Carlton Television’s stunning adaptation of Daphne du ... · Daphne du Maurier’s Frenchman’s Creek, pictured on the front cover, was a highlight of ITV’s 1998 Christmas schedule

1 Financial highlights4 The Directors6 From the Chairman

Michael Green discusses the challenges faced in 19988 From the Managing Director

June de Moller gives an overview of our existing businesses9 Business review

A detailed review of the Carlton businesses 20 ONdigital

ONdigital launches22 Environment and Community24 Finance Director’s review

Bernard Cragg reviews Carlton’s financial performance32 Directors’ report34 Profit and loss account35 Consolidated balance sheet36 Consolidated statement of cash flows38 Principal accounting policies39 Notes to the accounts56 Corporate governance57 Report of the remuneration committee59 Directors’ remuneration60 Directors’ interests67 Historical record68 Summary Notice of Annual General Meetingibc Shareholder information

Contents

Carlton Television’s stunning adaptation ofDaphne du Maurier’s Frenchman’s Creek,pictured on the front cover, was a highlight of ITV’s 1998 Christmas schedule.

Pre-tax profit before digital television up 7% to £340m.

Turnover up 5% to £1.8bn, operating profits beforedigital £318m.

Free cash flow of £162m.

Fully diluted earnings per share before digital televisionup 8% at 32.6p.

ONdigital launched ONtime, ONbudget, ON 15 November. Net digital television costsof £28m.

1998 dividend up 10% to 13.65p net.

Financial highlights

Before investment in digital television

Carlton Communications Plc Annual report and accounts 1998 1

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1,5

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1,6

77

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31.6

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.3

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At a glance

TelevisionCarlton’s television businesses include broadcasting,programme making and pay television. Carlton is theUK’s largest commercial free-to-air broadcaster, covering38% of the population. Carlton has a growing advertisingsales business covering free and pay television, cinemas,videocassettes and the internet.

Carlton invests over £150m annually in making television programmes. Our library of 10,000 hours oftelevision programmes and 1,500 films is sold to over100 countries. Carlton has two subscription channels on cable and five available ONdigital.

VideoTechnicolor is the world’s largest manufacturer anddistributor of pre-recorded videocassettes. The companyis now the leading independent manufacturer of opticaldiscs, including the new formats DVD and DVD-ROM.

Based in the US, Technicolor has facilities in California,Michigan, Virginia, Tennessee and Mexico, and Europeanplants in the UK, Holland, Italy, Spain, Denmark andLuxembourg.

Carlton Communications Plc is a media company withbusinesses in commercial broadcasting, programmemaking and the supply of products and services to the television, film and video industries worldwide.

Annual sales are £1.8 billion (US$2.9 billion) and thereare 13,400 employees.

Carlton owns 50% of ONdigital, the world’s first digitalterrestrial television service.

2 Carlton Communications Plc Annual report and accounts 1998

E C U 1,14 5 . 6 m

4 3 %

E C U 2 31 . 7 m

51 %

E C U 7 6 7.2m

2 9 %

E C U 116 . 9 m

2 5 %

During 1998 we launched ONdigital, together with our three new television channels – Carlton Cinema,Carlton World and Carlton Kids.

We invested in the new format, Digital Versatile Discs(DVDs), and acquired Nimbus, the world’s leadingindependent disc manufacturer. In Film, we began our new dye transfer processing format. And Quantel won a significant order from ITN for the world’s first genuine digital, disc-based news system.

FilmTechnicolor is the world’s largest processor of motionpicture film for the Hollywood studios and other filmmakers. The company has laboratories in Los Angeles,New York, London and Rome. Technicolor provides a full service – from processing overnight “rushes” fordirectors to delivering film prints direct to cinemas.

Carlton’s post production companies in London and Los Angeles offer facilities for commercials, films and television programmes.

ProductsQuantel is a world leader in the design and manufactureof creative image processing products for the film, video,television and post production industries. Quantel’sproducts are used to create graphics and special effectsand for tapeless editing of commercials, televisionprogrammes and films.

Solid State Logic is a leading designer and manufacturer ofanalogue and digital professional audio mixing consoles.


E C U 5 1 7 . 6 m

2 0 %

E C U 91.3m

2 0 %

E C U 19 7.1m

7 %

E C U 3 2 . 9 m

7 %


The Directors

Michael Green, aged 51, has beenChairman since 1983. He is Chairman ofONdigital and a non-executive directorof ITN and Reuters Holdings Plc. He isalso Chairman of The Media Trust. N

Sir Derek Birkin,TD, aged 69, is a non-executive director of Merck & Co Incand The Merchants Trust PLC. He is anadvisory director of Unilever PLC. Non-executive AR

Steven Cain, Chief Executive, aged 34,joined Carlton in January 1999 fromASDA Group plc where he wasMarketing Director. Steven previouslyworked for Kingfisher Plc and Bain & Co.

Leslie Hill, aged 62, is Chairman of the ITV Network. Non-executive A

Sir Sydney Lipworth, QC, aged 67, isChairman of Zeneca Group PLC, DeputyChairman of National Westminster BankPlc and Chairman of the FinancialReporting Council. Previously he wasChairman of the Monopolies andMergers Commission. Non-executive ARN

June de Moller, Group ManagingDirector, aged 51, was first made a director of the Company in 1983. She is a non-executive director ofAnglian Water Plc.

June announced her retirement in 1998and will step down during January 1999.

Piers Inskip, aged 51, was appointed an associate director in 1990. He joinedthe Company in 1989 from ChaseManhattan.

Matthew Kearney, aged 37, wasappointed an associate director in 1996.He joined the Company in 1993 havingworked at 3i Group plc and BritishAerospace plc.

William Rollason, aged 38, wasappointed an associate director in 1998.He joined the Company in 1996 fromMarling Industries Plc.


Bernard Cragg, aged 44, has beenFinance Director of the Company since 1987. He joined Carlton in 1985 as Group Financial Controller.

Anthony Forbes, aged 60, was jointsenior partner of Cazenove & Co from1980 until 1994. He is a non-executivedirector of Royal & Sun AllianceInsurance Group plc, and The MerchantsTrust PLC. Non-executive ARN

David Green, aged 52, became a non-executive director in 1990. He is Chairman of Colefax & FowlerGroup PLC.Non-executive

Sir Brian Pitman, aged 67, joined theCompany in March 1998. He is Chairman of Lloyds TSB Group plc andnon-executive Chairman of NEXT PLC. Non-executive

Nigel Walmsley, aged 56, joined theBoard of Carlton in October 1991. He was appointed Chairman of CarltonTelevision in May 1994. He is a director of ONdigital, a non-executive director of GMTV and of Energis PLC and a Vice-President of the Advertising Association.

A – Audit committeeR – Remuneration committeeN – Nomination committee


Carlton made good progress over the past year. Three out of our four divisions increased profits and,excluding the start up investment in digital, pre-tax profits were ahead of last year.

We are developing our businesses.Through our acquisition of Nimbus,Technicolor is now the market leaderin mastering, manufacturing anddistributing the new disc formats,DVD and DVD-ROM, as well asvideocassettes. In television, we areexpanding in both programmes andplatforms, building a business thatencompasses broadcasting, productionand pay television.

With ONdigital, we have convertedlast year’s licence application into anew business which has launched intothe fast growing pay television market.Early indications are of strong demandfrom the public.

Britain is the first country in the worldto launch a full scale digital terrestrialtelevision service and there can belittle doubt that in the next decadewe will move from analogue to digital television.

Starting a new television station fromscratch is one of the most excitingand stimulating business projects I know. It is difficult to convey toshareholders the level of activity which this new project has involved.From battling for our licences in theEuropean Commission to investing in new technology and establishing a transmission centre to digitise,multiplex and broadcast 30 channels,the range of challenges has beenbroad and testing.

The technology is now establishedand working well. The next stage is to market ONdigital to the widestpossible audience. By striking a chord

with the millions of people whowould like some more choice from their television without the cost and hassle of satellite or cable we can make ONdigital the massmarket platform and create substantial value for shareholders. We have set up a new business, Carlton Online, to co-ordinate all our on-line activity and generaterevenue from a range of internet-based businesses.

We have taken a number of steps to align employees’ interests withshareholder value. In September, we launched a save-as-you-earnscheme that translates into shares at the end of either a three or five year period. The response has been encouraging, with 60% of eligible employees taking part. I would like to thank everyone atCarlton for their hard work over the last year.

From the Chairman

“We are growing our businesses and investing in digital.”


Michael Green, Chairman1 December 1998

June de Moller announced her plan to retire early in 1999. June and I have worked together for over 30 years and I owe her a great debt of gratitude. On behalf of the boardand everyone working at Carlton, I would like to wish her the very best for the future.

