR)payments, while the cash bids for Carlton and Westcountry,which started new ten year licences from 1st January, werelower. Overall Carlton paid cash bids of £19.0m (1998: £28.6m)and PQR payments of £42.5m (1998: £31.2m). In summary thechanges were as follows:
Overall margins in the group were stable with the increasein Television offsetting the decline in margins within Products.
Television division
1998 operating profit
Half-on-half increase/(decrease)Advertising revenue
Channel 4 rebateCash bids
PQR paymentsNetwork scheduleOther net changes
1999 operating profit
£ (m)
76.2
32.7
9.6
87.8
(6.5)
(11.3)
(7.5)
(5.4)
(49.6)
(10.2)
(5.1)
(6.2)
Interim Report 1999 : page seven Carlton Communications Plc
Digital Television. Digital Television comprises the net costsas set out below:
Other digital investment. Our total planned investment indigital media for the year will exceed £150m. As well as ourinvestment in digital television, we are planning some £30m ofinvestment in DVD and Quantel.
Earnings per share. Headline basic earnings per share in thefirst half of 1999 increased by 6% to 17.7p (1998 - 16.7p). Fullydiluted headline earnings per share were 16.5p up from 15.5p,an increase of 6%.
FRS14 Earnings per share has been adopted for the first time,but has no impact on the earnings per share figures.
Cash flow. Cash flow from operations of £154.4m remainedstrong and includes the cash cost of digital operations of £9.4m before cash invested in ONdigital and ITV2 of £41.8m. Overall
net debt was £48.5m at 31 March 1999, £11.3m lower than£59.8m at 1 October 1998.The second half will include all ofthe Company’s ordinary dividend payments.
Cash flow will also reflect the investments we are making in thesecond half including: the purchase of the ITC library(approximately £93m); Planet 24 (£10m); and the outstanding50% of our Mexican joint venture (£4m). These will be inaddition to our investments in digital media. A 10 year bondwas issued in March 1999 at an all in cost of 5.7% raising netcash of £247m.
Balance sheet. Our balance sheet remains very strong, withnet assets of £542.5m at 31 March 1999, an increase of £44.2msince 1 October 1998. The increase is net of the write off ofnon-marketable intangible assets amounting to £11.0m (net oftax of £4.1m), on application of FRS10 ‘Goodwill and Intangible Assets’, partly offset by a net gain on exchangedifferences of £14.2m principally relating to the retranslation ofthe Group’s net US dollar-denominated assets.
The gearing ratio, measured as net debt to shareholders’ funds,was 9% at 31 March 1999.
Year 2000 project. The Group’s Year 2000 programme,details of which were set out in the 1998 Annual Report, hascontinued during the first half of the financial year, withparticular emphasis on the development of contingency plans.
The Group estimate for the cost of the Year 2000 programme(excluding contingency plans) remains in the region of £12m to£15m. Actual costs incurred as of 31 March 1999 were £8m.
To date the Group has not identified any business criticalsystems or operating equipment under its control that cannotbe rectified before Year 2000. However, the general uncertaintyinherent in the Year 2000 issue, resulting in part from theuncertainty of the Year 2000 readiness of our businesspartners, means the Group is unable to provide categoricalassurances as to its Year 2000 compliance.