Steven Cain has joined Carlton tobecome our new Chief Executive.Steven has had a dynamic career andwe are all looking forward to workingwith him in the years ahead.

In recent months, we have witnessedeconomic uncertainty and marketvolatility. By making the right responseto these developments, our aim is to continue to provide solid and predictable earnings for ourshareholders. The new circumstancesalso bring opportunities for Carlton to build up our market leadingbusinesses.

As well as growing our existingbusinesses and investing in digital,Carlton remains entrepreneurial. Our businesses are cash generativeand our balance sheet is strong. We will continue to examine carefullythe many opportunities for expandingfurther in media and screen-basedentertainment. The progress thatCarlton has made over the last yearprovides a strong platform from which to proceed.

In 1998, our Television Divisionincreased profits, overcoming thereduction in the Channel 4 fundingformula, the arrival of Channel 5 and a highly competitive BBC. We investedin our programme making businessand recently launched our new channels– Carlton Cinema, Carlton Kids andCarlton World – for digital terrestrialtelevision. From the middle of nextyear, Carlton’s principal televisionbusinesses will be based in a newtelevision centre in Soho. Bringingtogether broadcasting, programmemaking, distribution and advertisingsales into one building will enablethem to work more closely together.

Technicolor Video increased profitsfaster than at any time in the last fouryears. With our customers releasingbig budget animations and expandingthe lucrative direct-to-video marketwith high quality sequels, like Disney’sSimba’s Pride, the video sell-throughmarket is vibrant and growing. Ouracquisition of Nimbus will enable theVideo Division to benefit from thegrowth of DVD and DVD-ROM.Nimbus’ integration with Technicolor is proceeding well.

The Film Division continued its run of strong profit growth, as theHollywood studios released their films more widely and our newcustomer, DreamWorks, emerged as a significant player in the market.

During the year, Lanny Raimondo wasappointed Divisional Director for all of Technicolor’s worldwide businesses.Under Lanny’s leadership, Technicolorwill further develop its strategy ofexpanding into new markets.

The fall in profits in our ProductsDivision was caused predominantly bythe downturn in Far Eastern marketsand uncertainty in the US over theintroduction of High Definition Television.Both Quantel and SSL remain strong,market leading businesses with goodlong term prospects.

ONdigital has moved from being asmall project team in the basement of our Knightsbridge headquarters to a fully-fledged business with over300 employees. The early months ofdeveloping the business absorbedconsiderable management time andwe rapidly established a strong team

at ONdigital to take the businessthrough the launch phase and beyond.

Carlton will continue to use itsresources to support ONdigital’sgrowth. Our other businesses will bemaking important contributions to the development of digital, throughsupplying programmes, providing facilities,developing products and technologyand designing on-line services.

All of our businesses are focused ondeveloping the strong positions theyhold in their respective markets. In eachcase there is potential for geographicalexpansion, establishing new servicesand entering related areas of activity.We will continue to pursue theseopportunities in the period ahead.

Working at Carlton has been stimulating,rewarding and immensely challenging. I have particularly enjoyed the last fiveyears as Group Managing Directorand would like to thank everyone fortheir help, advice, co-operation andfriendship. We have achieved a greatdeal together and I look forward toretirement secure in the belief that, for Carlton, the best is yet to come.

From the Managing Director

“All of our businesses are focused on developing the strongpositions they hold in their respective markets.”

June de Moller, Managing Director


TELEVISIONTurnover increased by 1% to £793.9m(1997 – £785.7m) and operatingprofit rose by 7% to £160.6m (1997 – £150.0m). Increasedadvertising revenue offset higherinvestment in ITV's schedule anddelivered the growth in profits.

1998 was a year of considerableactivity. The new team at ITV reviewedthe schedule and began to makesome significant changes. We built upour programme making for otherchannels and appointed a newDirector of Programmes. In paytelevision, we made excellentprogress, launching our new platform, ONdigital.

It was also a year of transitionbetween the phasing out of theChannel 4 funding formula fromJanuary 1998 and the start of lowerlicence payments for CarltonBroadcasting and WestcountryTelevision, which were implemented inJanuary 1999. Given this background,the increase in profits represents astrong performance.

The licence renewal outcome ispositive for Carlton. On a proformabasis, licence payments will be £15m lower in 1999 and £22m lowerin 2000. Also, by driving up thepenetration of digital television we can reduce our licence payments year by year.

ITV has launched its new digitalchannel, ITV2. The new channelcomplements ITV, drawing on itsprogrammes and talent, as well ascommissioning original productions.ITV2 will be supported by extensivecross promotion from ITV and willbecome an important driver,encouraging viewers to switch fromanalogue to digital terrestrial. For thefirst time, ITV has the opportunity toextend its brand as the BBC has done,while enhancing free-to-air televisionin the UK.

1. Free-to-air broadcasting and advertising salesCarlton is the largest player in ITV, the UK’s most watched televisionchannel. During our financial year,

ITV won 38.0% of peaktime viewing,compared with 31.6% for BBC1, withthe gap between the two wideningduring the year.

Carlton's share of the cost of ITV'sschedule in 1998 was £216.2m (1997– £205.4m). Our increased investmentin major sporting events deliveredlarger audiences. As well as the WorldCup, which broke all records, ITVbroadcast the final rounds of the FA Cup, the Champions League andFormula One Grand Prix. In additionto these high profile events, ITV willbe broadening its range of sportacross both its channels, with liveboxing, snooker and NBA basketball.

In calendar 1999, we are giving afurther boost to ITV's schedule. As well as top sporting events, therewill be more original drama andfactual programmes and first runmovies. Looking further ahead, the UK is hosting the Rugby WorldCup in Autumn 1999, for which ITVand ITV2 have live and exclusivebroadcasting rights.

Business review

Carlton is making 26 episodes of Peak Practice, the largest ever non-soapdrama commission from ITV.

Juliet Stevenson stars in Cider with Rosie,a two hour film adaptation of LaurieLee’s classic novel.

Goodnight Mister Tom won the largestaudience for a single drama sinceCarlton’s Inspector Morse two years ago.


tele

TELEVISION continuedTelevision advertising revenue grew by 8.9%, with ITV's revenue up by3.5%. Growth was stronger in thesecond half of the year and hascontinued into the Autumn. Major campaigns includedtelecommunications, fast food outlets and cars.

In air time sales we now cover the full range of screen-based media,including free and pay television,cinema, videocassette and theinternet. We made further progressduring the year and are now offeringadvertisers a range of eightsubscription channels, alongside our other television stations andmedia businesses.

Carlton Online launched three web based businesses in November,covering films, food and games. The sites have received good supportfrom advertisers and aim to buildrevenues, including transactionalincome, over the coming years.

2. Programme making anddistributionCarlton aims to make high qualityprogrammes for ITV that can deliver a mass audience. We also want toexpand our production for othercustomers. Steve Hewlett, formerlyhead of factual programmes atChannel 4, was appointed Director of Programmes in September todevelop our production business.

Carlton produced over 1,700 hours of programmes during the year,including 348 hours for ITV.Customers included our own digitalchannels and we made successfulprogrammes for the BBC (Kiss MeKate and The Woman in White) andChannel 4 (Wise Up).

In drama, we have developedexpertise in 90 minute and two hourdramas and our new productions ofCider with Rosie and Frenchman's Creekwere highlights of ITV's Christmas and New Year schedules. Goodnight

Mister Tom, starring John Thaw, wonalmost 14 million viewers whenbroadcast in October, the mostpopular single drama since Carlton'sInspector Morse two years ago. All ofthese dramas have sold well overseas.

We are currently making 26 episodesof Peak Practice, which, excludingsoaps, is the largest drama commissionever made by ITV. New programmescommissioned during the yearincluded the factual series of BillBryson's Notes from A Small Island, a medical drama, Picking up the Pieces,a new police series, The Vice, and oursitcom, Babes in the Wood, which has been recommissioned by ITV, with Disney purchasing the formatrights for North America. Our co-production with ABC of thesuccessful Neighbours From Hellformat represented a further inroadinto the US market.

Business review

Geri Halliwell at The Prince of Wales’50th birthday celebration. The show wasproduced and broadcast by Carlton.

Carlton is making 130 episodes ofMopatop’s Shop, ITV’s largest ever pre-school commission.

Carlton has joined up with NationalGeographic to produce over 300 hoursof factual programming .


“Carlton is investing more in original drama. That’s payingoff in our growing international reputation, and in newopportunities with other broadcasters, both in the UKand internationally. There are exciting times ahead.”

“We’ve launched three new channels over the last year.That will enable us to work with a whole new generationof programme makers. They’ll help us find tomorrow’sstars, both in front of and behind the camera.”

“And it’s the stars of the future that will guarantee thefuture of this business. Carlton is becoming a magnet fortalent: our size, background and experience make us thenumber one choice for people with great ideas.” Steve HewlettDirector of Programmes with actress Tara Fitzgerald

Business review

“Our message to advertisers is that if you spend moreyou will sell more – and ITV covers the country fasterthan anybody else.”

“As market leaders, we keep a close eye on new trendsand how they will affect the market.”

“And we have more to offer advertisers than everbefore. As well as ITV, there’s Carlton cinema, CarltonONdigital channels, Carlton cable channels, Carltonvideo media and Carlton Online.”

Martin BowleyChief Executive, Carlton Sales

TELEVISION continuedCarlton International is now thelargest international distributor ofBritish television programmes andfilms after the BBC. The Rank andRohauer film collections are now fully integrated into our library of over 10,000 hours of televisionprogrammes and 1,500 films, and saleshave exceeded our expectations.During the year, Carlton agreed asignificant co-production deal withNational Geographic to developprogrammes for their channels andthe international market place. Carlton now represents over 200independent producers as well as ITN and Meridian.

3. Pay televisionIn pay television, as in free television,we are now providing bothdistribution and content. Through our50% stake in ONdigital we have oneof the UK’s principal digital paytelevision platforms. By building upproduction and catalogue, and throughdeveloping our own channels, we aim

to be a major supplier of programmesin the digital world.

ONdigital began broadcasting on 15 November 1998, less than a yearafter it was granted a licence. Ourservice launched with a strong line up,including the best performing channelson cable and satellite, new channelsfrom Carlton, Granada and the BBCand top movies and sports, includingall 60 televised live football matchesfrom the Premier League. Ouradvertising encouraged a massiveresponse, with over 250,000 inquiriesin the first week of broadcasting.

During the year, we developed andlaunched three new Carlton channelsin addition to Carlton Select andCarlton Food Network, which are also available on cable. Carlton Kidsfeatures British programming andoriginal productions to complementthe cartoons on other leadingchildren’s channels. Carlton Worldcovers a range of factual subjects and

Carlton Cinema is the only highquality, 24 hour film channel availablein a basic subscription package.

The new channels are providingexciting opportunities for ourproduction teams to develop new formats and talent.

The power of free-to-air television.Over 50 million people watched someof ITV’s coverage of the World Cup.

Within eight weeks of launch, 25% ofhouseholds had bought Sunny Delight,the new Californian orange juice.

ITV2, the new general entertainmentchannel available ONdigital.


VIDEO

Business review

Turnover increased by 16% to£531.7m (1997 – £457.1m) andoperating profit rose by 20% to£81.0m (1997 – £67.7m). Ourcustomers ordered increased volumesof videocassettes for the sell-throughmarket and by managing theexpansion of the business effectivelyand controlling costs, Technicolorachieved rapid growth in profits.

These results are a cleardemonstration of the continuingconsumer trend for buying andowning films on videocassette. Action films like Deep Impact andTitanic, together with children’s filmssuch as Hercules, Mousehunt andFlubber, moved swiftly from the boxoffice to the high street and theshopping mall, driving the video sell-through market forward.

Converting a master copy of a filminto tens of millions of packaged andindividually bar-coded videocassettesthat are available in stores across the US on the same date is a vastlogistical exercise. During the past year in the US alone, Technicolorprocessed 2.4m different ordersinvolving 14,000 different titles.

Our US plants manufactured,duplicated and packaged over 450mvideocassettes and distributed tomore than 24,000 locations across the country.

Technicolor is expanding everyelement of its business. The video sell-through market grew strongly in our principal markets and weincreased our capacity in the US andEurope. Our investment in a newMexican facility will help Technicolorto drive down costs still further.Combined with plans to increaseactivity at our Memphis plant, weexpect to generate savings in theregion of US$4m in the next year.Technicolor’s new Danish plant further extends coverage of keyEuropean markets, adding to existingfacilities in the United Kingdom,Holland, Italy and Spain.

Technicolor is now the world’s largestindependent manufacturer anddistributor of Digital Versatile Discsand other disc-based, or “opticalmedia”, formats, such as CD, CD-ROM and DVD-ROM. As well as adding disc capacity at its Camarilloplant, Technicolor acquired Nimbus in

July 1998, with plants in the US,continental Europe and the UK, for US$264m. By bringing the twocompanies together, Technicolorexpects to achieve full year costsavings of £6m.

DVDs, which carry films and televisionprogrammes on a 7 inch disc, havebeen marketed successfully in the USand are now being rolled out acrossEurope. In the US, first year sales ofDVD players were double that of CD players and 12 times that of VCRswhen they were first launched.

Technicolor and Nimbus have a strongmarket position in CD-ROM and arewell placed to benefit from the moveto the new DVD-ROM format, whichis becoming the standard disc drive in new personal computers. Nimbusworks for a number of games andsoftware publishers and is a Microsoftapproved replicator. Industry analystscurrently forecast that DVD will grow to over 400 million units for the US and Europe by 2003, whereasDVD-ROM will reach 2.2 billion unitsover the same period.

Sharpe on DVD: a thoroughly Carltonproduction. Made by Carlton Television,mastered by TVI, replicated by Nimbusand released by Carlton HomeEntertainment.

Armageddon, from Disney. Technicolorand Nimbus produced over 7 millionvideocassettes and 400,000 DVDs for the sell-through market.

Mel Gibson and Danny Glover inWarner Bros.’ Lethal Weapon 4. The video was released 156 days after the film’s US premiere.


“Carlton is now a leading producer of one of the world’sfastest growing consumer products: Digital Versatile Discs.It’s an exciting position to be in, and we’ve got therebecause of our investment over the last three years.”

“We’ve invested tens of millions of dollars to be readyfor the new format. Technicolor and Nimbus havemastered the technology. We’re now manufacturing largevolumes of every format of DVD in the US and Europe. No one else can do that.”

“Anybody that comes into this market now is going toface a very steep learning curve.”

Lyndon FaulknerPresident and ChiefExecutive, Technicolor Nimbus

Business review

“We’re expanding our business. At Technicolor we’relooking at subtitling, dubbing, sound services, restoration,rejuvenation . . . all the services that a film studio needsto get a print on screen.”

“And we’re expanding internationally too. Our market is the worldwide box office, and that means close co-ordination between all our plants – in Hollywood,New York, London and Rome.”

“Film has qualities that video and television cannot match.We want to preserve those images for ever . . . that iswhat dye transfer is all about.”

Maggie McConnellSenior Vice President, Marketing and Sales,Technicolor WorldwideFilm Group

FILMTurnover increased by 17% to £358.7m(1997 – £305.9m) and operating profitrose by 9% to £63.3m (1997 – £57.9m).Increased orders for film prints boostedturnover, but at lower marginal prices.

Film processing grew strongly duringthe year as our customers continuedto release their films onto morecinema screens. New records were broken for the numbers ofprints produced as films such asArmageddon (5,500) and LethalWeapon 4 (4,100) were givenexceptionally wide release patterns.An increasing number of films are being given a simultaneous“day and date” release on both sides of the Atlantic.

The European market is expanding.Box office receipts grew at almosttwice the rate as in the US over thelast year and the number of cinemascreens is forecast to grow from25,000 to 29,500 over the next four years.

Technicolor is clearly focused onreducing costs, expanding its businessgeographically and the successfuldevelopment of the new filmprocessing format, dye transfer.

The company continues to examinethe potential for expanding theservices it provides for customers.Technicolor Entertainment Services,which provides delivery and fulfilmentservices for theatrical film distributors,serves Disney, Warner Bros.DreamWorks, Sony, Universal, MGM,Miramax, and the majority of theindependent community.

Technicolor recently established aservice for restoring original negativesfor old films and has already receivedsome important commissions,including work on Warner Bros.’valuable film archive.

The Prince of Egypt. Technicolor producedprints for the film’s release in 37countries and in 25 different languages.

The Wizard of Oz, restored and re-released. Technicolor’s dye transferprints received critical acclaim.

Saving Private Ryan from DreamWorks.The company is a Technicolor customerfor film, video and DVD.


PRODUCTS

Business review

Turnover during the year was£136.6m (1997 – £186.1m) andoperating profit was £22.8m (1997 – £52.3m).

Exports account for almost 90% ofturnover for Quantel and Solid StateLogic (SSL). Both companies wereadversely affected by the strength ofsterling and weakness in importantoverseas markets and the highoperational gearing of the businessescaused the decline in sales to have a significant impact on profits.

Sales of Quantel equipment wereparticularly impacted by the downturnin Far Eastern markets. Furthermore,there was considerable uncertainty inthe US over the choice of format forthe introduction of High DefinitionTelevision (HDTV). While theintroduction of HDTV will benefitQuantel over the longer term astelevision stations upgrade equipment,our customers have held back ordersuntil there is full agreement overstandards. We believe that this issuewill begin to be resolved over thecoming year.