Bernard Cragg, Finance Director26 May 1999
Pre-tax loss
50% share of ONdigitalCarlton digital channels
Share of ITV2Carlton Online
Digital funding cost
£ (m)
(27.7)
(12.6)
(4.4)
(1.9)
(3.0)
(49.6)
Earnings per share - Basic
HeadlineExceptional (charges)/income
Digital Television
Reported earnings per share
1999 (pence)
17.7
16.2
10.4
1998 (pence)
16.71.6
18.3
17.6
(1.5)
(5.8) (0.7)
Fully diluted earnings per share
HeadlineExceptional (charges)/income
Digital Television
Reported earnings per share
1999 (pence)
16.5
15.2
10.2
1998 (pence)
15.51.3
16.8
16.2
(1.3)
(5.0) (0.6)
Interim Report 1999 : page eight Carlton Communications Plc
Turnover
Less: share of joint ventures
Group turnover
Group operating profit before exceptionaloperating charge
Exceptional operating charge
Group operating profit
Share of operating profit in joint ventures and associated undertakings
Loss on disposal of a businessProfit of sale of fixed asset investment
Profit before interest and taxationNet interest receivable / (payable)
Profit on ordinary activities before taxation
Tax on profit on ordinary activities
Profit on ordinary activities after taxationMinority interests
Profit for the financial periodTotal dividends
Retained profit for the period
Earnings per share (pence)
Basic earnings per shareExceptional items after tax
Headline earnings per share
Fully diluted earnings per shareExceptional items after tax
Headline fully diluted earnings per share
Dividend per share (pence)
Before Digital Television
£ million
1,011.1
1,000.5
170.0
167.5
5.1
172.6
-
164.9
159.8
107.5
0.3
107.8
44.8
63.0
Digital Television £ million
10.5
8.8
(14.5)
-
-
-
13.9
-
-
-
-
Total £ million
1,021.6
1,009.3
155.5
153.0
126.0
-
118.3
110.2
71.8
0.3
72.1
44.8
27.3
6 months to 31 March 1999
(2)
(2)
(3)
(2)
(3)
(4)
(5)
(6)
(7)
(1)
Interim Results
Unaudited consolidatedprofit and loss account
Notes
(10.6)
(2.5)
(7.7)
(5.1)
(52.3)
(1.7)
(14.5)
(32.1)
(46.6)
(46.6)
(3.0)
(49.6)
(35.7)
(35.7)
(35.7)
(12.3)
(2.5)
(27.0)
(7.7)
(8.1)
(38.4)
(5.8)p
(5.8)p
(5.0)p
(5.0)p
16.2p
1.5p
17.7p
15.2p
1.3p
16.5p
10.4p
1.5p
11.9p
10.2p
1.3p
11.5p
5.95p
Interim Report 1999 : page nine Carlton Communications Plc
6 months to 31 March 1998 Notes:
(1) Digital Television comprises the Group’s 50% share of the
results before taxation of ONdigital Plc and the 37.7%
share of the results of ITV2 Limited, together with the
results in respect of Carlton’s digital channels and digital
programming, Carlton Online and the financing cost in the
period of the investment in digital activities, which is
calculated on the project funding at the average interest
rate earned on cash deposits.
(2) The divisional analysis of turnover and operating profit is
set out on page 13.
(3) The sale of Carlton Home Entertainment’s audio business
gave rise to a profit before goodwill and tax of £0.3m,
goodwill written back on disposal of £8.0m and nil tax.The
exceptional operating charge relates to a reorganisation of
the Group’s US optical disc business following the
acquisition of Nimbus in 1998.Tax relief of £0.9m is
provided.
(4) Taxation is calculated at 34.8% (Interim 1998 - 30.6%,
Full year 1998 - 32.1%) reflecting the estimated pre-
Digital Television tax rate for the full year of 31.3% before
the impact of exceptional items (note 3) in the half year.
Included within taxation is overseas tax of £13.8m
(Interim 1998 - £15.6m, Full year 1998 - £30.9m).The tax
relief in relation to Digital Television includes the Group’s
share of consortium relief available from ONdigital Plc and
ITV2 Limited.
(5) Preference dividends charged are stated net of the
amortisation of the 5.5p preference share premium over
redemption price which amounted to £2.1m (Interim 1998
- £3.1m, Full year 1998- £6.2m).
(6) The calculation of basic earnings per ordinary share has
been based on earnings of £63.7m and 611.0 million
shares in issue, being the weighted average number of
ordinary shares in issue throughout the period. Headline
earnings per share is calculated using profits attributable
to ordinary shareholders excluding the after tax effect of
the exceptional items and digital television.
Fully diluted earnings per share has been based on an
adjusted weighted average number of ordinary shares of
706.7 million, and earnings of £72.1m.
(7) The interim dividend of 5.95p per share will be paid on
20 August 1999 to holders of ordinary shares on the
register on 9 July 1999.