Quantel has reduced its cost base by£4m and while the fall in sales had asignificant effect, the company remainsprofitable and cash generative. The company continues to invest inresearch and development andlaunched both new products andsignificant upgrades to existingproducts. The strategy of offering highend and streamlined versions of eachproduct is being implemented. EditboxPlatinum, a version of Quantel’s disc-based editing console engineered toappeal to a much broader market,shipped well throughout the year.Henry Infinity, an improved specialeffects system, was installed in someof the world’s leading post productionhouses. Quantel’s sales force has beenre-organised to implement this newstrategy and, for the first time, thecompany is using independentdistributors to reach deeper into the market.

A highlight of Quantel’s year wasITN’s order for Inspiration, the newsand sports editing and productionsystem. Inspiration enables journaliststo script and edit both copy and

pictures directly onto a disc-basedsystem which stores the informationand delivers it directly forbroadcasting. The new system willbecome an important reference sitefor the industry: it is the first genuinedigital, disc-based news system inoperation and incorporates a range of Quantel equipment, includingEditbox, Clipbox and Cachebox.

SSL’s sales in its largest market, the US, grew well in the year due to thereorganised sales force and strongdemand for SSL’s new film and musicproducts. The effects of the Far Eastdownturn were partly offset by anoverhead reduction of 11%. As aresult of extensive R&D over the pastfour years, significant digital productswere launched in 1998. The Avant, adigital film mixing console, and theAMT, a digital multitrack recording andmixing console, are both shipping well.

The sci-fi epic, Lost in Space. The ground-breaking special effects were createdusing Quantel’s Domino.

ITV’s multi-million pound drama,Hornblower, was post-produced on Quantel’s Editbox.

Quantel’s Inspiration, installed at ITN, is the world’s first genuine digital, disc-based news system.


“Carlton leads the way in the technology that’s shapingthe future of broadcasting. We offer a complete systemwhere you go from a journalist editing a video clip tobroadcasting on-air in seconds.”

“Broadcasters know that our product is the bestavailable. ITN involved everyone – journalists, engineers,editors, IT specialists – in their purchasing decision. Theycame to Quantel, they saw the competition and theirvote for our system was unanimous.”

“We have added a new range of lower priced equipmentaimed at a much wider market. We are talking to peoplewho simply would not have considered Quantel before.”

Russell BarlowUK National Sales Manager, Quantel

In less than a year from being granted itslicences, ONdigital launched on 15th Novemberproviding access to 30 channels from Britain’stop broadcasters – Carlton, Granada, BBC,Channel 4, BSkyB and UKTV.

The launch was backed by advertising acrosstelevision, press and posters. ONdigital’s call centre, based in Plymouth, received over 250,000 calls in the first week after launch.

More transmitters are being rolled out acrossthe UK during the year. There will be 81 inservice by the end of 1999 covering 90% of the country.

New services will be introduced during 1999including e-mail, games and interactiveapplications.

There will be more channels, including theParamount Comedy Channel and Nickelodeon.

From Premier League football and Hollywoodmovies to BBC nature programmes and 24 hour news. ONdigital is multi-channel choice made simple.

The best in drama with programmes from themakers of Pride and Prejudice, Inspector Morseand Cracker on UK Gold, Carlton Select andGranada Plus. Catch the latest US series like ERon Sky One.

Top sport on Sky Sports 1 and 3, with all 60 live Premier League matches, plus more of every sport from boxing to snooker on ITV2 and Eurosport.

The greatest films from Hollywood and aroundthe world on Sky Premier and Moviemax,Carlton Cinema and FilmFour.

More for children with the Cartoon Network and Carlton Kids – and a new music channelfrom UKTV, UK Play.

Lifestyle, food and health on Carlton FoodNetwork, Granada Breeze and UK Style.

News, documentary and nature programmeswith BBC 24 Hour News, UK Horizons andCarlton World.

Special events, including original drama, sportand films on a new, exclusive showcase channel,First ONdigital.

ONdigital offers 12 primary channels and fivepremium channels. Subscribers can make their own choice of 6 primary channels for £7.99 a month or all primary channels for £9.99 a month. Premium channels are charged in addition to primary channels.

ONdigital went ONair, ONtime ON 15th November 1998.

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Ulrika Jonsson switching ONthe Crystal Palace transmitter.

EnvironmentFew people would associate a mediacompany with environmental issues.However, the process of bringingtelevision, video and sound to theconsumer is supported by a range of high technology industries whichconsume resources and generatewastes. These are not major polluters, but together with our offices and studios they do have an impact.

Companies in all sectors shouldexamine carefully what they can do to protect the environment. In theforthcoming year, Carlton is proposingto take a number of new steps tobuild on its performance in thisimportant area.

June de Moller, Managing Director

Putting policy into practiceThis year Carlton will build on itsrecord by launching a Group initiativefor the environment. We will set up anEnvironment Team, reporting to theChief Executive, responsible for settingpolicy and monitoring performance.The Team will initiate a review of theissues at our main locations anddevelop a strategy for continuallyreducing our overall environmentalimpact. We plan to report on progressin more detail next year.

Environmental issues are currentlymanaged by our Group companies toensure full compliance with regulationsand in many cases exceed them.None of the Group companies wasfined or prosecuted for infringing any environmental regulations duringthe year.

The full text of our environmentalpolicy is available on our web sitewww.carltonplc.co.uk.

The main issues for the GroupOur main environmental impacts arisefrom motion picture film processing,and the manufacturing of CDs, DVDs,pre-recorded videocassettes andspecialist electronic equipment. These operations inevitably producesome hazardous waste materials, liquid effluents and emissions to airthat are currently controlled by sitemanagement. This year we will beginto establish Group performanceindicators for our main environmental issues.

In addition, all parts of the Group,including television production, useenergy and other resources. We havefollowed closely the internationalefforts to reach agreement onmeasures to combat climate change.We support this vital initiative and will assess what contribution we can make.

Progress during the yearTechnicolor Film in North Hollywoodhas a health, safety and environmentalaffairs department. Quarterlymeetings are held with seniormanagement to review regulatoryissues. Improvements in environmentalperformance made during the yearinclude the replacement of solventcleaning machines with a water basedprocess, upgraded effluentmanagement and the introduction of a formal plan for containing anyaccidental spills from chemical storage tanks.

Technicolor Video has an in-househealth, safety and environmentdepartment. The team views stafftraining as one of its key roles and hasprovided courses on the US Right- to-Know legislation, waste reduction,

safe handling of chemicals, hazardcommunication and emergencyresponse procedures. Nimbus isworking towards an environmentalmanagement system certified to the international standard ISO14001which it aims to achieve at itsNewport plant during 1999. Theenvironmental programme has alreadyresulted in reduced landfill of wastes,cleaner effluent and recycling of water.

Quantel has adopted its ownenvironmental policy and focused ontwo of its key environmental issues:fumes from soldering and use ofozone depleting solvents to cleancomponents. Approximately 80% ofhand soldering processes have beenreplaced by automated solderingwhere fumes are extracted andfiltered and a review of componentcleaning has led to the elimination of all CFCs from the process.

Environmental news coverageAs a television company, one of themost powerful contributions we canmake is through our programmes.Each of our regional televisioncompanies – Carlton, Central andWestcountry – is committed toobjective and scientifically well foundedcoverage of environmental issues froma local and global perspective.

Carlton’s London Today, London Tonightand First Edition, regularly coverregional environmental issues. A diverse range of subjects this yearincluded green belt development,nuclear waste trains in London, eco-warriors and traffic congestion.

Environmental stories also featured in the Central region with a specialprogramme, Bank Holiday Disaster,

Environment and Community


In the Communitycovering the serious Easter floods in the Midlands. News anddocumentary programmes includedcoverage of genetically modified foods,the clean up of the River Dove, a village of eco-houses and a localdragonfly reserve.

Westcountry’s environmentalcoverage focuses on issues of specialrelevance to the region such as anapplication to extend quarrying atTeigngrace in Devon by diverting two rivers. Paving Over Paradisehighlighted the potential damage to the countryside from housebuilding policy while otherprogrammes looked at the region’s diverse wildlife.

Support for environmentalorganisationsWe are a core supporter of The Media Trust, a charity thatmatches the skills of the media to the needs of the voluntary sector.Environmental organisations needgood media skills and a numberreceived training or help with projectsthis year including the London CycleCampaign, WaterAid, Earthkind andthe International Design Eco Awards.

All Carlton companies support theirlocal areas and play an active part incommunity life. The Group madecharitable donations of £1.4m during1998 and no political donations. For this year’s annual report, we havetaken two examples: Carlton’s supportfor the Carlton Television Trust andQuantel’s work with the Governmentto support the audiovisual sector.

The Carlton Television TrustThe Carlton Television Trust aims tobe accessible. During the year we hadcontact with some two thousandindividuals, charities and voluntaryorganisations seeking financial support.We provided detailed guidance onour procedures and helped manyapplicants with their forms, particularlythose for whom English is not their first language.

The Trust completed its sixth year ofgrant-making by allocating £350,000to 109 charities. Projects includedliteracy schemes, dance and drama for children with special needs, skillstraining for unemployed young peopleand English language tuition forrefugee children. Taken together, theTrust has now made total grants of£2.6m to 497 organisations thoughoutthe Carlton region.

Liz Delbarre, Administrator,Carlton Television Trust

Quantel working with the GovernmentThe most practical way of helping the Government to understand our industry is to work with them. I have just completed a six monthsecondment with the Consulate-General’s office in Los Angeles toidentify how the Government couldhelp the fast growing visual effectsindustry in the UK. These highlycreative and entrepreneurialcompanies represent the best of smallBritish business – and they are highlycompetitive. However, they wouldbenefit from Government support fora more collective marketing approach.

Since completing my project, theBritish Film Commission has broughtacross a group of visual effects expertsto see what the UK has on offer. Wehave worked with the Department ofTrade and Industry and the Foreignand Commonwealth Office onsupport material for the new BritishFilm Office in Los Angeles and one of its aims will be to support UK filmproduction facilities worldwide.

Dave Scammell, Strategic Development,Quantel

Local programmes about local wildlife,from Westcountry Television.

The South Acton Community Crèche,supported by the Carlton Television Trust.

David Cameron, aged 32, Head of CorporateAffairs, joined Carlton Communications in1994. He previously worked at The HomeOffice and The Treasury.



In the year to 30 September 1998,Group turnover increased 5% to£1,842.1m (1997 – £1,749.7m) andheadline pre-tax profits before digitaltelevision and exceptional items were 1% higher at £330.4m (1997 –£326.7m).

1998 1997

Pre-tax profits £m £m

Headline Pre-Tax 330.4 326.7Exceptional items 9.6 (10.4)

Sub total 340.0 316.3Digital television (27.9) –

Reported Pre-Tax 312.1 316.3

Headline basic earnings per share in1998 were 34.1p compared to 34.8pin 1997. Fully diluted headline earningsper share in 1998 were 31.3p (1997 –31.4p).

Earnings per share1998 1997

Basic pence pence

Headline 34.1 34.8Exceptional items 1.6 (1.6)


Reported earnings per share 32.3 33.2

1998 1997

Fully diluted pence pence

Headline 31.3 31.4Exceptional items 1.3 (1.3)


Reported earnings per share 29.7 30.1

Total Ordinary dividends per share for 1998 including the proposed finaldividend of 8.25p net are 10% higherthan last year at 13.65p net (1997 –12.4p net).

The Ordinary dividend in 1998 iscovered 2.3 times (1997 – 2.6 times) by the profits after tax and netpreference dividends.

SummaryCarlton’s three largest divisions allincreased turnover and operatingprofits in 1998, substantially fromorganic growth. However, theProducts Division’s profits declinedsignificantly, leaving overall operatingprofits (excluding digital) unchanged at £318.0m (1997 – £317.9m).

Associates’ operating profits(excluding ONdigital) in 1998 were£7.5m (1997 – £9.5m). Interestreceived (before the financing cost ofdigital television) increased by £5.6mto £4.9m (including the share ofother associates’ net interest).

Finance Director’s review

“Carlton’s figures are set out with digital television clearly separated. We want shareholders to be able to see the performance of our existing businesses, the investment in Digital Televisionand the overall result.”

(Before digital television)

Japan 1%

G e o g r a p h i c a l t u r n o v e r B y d e s t i n a t i o n – 1 9 9 8

O ther 2 %

Europe 9 %

Nor th Amer i ca 35 %

UK 53%

G e o g r a p h i c a l p r o f i tB y d e s t i n a t i o n – 1 9 9 8

Japan and other 1 %

Europe 5 %

Nor th Amer i ca 33 %

UK 61%


Net digital television costs, which in 1998 largely comprised net pre-launch expenditures, totalled£27.9m (1997 – Nil).

Group cash flow remained stronglypositive, generating £152.6m in 1998(before the financing of ONdigital)after tax and capital expenditure. Thiswas applied to fund net acquisitioncosts of £212.2m, principally £155.8mfor the acquisition of 100% of Nimbusand £45.5m of investment inONdigital. Net debt at the year-endwas £59.8m compared with net cashat the start of the year of £94.7m.

Geographical ContributionsThe UK remained the largest marketfor Carlton in 1998 with 53% of sales(1997 – 54%) and 63% of operatingprofits (1997 – 62%). The small fall inUK operating profits from £196.8m in 1997 to £195.0m (excluding digital)resulted from Quantel’s UKmanufacturing operations being less profitable.

Sales outside the UK in 1998 totalled£866.2m (1997 – £810.7m) withoperating profits of £123.0m (1997 –£121.1m). Growth in overseas saleswas principally in Technicolor’s North American activities and newoperations in Europe. However,elsewhere sales were lower becauseof Quantel’s reduced export business.

Overseas operating profit generallyreflected the sales trends except in Europe where the operatingperformance was held back byTechnicolor Holland.

TelevisionTurnover in the Television Divisionincreased by 1% to £793.9m

(1997 – £785.7m) and operatingprofits by 7% to £160.6m (1997 –£150.0m). The increased operatingmargins in 1998 of 20.2% (1997 –19.1%) resulted from the higherproportion of turnover fromadvertising revenues. Carlton Select isnow included in digital television.

Total Net Advertising Revenue ofCarlton’s three ITV stations increasedby 2% on a comparable basis to£594.7m (1997 – £572.6m, includingonly nine months of WestcountryTelevision). The comparable period in 1997 had only six months ofoperation by Channel 5.

Programme productions, principally forthe ITV network, were over £150m in 1998 including £47.1m of regionalprogrammes for transmission onCarlton’s own stations.

Sales by Carlton International, ourworldwide distribution business, were£39.0m in 1998 (1997 – £29.5m).

Carlton’s network programme costsincreased 4% on a comparable basisto £216.2m (1997 – £205.4m,including Westcountry Television foronly nine months) with the increasedexpenditure on sport compensatedfor by the lower price of the new ITNcontract. In 1999, network costs areexpected to increase by 5% becauseof higher investment in longformdrama and sport. In addition ITV will be spending more money onmarketing campaigns. The proposedchange to the times for news in peaktime should provide opportunities to increase advertising revenues.

Total regional programme costsincreased by 3% in 1998 but other

operating costs decreased by 6% on a comparable basis, reflecting tightmanagement controls.

Payments to the ITC for our whollyowned broadcasting licences in 1998totalled a record £120.1m (1997 –£114.7m) made up of cash bids of £57.7m and the Percentage ofQualifying Revenue (PQR) paymentsof £62.4m. PQR was set at 11% onCarlton Broadcasting’s and Central’sadvertising and sponsorship revenue.

ITV began broadcasting its service indigital, as well as analogue, in November1998. Under both the new and existinglicences, no PQR will be payable on the proportion of revenues attributedto the viewing of our ITV channels viadigital broadcasts whether by digitalterrestrial or digital cable. Thereforeas digital penetration increases in the future, the proportion ofthe advertising and sponsorshiprevenues attracting PQR will fall.

We have renewed our licences for Carlton Broadcasting andWestcountry Television for 10 yearsfrom 1 January 1999. Under the newlicences, Carlton and Westcountry will pay PQR rates of 20% and 13%respectively and cash bids of £16mand £1m respectively.

We did not accept the terms offeredto Central Independent Televisionbecause they would have resulted inhigher licence payments in 1999, 2000and 2001 than the current terms. Wewill have the opportunity to apply forthe renewal of Central IndependentTelevision’s licence either in 1999 or in 2000 to begin new ten year licenceperiods with effect from January 2000,January 2001, or April 2001 respectively.


for the sell-through market andTechnicolor’s planning of capacity and operating flexibility to be able to handle the high levels of demand.Continuing cost reductions andincreased operating efficiency offsetprice reductions triggered principallyby volume discounts. Raw materialcosts were stable.

In Technicolor’s Optical Disc businessinvestments were made in DVD in order to be ready to meet ourcustomers’ requirements. BringingNimbus and Technicolor together is expected to result in full year costsavings of £6m in 1999 as well asincreased operating efficiencies.

Carlton Home Entertainment reduced its losses in 1998 by £1m toapproximately £1m. Measures are inhand to rationalise its loss-making UKaudio business and to consolidate the video operations within CarltonTelevision.