Year to 30 September 1998
(12.7)
(52.7)
(2.9)
(2.9)
(2.5)
(5.4)
(5.4)(0.8)
(6.2)
(4.3)
(4.3)
(4.3)
(12.7)
(50.8)
Before Digital Television
£ million
930.1
917.4
157.1 -
157.1
3.4
160.5-
9.6
170.11.8
171.9
119.20.2
119.440.8
78.6
Digital Television £ million
3.2-
3.2
-
--
1.9
-
-
-
-
Total £ million
933.3
920.6
154.2-
154.2
0.9
155.1-
9.6
164.71.0
165.7
114.90.2
115.140.8
74.3
18.3p
16.7p
16.8p
15.5p
17.6p
16.0p
16.2p
14.9p
5.4p
(1.6)p
(1.3)p
(0.7)p
(0.7)p
(0.6)p
(0.6)p
(1.6)p
(1.3)p
Before Digital Television
£ million
1,861.0
1,835.4
318.0-
318.0
7.5
325.5-
9.6
335.14.9
340.0
232.6-
232.699.1
133.5
Digital Television £ million
6.7-
6.7
-
--
7.2
-
-
-
-
Total £ million
1,867.7
1,842.1
308.4-
308.4
300.4-
9.6
310.02.1
312.1
211.9-
211.999.1
112.8
(25.6)
(107.4)
(9.6)
(9.6)
(15.5)
(25.1)
(25.1)(2.8)
(27.9)
(20.7)
(20.7)
(20.7)
(25.6)
(8.0)
(100.2)
(1.6)p
(1.3)p
(3.4)p
(3.4)p
(2.9)p
(2.9)p
(1.6)p
(1.3)p
(1)(1)
35.7p
34.1p
32.6p
31.3p
32.3p
30.7p
29.7p
28.4p
13.65p
£ million
48.2
27.7
14.1
4.3
58.3
117.5
576.3
9.0
536.6
1,297.7
492.2
89.0
28.5
10.3
£ million
33.6
357.1
46.1
436.8
725.7
1,162.5
620.0
542.5
48.5
128.6
5.5
359.4
542.0
0.5
542.5
£ million
27.3
13.614.19.4
56.5138.6556.0
9.1278.8
1,039.0
243.584.528.410.4
£ million
43.5345.7
37.1
426.3
438.8
865.1
366.8
498.3
48.4118.2
5.4325.5
497.50.8
498.3
(20.5)
(572.0)
(13.7)
(600.2)
Interim Report 1999 : page ten Carlton Communications Plc
Fixed assets
Intangible assetsTangible assets
Investments in joint ventures:Share of gross assets
Share of gross liabilities
Investment in associated undertakingsOther investments
Current assets
StocksProgramme and film rights
DebtorsInvestments
Cash and other liquid funds
Creditors: Current
Net current assets
Total assets less current liabilities
Creditors: Long term
LoansConvertible debt
CreditorsDeferred tax
Capital and reserves
Share capitalShare premiumOther reserves
Profit and loss account
Minority interests
31 March 1999 30 September 1998
(8)
Unaudited consolidated balance sheet
Interim Results
Notes
Interim Report 1999 : page eleven Carlton Communications Plc
Operational cash flows
Operating profitDepreciation and amortisation
Movement in working capital
Cash flow from operating activities
Dividends from an associate
Returns on investment and servicing of finance
Net interest received/(paid)Preference dividends paid
Taxation
Capital expenditure and financial investment
Purchase of tangible fixed assetsDisposal of investments and tangible fixed assets
Other investments
Cash flow before acquisitions, management of liquid resources and financing
Acquisitions and disposals
Purchase of subsidiary undertakingsDisposal of subsidiary undertakings
Investment in joint ventures and associates,including funding of ONdigital
Equity dividends paid
Management of liquid resources
Financing
Share issuesNet issue/(repayment) of debt
(Decrease)/increase in cash in the period
6 months to31 March 1999
£ million
155.5
32.4
154.4
-
-
53.3
0.9
-
8.1
247.0
255.1
6 months to31 March 1998
£ million
154.227.117.2
198.5
-
8.3
-
110.1
-
-
1.2
Year to30 September 1998
£ million
308.458.012.9
379.3
10.3
5.2
29.1
152.6
-
204.9
2.2
31.4
(33.5)
(2.2)
(10.6)
(12.8)
(28.7)
(39.2)
(20.4)
(59.6)
(4.1)
(46.4)
(49.6)
(278.9)
(20.1)
(11.0)
(2.7)
(21.2)
(29.1)
(35.4)
(64.5)
(1.6)
(7.1)
(8.7)
(207.6)
(3.1)
(1.9)
(108.1)
(21.3)
(16.1)
(96.2)
(82.7)
(71.1)
(124.7)
(160.7)
(51.5)
(212.2)
(79.4)
(36.7)
(34.5)
Unaudited statement of consolidated cash flows