FilmTurnover in Film in 1998 increased by17% to £358.7m (1997 – £305.9m)and operating profits by 9% to£63.3m (1997 – £57.9m). The relativeweakness of foreign currenciescompared with the rates used in 1997(particularly the US dollar) againststerling, reduced turnover by £6.1mand operating profits by £1.3m.Operating margins fell from 18.9% in 1997 to 17.6% in 1998, principallyas the result of volume discounts onthe large volumes of release prints for our major customers and the start-up costs of the new dye-transfer plant.

The post production businessesperformed poorly in the US, and

Finance Director’s reviewcontinued

If we renew Central’s licence on 1 April 2001, the new cash bid will onlybe effective from January 2002. Thelevel of digital penetration is likely tobe higher for those ten year periodsthan assumed in the 1999 licencerenewal process, thereby possiblyreducing the terms of the licencerenewal. While Central IndependentTelevision operates under its existinglicence terms, the digital proportionsof advertising and sponsorshiprevenue will not be subject to PQR.

Carlton’s two ITV broadcastingassociates, Meridian Broadcasting(20%) and GMTV (20%), haveaccepted terms for licence renewalwith effect from January 1999 whichare lower than the terms for 1998.

It is estimated that the overall benefitto Carlton Communications fromlower licence payments will be £15m in the current financial year and £22m in the year 2000.

In 1998, Carlton included income of£22.4m (1997 – £26.6m) in respect of the Channel 4 funding formula. In addition, £2.4m (1997 – £2.9m) was included in Carlton’s share ofMeridian and GMTV’s contributions.Under Government legislation, thepercentage of revenues rebated fromChannel 4 will fall from 33.3% incalendar 1998 to zero in calendar1999. Therefore on a pro-forma basis, Carlton (including its share of associates) would includeapproximately £5m in its 1999financial year and zero thereafter.

In December 1998 we were notifiedby the ITC of a £2.0m fine in respectof a programme broadcast in 1996.Carlton established an independent

panel to investigate the programmeand its recommendations to improvesupervisory and complianceprocedures are being implemented.

During 1999, Carlton Television willbring its broadcasting, programmemaking and advertising salesoperations together on to one site in London. Carlton International andCarlton Online will also move into the new building. The estimated capitalcost of the project is £11m and thevaluable West End long leaseholdproperty currently occupied byCarlton Television will becomeavailable with vacant possession for sale or letting.

VideoTurnover in Video in 1998 increasedby 16% to £531.7m (1997 – £457.1m)and operating profits by 20% to£81.0m (1997 – £67.7m). The 1998results include increments of the firstfull year contributions from theacquisitions in Spain and of the other50% of Technicolor Milan (formerlyEuphon, previously accounted for asan associate) and the first two monthsfrom Nimbus (which was acquired atthe end of July). These together added£41.3m to turnover and £5.7m of operating profit, with Nimbuscontributing £3.6m. However, therelative weakness of foreign currenciesagainst sterling compared with therates in 1997 reduced turnover by£7.9m and operating profits by £1.1m.Therefore, like-for-like growth in theyear was a 9% increase in turnoverand 13% in operating profits. Overall,operating margins in 1998 weremaintained at 15%.

The growth reflected strong demandthroughout the year for videocassettes


management changes have now beenimplemented. In the UK, The MovingPicture Company will be moving tonew purpose-built facilities which areexpected to be occupied by July 1999,at a capital cost of £8.7m in thecurrent year.

ProductsTurnover in Products in 1998 fell by27% to £136.6m (1997 – £186.1m) and operating profits by 56% to£22.8m (1997 – £52.3m). Turnover wassubstantially reduced by £20.7m to£17.0m in sales to the Far East wherepotential customers faced severe local recessions with much lowerpurchasing power of their devaluedcurrencies and a shortage of credit. In the US, sales were affected by theuncertainty about HDTV standards.However, sales in the UK and Europewere maintained. Foreign currencyweakness generally impacted demandand the sterling value of revenues,thereby lowering operating marginsbecause the majority of costs are in the UK.

The overall £49.5m reduction inturnover with gross margins generallymaintained was the principal reasonfor the lower profits. However, duringthe year overhead cost savings at anannual rate of £4m were implemented.The investment in R&D wasmaintained in 1998. In spite of the fall in divisional sales and profits,operating margins in 1998 were 17% and cash generation was positive.

Digital TelevisionCarlton’s digital television businesses in 1998 had turnover of £6.7m (1997 – Nil) and net pre-tax losses of £27.9m (1997 – Nil).

Included in digital television is thewholly owned channel Carlton Select(including Carlton Food Network), the new Carlton Digital Channels, thedigital simulcasting of our ITV stationsand Carlton Online, the 1998 start-upbusiness. The digital television jointventure is the 50% share in ONdigitalwhich began broadcasting on 15 November. Also included in digitaltelevision is the interest cost of £2.8m on the cumulative digitalinvestment of £70m.

1998Digital Television £m

Operating resultsCarlton Select and OtherCarlton Digital Channels 8.7

Carlton Online 0.9

Joint venture – ONdigital (50%) 15.5

Interest on digital televisioninvestment 2.8

Pre-tax costs (net) 27.9

Tax relief (7.2)

After tax costs (net) 20.7

Next year, the five Carlton DigitalChannels will be broadcasting foralmost a full 12 months and they will therefore all be expensingprogramming investment as well as their overheads. The channels’revenues will increase as ONdigital’ssubscribers build up.

ONdigital launched to its firstsubscribers in November 1998. In 1999, the business will incur a fullyear’s overheads, marketing and set top box subsidies.

Interest costs on digital television will rise in 1999 as the cumulativeinvestment of £70m increasesthroughout the year. Next year, therewill also be Carlton’s 37% share of the new free-to-air digital channel,

ITV2, which began broadcasting on 7 December 1998.

It is anticipated that the digitaltelevision losses will be available tooffset tax payable on Carlton’s otherUK businesses.

Joint Ventures and AssociatesAssociated companies (excluding the digital television joint venture)contributed £7.5m to operatingprofits in 1999 (1997 – £9.5m –restated to exclude the share of netinterest payable by associates of£1.5m). The reduction in the share ofoperating profits resulted principallyfrom higher losses at GMTV. Underthe licence renewal terms accepted by GMTV, the company is expected to make profits in 1999, although for the first three months of Carlton’sfinancial year the licence payments willcontinue to be at the current high rate.

Exchange RatesThe principal exchange rate affectingCarlton’s translation of overseasresults was the US dollar. The averagerate of the US dollar in 1998 wasUS$1.66/£ compared with US$1.63/£ in 1997. At the year-end the rate was US$1.699/£ compared withUS$1.615/£ in 1997.

Exceptional ItemsIn 1998 there was an exceptionalprofit of £9.6m on the sale of theshareholding in Getty Images, held as a fixed asset investment.

Attributable ProfitsThe profit on ordinary activities aftertax in 1998 was £211.9m (1997 –£212.2m).

This attributable profit is stated in


1998 before £15.1m (1997 – £14.7m)of the annual fixed net dividends onpreference shares net of the premiumover the redemption price in respectof the 5.5p preference shares still inissue. This is being amortised at therate of £6.2m per annum (1997 –£7.4m) over the period to the firstredemption date at par in the year2000, when redemption is entirely at Carlton’s discretion.

TaxThe overall tax rate provided on the1998 pre-tax profits of £312.1m is32.1% (1997 – 32.9%). The tax provisionin 1998 of £100.2m (1997 – £104.1m)is after relief for net digital costs.

In the US, federal tax has beenprovided at 35% and State taxes havebeen provided at rates between 5%and 10%.

The overall tax rate principally reflectsthe mix of UK and US profits, andincludes the effect of utilisation of thereducing amount of allowancesflowing from earlier US acquisitions,together with some provision releases.

Cash flowCarlton generated £379.3m of cashfrom operations in 1998 (1997 –£419.9m). The reduction reflected the investment in digital television and a smaller but still positive cashinflow from the management ofworking capital.

Net interest received was £5.2m(1997 – £0.9m) and dividends fromassociates, mainly ITN, totalled £10.3m(1997 – £1.0m). The cash cost ofpreference dividends was £21.3m(1997 – £22.1m), reflecting conversionof 16.1m of preference shares duringthe year. Tax paid was £96.2m (1997 – £97.3m).

Capital expenditure in 1998 of£82.7m (1997 – £69.0m) includedapproximately £38.4m on newprojects and operating properties.These included the expansion of DVD capacity, full commissioning ofTechnicolor Film’s dye transfer facilityand the acquisition of long leaseholdsof Carlton Television’s studio andoffices in Birmingham and its offices in London.

The disposal of the 6.3% shareholdingin Getty Images in 1998 accounted forthe majority of the £29.1m proceedsfrom disposals of investments andtangible fixed assets (1997 – £4.8m).Expenditure on other investments in 1998 was principally related to Technicolor.

After those expenditures, there wascash flow before acquisitions, financingand ordinary dividends of £152.6m(1997 – £180.9m).

Acquisitions of subsidiaries, principallyof 100% of Nimbus for £155.8m,totalled £160.7m (1997 – £160.5m,including Westcountry Television andRank Film Distributors). The £51.5minvestment in joint ventures andassociated companies in 1998 (1997 –£11.9m) mainly reflected a £30.0mpayment in respect of arrangementsrelating to ONdigital. At the year-enda total of £70m had been invested in all the digital television businesses.Equity dividends paid in 1998absorbed £79.4m (1997 – £70.1m)and new share issues raised £2.2m(1997 – £4.9m).


A n a l y s i s o f n e t c a s h m o v e m e n t – 1 9 9 8

Interest, dividends, tax, loans and foreign exchange £197m

Cash outf lows

Acquisitions £212m

Capital expenditure and investments £125m

Closing net debt30 September 1998 £(60)m

Cash generated from operations £379m

Cash inflows

Opening net cash 1 October 1997 £95m

C a p i t a l e m p l o y e d – 19 9 8

Long-term borrowing£328.0m

Financed by

Long-term creditors£39.6m

Equity £497.5m

Fixed assets £426.3m

Capital employed

Net current assets (excl cash) £170.6m

Cash £268.2m


Overall there was a net cash outflowof £136.8m, a positive exchangemovement on the sterling value of net debt of £2.6m and consolidationof loans of acquired businesses of£20.3m resulting in net borrowings atthe year-end of £59.8m (1997 – netcash of £94.7m).

Balance SheetShareholders’ funds at 30 September1998 were £497.5m compared with£550.4m at the end of 1997. Thisreduction principally reflects goodwillwritten off of £145.7m. The cumulativegoodwill written off to Group reservesat 30 September 1998 amounted to £1,893.2m (1997 – £1,747.5m).The new accounting standard FRS10in respect of Goodwill and IntangibleAssets is applicable for the Group’snext financial year and, going forward,any goodwill arising on acquisitionswill be capitalised but there will be no capitalisation of goodwill previouslywritten off to reserves. FRS11(regarding impairment of fixed assetsand goodwill) has not been adopted as it is not yet applicable. However, if ithad applied in 1998, there would havebeen no material adjustments to thecarrying value of fixed assets.

Net assets at 30 September 1998included £680.5m of operating netassets (1997 – £537.8m) excludinginvestments, cash and other liquidfunds, overdrafts, dividends payable,tax and loans. The increase principallyreflected capital expenditure,investments and the consolidation of Nimbus’ operating assets.

The overall return on the weightedaverage of net assets in 1998(excluding digital) was 53% (1997 – 60%).

Treasury

FinancingCarlton’s policy is to finance itself long term using debt instruments with a range of maturities. Carlton has traditionally raised fixed rate debt from the US and EuropeanCapital Markets, as well as obtaining bank facilities from the UK Syndicated Market.

At the year-end Carlton had anundrawn committed £150msyndicated bank facility with a maturityof November 2001 provided by agroup of high quality internationalbanks. The purpose of the facility is to provide backstop liquidity backingfor Carlton’s commercial paperprogramme and the maintenance of a group of core relationship banks to support Carlton in its future activities.

Objectives, policies and strategiesThe most significant treasuryexposures faced by Carlton are raisingfinance, managing interest rate andcurrency positions and investingsurplus cash in high quality assets.Clear parameters have beenestablished, including levels ofauthority, on the type and use offinancial instruments to manage theseexposures. Transactions are onlyundertaken if they relate to underlyingexposures and cannot be viewed asspeculative. Regular reports areprovided to senior management andtreasury operations are subject toperiodic independent reviews andaudits, both internal and external.

Interest rate managementCarlton uses interest rate swaps,options and forward rate agreements

to manage its interest rate exposureson its debt and cash positions.

The interest rate profile of Carlton’scash and borrowings at the year-end is detailed in notes 18 and 23(a)respectively.

Net interest receivable was £2.1m(1997 – £0.7m payable). A 1% increase in short-term sterling and dollarinterest rates based on the year-endposition would increase profits beforetax by about £2.6m.

Borrowings are denominated incurrencies that match Carlton’s netassets as described below. The fairvalues of borrowings and cash at theyear-end are compared to their bookvalues in note 23(b).

Currency managementCarlton faces currency exposures onthe translation of profits earned inoverseas subsidiaries, primarily in theUSA, and on trading transactionsundertaken by its subsidiaries inforeign currencies.

Carlton is also subject to currencyexposures on the translation of thenet assets of its overseas subsidiaries,primarily in the USA.

Carlton does not usually hedge itsprofit translation exposures as theseare an accounting rather than cashexposure. As Carlton accounts forcurrency profits using averageexchange rates, there is a smoothingeffect on short-term currencymovements.

Carlton does hedge a proportion ofits transactional exposures by takingout forward foreign exchange


contracts of up to two years forwardagainst its anticipated and known salesand purchases. The decision to hedgeis influenced by the size of exposure,the certainty of it arising, the tradingand market position of the companyin which the exposure arises and thecurrent exchange rate.

At the year-end Carlton estimatedthat its aggregate anticipated andknown transactional exposures for1999 would be small. However, asthere were still net exposures byindividual currencies totalling inaggregate over £50m, Carlton hadhedged net forward sales totalling£20m. The year-end spot value ofthese contracts was £1.9m abovetheir book value, due to the strengthof sterling.

Carlton’s balance sheet translationexposure is managed by partiallymatching currency assets withcurrency borrowings. Details of thecurrencies of borrowings and netassets at the year-end are illustratedbelow and these are not materiallydifferent from the average positionduring the year. Carlton’s primarybalance sheet translation exposure isagainst the dollar and it targets a 50%

hedged position in the long run. Atthe year-end Carlton’s balance sheettranslation exposure was 34% hedged(1997 – 40%).

During the year sterling strengthenedfurther against all the majorcurrencies to which Carlton isexposed. The effect on profittranslation was to reduce profits on a year by year basis by £1.8m, mainlydue to the average dollar translationrate increasing from US$1.63 toUS$1.66.

Currency exchange on tradingtransactions is less significant.Exposure to the dollar is Carlton’slargest single currency exposure and amovement against sterling by onecent, if maintained over the wholeyear, would affect reported profits byapproximately £0.6m.

Investment of cashCarlton operates strict investmentguidelines with respect to surpluscash and the emphasis is onpreservation of capital. Consequently,investments with a maturity greaterthan one year must be rated AA orbetter and investments of less thanone year must be rated A1 or P1

by the major credit rating agencies.There are also conservative limits for individual counterparties.

EuroThe Group is preparing for theintroduction of a single currencywithin Europe in 1999. Preparationsinclude the upgrading of informationsystems, where necessary, and the training of staff to handle Euro-denominated transactions,including dual currency transactions in the transition period betweencommencement of EMU in 1999 and the first issue of notes and coinsin 2002.

The decision as to when to adopt the Euro as the Group’s functionalcurrency will principally depend onthe timing of the UK joining the Euro.The Group does not currently expect significant project costs to be incurred as a result of theintroduction of the Euro.

Impact of Year 2000Year 2000 projectA Group Year 2000 project team was established in 1996 to facilitate,co-ordinate and report to theexecutive directors and Audit


Analysis of assets and borrowings by currency – 1998

S t e r l i n g g r o s s b o r r o w i n g s

G r o s s b o r r o w i n g s T o t a l

D o l l a r g r o s s b o r r o w i n g s

S t e r l i n g n e t a s s e t £ 4 7 8 . 2 m

£ 8 3 6 . 9 m

D o l l a r n e t a s s e t £ 3 8 6 . 9 m


Committee on a regular basis. The Group has identified its year2000 risk in three categories: (a) Information Technology (“IT”)systems encompassing all businesssoftware and systems installed by the Group’s informationtechnology teams;(b) non-IT systems/componentsrepresenting all other software,systems and equipment, includingembedded chip technologycomponents; and (c) external business partners (both customers and suppliers).The responsibility for the Year 2000project has been placed with theexecutive management of each of the operating companies within theGroup. Operating companies beganevaluating and assessing the impact of Year 2000 issues on their majorsystems in 1996. Each operatingcompany has prepared detailedinventories of all systems, IT, non-ITand business partners, assigningrelative criticality factors to each.Internal and external technicalexpertise has been used to evaluatethe impact that the Year 2000 issuewould have on these business critical systems.

CostsBased on the most recent forecastsof total project costs, including actualsto date, the Group is forecasting thatthe total Year 2000 cost will be in therange of £12m to £15m, with actualcosts as of 30 September 1998 being£5m. These cost estimates excludethe costs of contingency planstogether with any costs ofrectification that might be incurredfollowing the millennium. Year 2000costs will be funded out of theoperating cash flows of the Group.