Interim Results
Analysis of net debt
Carlton Communications PlcInterim Report 1999 : page twelve
(Decrease)/increase in cash in the period
Cash (inflow)/outflow from (increase)/reduction in debtCash outflow/(inflow) from increase/(decrease) in liquid resources
Change in net debt resulting from cash flowsDebt acquired
Translation difference
Movement in net debt in the yearOpening net (debt)/funds
Closing net (debt)/funds
6 months to31 March 1999
£ million
278.9
11.8
-
11.3
6 months to31 March 1998
£ million
3.1207.6
102.6
101.094.7
195.7
Year to30 September 1998
£ million
31.436.7
2.6
94.7
(20.1)
(247.0)
(0.5)
(59.8)
(48.5)
(108.1)
(1.3)(0.3)
(204.9)
(136.8)(20.3)
(154.5)
(59.8)
Cash at bank and in handOverdrafts
Liquid financial instrumentsLoans due within one year
Loans due after more than one yearConvertible debt
Net debt
Cash and other liquid fundsOverdrafts and short term borrowings
LoansConvertible debt
Net debt
At 1 October1998
£ million
194.3
84.5
£ million
278.8
Cash flow
£ million
6.6278.9
0.1
-
11.8
Exchangemovements
£ million
5.6---
At 31 March1999
£ million
173.2
363.4
£ million
536.6
(7.6)
(3.0)(243.5)(84.5)
(59.8)
(10.6)(243.5)(84.5)
(59.8)
(26.7)
(247.1) (1.6)(4.5)
(0.5)
(1.0)
(2.9)(492.2)(89.0)
(48.5)
(1.0)(495.1)(89.0)
(48.5)
Balance sheet analysis of net debt
Interim Results
Reconciliation of net cash flow to movements in net debt
6 months to31 March 1999
£ million
420.7
350.4
166.2
59.4
3.8
1,000.5
-
8.8
1,009.3
6 months to31 March 1998
£ million
410.9262.6169.469.64.9
917.4-
3.2
920.6
6 months to31 March 1999
£ million
87.8
52.9
30.7
5.1
170.0
153.0
6 months to31 March 1998
£ million
76.240.131.614.1
157.1-
154.2
(6.5)
(2.5)
(14.5)
(4.9)
(2.9)
Unaudited reconciliation of movements in shareholders’ funds
Divisional information
Carlton Communications PlcInterim Report 1999 : page thirteen
Interim Results
Profit for the period
Ordinary and Preference dividendsAmortisation of the 5.5p Preference share premium
over redemption priceExchange differences on foreign currency net investments
New share capital issuedOther reserve adjustments
Goodwill reinstated on sale of businessesGoodwill written off on acquisitions
Net increase in shareholders’ fundsShareholders’ funds at the beginning of the period
Shareholders’ funds at the end of the period
6 months to31 March 1999
£ million
72.1
14.2 10.5
8.0-
44.5497.5
542.0
6 months to31 March 1998
£ million
115.1
1.2--
61.4550.4
611.8
Year to30 September 1998
£ million
211.9
2.7--
550.4
497.5
(44.8)
(2.1)
(13.4)
(40.8)
(3.1)(10.4)
(0.6)
(99.1)
(6.2)(16.5)
(145.7)
(52.9)
TelevisionVideo
FilmProducts
Other
Exceptional charge - VideoDigital Television
Turnover Operating Profit
Unaudited attributable shareholders’ funds
Interim Report 1999 : page fourteen
Interim Results
Equity shareholders’ funds (before goodwill)
Cumulative goodwill written off directly to reserves
Equity shareholders’ fundsNon-equity shareholders’ funds
Total shareholders’ funds
As at 31 March
1999
£ million
2,081.5
196.3345.7
542.0
As at 30 September
1998
£ million
2,024.3
131.1366.4
497.5
(1,885.2) (1,893.2)
Notes (continued):
(8) Creditors: current
(9) With effect from 1 October 1998, the Group has adopted new accounting standards FRS10
to 14. Pursuant to FRS10 goodwill on acquisition will henceforth be capitalised and amortised
over its useful economic life and non-marketable intangible assets of £15.1m (together with
related deferred tax of £4.1m) previously carried in the balance sheet have been de-
recognised as an other reserve movement. Under the transitional provisions of FRS10, goodwill
written off on acquisitions in prior years has not been reinstated. The financial effect of the
changes arising on introduction of these new standards is immaterial and prior year accounts
have not been restated. In the comparative period the charge for amortisation of non-
marketable intangible assets was £1.5m and the related tax credit was £0.4m.
(10) The financial information set out in this announcement does not constitute the Company’s
statutory accounts. Statutory accounts for the year ended 30 September 1998 which received
an auditor’s report which was unqualified and did not contain any statement concerning
accounting records or failure to obtain necessary information and explanations, have been filed
with the Registrar of Companies.
31 March 1999
£ million
353.6
3.9
91.9
122.6
572.0
30 September 1998
£ million
413.7
10.6
55.6
120.3
600.2
Creditors
Overdrafts and short term borrowings
Dividends payable
Taxation
We have reviewed the interim financial information for the six months ended31 March 1999 set out on pages 8 to 14 which is the responsibility of, andhas been approved by, the directors. Our responsibility is to report on theresults of our review.
Our review was carried out having regard to the Bulletin ‘Review of InterimFinancial Information’, issued by the Auditing Practices Board. This reviewconsisted principally of applying analytical procedures to the underlyingfinancial data, assessing whether accounting policies have been consistentlyapplied, and making enquires of Group management responsible for financialand accounting matters.The review excluded audit procedures such as testsof controls and verification of assets and liabilities, and therefore wassubstantially less in scope than an audit performed in accordance withAuditing Standards.Accordingly we do not express an audit opinion on theinterim financial information.
On the basis of our review:
• in our opinion the interim financial information has been prepared usingaccounting policies consistent with those adopted by CarltonCommunications Plc in its financial statements for the year ended 30September 1998 other than where changes are necessary to implementthe new accounting standards detailed in note 9; and
• we are not aware of any material modifications that should be made tothe interim financial information as presented.
Chartered Accountants, London26 May 1999
Review report by the auditors to Carlton Communications Plc
Directors
Associate Directors
Company Secretary
Investor Relations
Sir Derek Birkin,TD *Steven Cain (Chief Executive)Bernard Cragg (Finance Director)Anthony Forbes*David Green *Michael Green (Chairman)Leslie Hill*Sir Sydney Lipworth, QC*Sir Brian Pitman*Nigel Walmsley (Executive Director)
* Non-executive
The Hon Piers InskipMatthew KearneyWilliam Rollason
David Abdoo, LLB
David Cameron
Carlton Communications Plc
25 Knightsbridge, London SW1X 7RZTel: +44 171 663 6363Fax: +44 171 663 6300www.carltonplc.co.uk
AuditorsPricewaterhouseCoopers
StockbrokersCazenove & CoWarburg Dillon Read
RegistrarsComputershare Services PLCPO Box 82, Caxton HouseRedcliffe Way, Bristol BS99 7NHListing: London Stock Exchange(Symbol CCM)
ADR DepositaryMorgan Guarantee Trust Company of New York, PO Box 8205Boston MA 02266-8205USAListing: NASDAQ (Symbol CCTVY)