Risks and responseTo date the Group has not identifiedany business critical systems oroperating equipment under itscontrol that cannot be rectifiedbefore Year 2000. However, thegeneral uncertainty inherent in theYear 2000 issue, resulting in part fromthe uncertainty of the Year 2000readiness of our business partners(i.e. customers and suppliers), means the Group is unable toprovide categorical assurances as to its Year 2000 compliance.

The Year 2000 project is expected toreduce significantly the Group’s levelof uncertainty during 1999. Theproject will focus on the Year 2000compliance and readiness of its keybusiness partners.

We are also drawing up contingencyplans within the Group’s Year 2000project. These plans includedeveloping alternative means oftransacting business, securingalternative sources of supply, planning for key staff to be available at critical times and other appropriate measures.

Bernard Cragg, Finance Director


Review of business, principalactivities and resultsThis is contained within pages 6 to 31.

DividendsAn interim dividend of 5.4p net perOrdinary share was paid on 21 August1998. The directors recommend thepayment of a final dividend of 8.25p net per Ordinary share on 6 April 1999 toOrdinary shareholders on the register on 19 March 1999.

DirectorsAll the directors served on the Board for the whole year under review, except Sir Brian Pitman who joined the Board as a non-executive director on 1 March1998. S A Cain, the Company’s new ChiefExecutive, is expected to join the Board on 18 January 1999.

In accordance with the Company’s articlesof association, Sir Derek Birkin, D B Greenand L F Hill will retire by rotation andoffer themselves for re-election at thisyear’s Annual General Meeting. Sir BrianPitman and S A Cain will also retire andoffer themselves for re-election, it beingthe first AGM since their respectiveappointments. Other than S A Cain, all ofthe retiring directors are non-executivedirectors and do not have servicecontracts with the Company. Sir DerekBirkin is Chairman of the RemunerationCommittee and a member of the AuditCommittee. L F Hill is a member of theAudit Committee. S A Cain has a servicecontract with the Company terminable on 364 days’ notice by either party.

Profiles of all the directors, including thoseoffering themselves for re-election at thisyear’s AGM, appear on pages 4 and 5.Details of the directors’ interests in theCompany’s shares can be found on pages60 and 61.

Annual General MeetingFull details of the resolutions to beproposed are set out in the Notice ofAnnual General Meeting, enclosed with this document, and a summary can befound on page 68.

AuditorsA resolution to appointPricewaterhouseCoopers as auditors willbe proposed at the Annual GeneralMeeting.

Substantial shareholdingsAs at 13 December 1998 the Companyhad been notified of the following interestsheld, directly or indirectly, in 3% or moreof the Company’s issued Ordinary sharecapital: Lloyds TSB Group plc – 17,849,687 sharesMercury Asset Management Group –67,110,916 shares.

Conversion of Preference sharesDuring the year, the Companyrepurchased 11,630,222 non-votingdeferred shares. These shares were issuedupon the conversion of Preference sharesand were immediately repurchased by theCompany and cancelled. Further details areset out in note 25 on page 49.

Creditor payment policyThe Group does not follow any particularcode on payment practice. Operatingbusinesses are responsible for agreeing the terms and conditions under whichbusiness transactions with their suppliersare conducted and making those suppliers aware of the terms of payment.It is Group policy that payments to allsuppliers are made in accordance with the agreed terms, provided that thesupplier is also complying with all relevantterms and conditions.

Trade creditor days of the Company forthe year ended 30 September 1998 were34 days, based on the ratio of Companytrade creditors at the year-end to theamounts invoiced during the year by trade creditors.

DonationsThe Group made charitable donations of£1.4m in the year but no political donations.

Employee mattersThe Group is committed to equality ofopportunity and does not discriminatebetween employees or potential employees

on any grounds. Full and fair considerationis given to the recruitment, promotion and training of disabled people, having due regard to their aptitudes and abilities.Should staff become disabled during thecourse of their employment, efforts aremade to provide appropriate re-training.

The importance of maximising staffinvolvement is fully recognised. Eachoperating company is responsible fordeciding on the appropriate forum for andlevel of consultation with its staff in orderto promote a better understanding of its business aims and performance. Information is provided to employees, asrequired, on matters of concern to them.

Following shareholder approval at anExtraordinary General Meeting in July1998, an Inland Revenue-approved savingsrelated share option scheme wasintroduced in September 1998. All UKemployees were eligible to participate.Options over 4,238,411 Ordinary shareswere granted in October 1998 to justover 2,600 employees, representing almost60% of those eligible.

Approved bythe Board on13 January 1999

David Abdoo, LLB, Company Secretary

David Abdoo, aged 37, was appointedCompany Secretary in 1991. He joined the Company in 1988 from Clifford Chance.

Directors’ report


We have audited the financial statementson pages 34 to 55 which have beenprepared under the historical costconvention and the accounting policies set out on page 38.

Respective responsibilitiesof directors and auditorsAs described on page 56, the Company’sdirectors are responsible for thepreparation of financial statements. It isour responsibility to form an independentopinion, based on our audit, on thosestatements and to report our opinion to you.

Basis of opinionWe conducted our audit in accordancewith Auditing Standards issued by theAuditing Practices Board. An auditincludes examination, on a test basis, of evidence relevant to the amounts

and disclosures in the financial statements.It also includes an assessment of thesignificant estimates and judgements made by the directors in the preparationof the financial statements, and of whether the accounting policies areappropriate to the Company’scircumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information andexplanations which we considerednecessary in order to provide us withsufficient evidence to give reasonableassurance that the financial statements are free from material misstatement,whether caused by fraud or otherirregularity or error. In forming ouropinion we also evaluated the overalladequacy of the presentation ofinformation in the financial statements.

OpinionIn our opinion the financial statementsgive a true and fair view of the state ofaffairs of the Company and the Group at 30 September 1998 and of the profitand cash flows of the Group for the yearthen ended and have been properlyprepared in accordance with theCompanies Act 1985.

Chartered Accountantsand Registered AuditorsLondon13 January 1999

To the members of Carlton Communications Plc

In addition to our audit of the financialstatements, we have reviewed thedirectors’ statements on page 56concerning the Company’s compliancewith the paragraphs of the Cadbury Codeof Best Practice specified for our reviewby the London Stock Exchange and theiradoption of the going concern basisin preparing the financial statements. The objective of our review is to drawattention to non-compliance with ListingRules 12.43(j) and 12.43(v).

Basis of opinionWe carried out our review in accordancewith guidance issued by the AuditingPractices Board. That guidance does not require us to perform the additional

work necessary to, and we do not,express any opinion on the effectivenessof either the Company’s system ofinternal financial control or its corporategovernance procedures nor on the ability of the Company to continue inoperational existence.

OpinionWith respect to the directors’ statementson internal financial control and goingconcern on page 56, in our opinion thedirectors have provided the disclosuresrequired by the Listing Rules referred to above and such statements are notinconsistent with the information of whichwe are aware from our audit work on the financial statements.

Based on enquiry of certain directors andofficers of the Company, and examinationof relevant documents, in our opinion the directors’ statement on page 56appropriately reflects the Company’scompliance with the other aspects of the Code specified for our review byListing Rule 12.43(j).

Chartered AccountantsLondon13 January 1999

To Carlton Communications Plc on Corporate Governance matters

Reports of the auditors


Profit and loss accountFor the year ended 30 September 1998

1998Before Digital Digital

Television Television (2) Total 1997Notes £m £m £m £m

Turnover 1 1,861.0 6.7 1,867.7 1,783.6Less: share of joint ventures (25.6) – (25.6) (33.9)

Group turnover 1,835.4 6.7 1,842.1 1,749.7Operating costs 1,517.4 16.3 1,533.7 1,431.8

Group operating profit 1,3 318.0 (9.6) 308.4 317.9Share of operating profit in joint ventures and associated undertakings 13 7.5 (15.5) (8.0) 9.5

325.5 (25.1) 300.4 327.4Exceptional profit on sale of fixed asset investment 5 9.6 – 9.6 –Exceptional provision for loss on closure of business 5 – – – (6.4)Share of associates’ exceptional loss 5 – – – (4.0)

Profit on ordinary activities before interest 335.1 (25.1) 310.0 317.0Net interest receivable/(payable) 6 4.9 (2.8) 2.1 (0.7)

Profit on ordinary activities before taxation 340.0 (27.9) 312.1 316.3Taxation on profit on ordinary activities 7 (107.4) 7.2 (100.2) (104.1)

Profit on ordinary activities after taxationattributable to shareholders 232.6 (20.7) 211.9 212.2Dividends (including non-equity) paid and proposed 8 99.1 – 99.1 91.2

Retained profit for the year 133.5 (20.7) 112.8 121.0

Earnings per share (pence) 9Basic earnings per share 35.7p (3.4)p 32.3p 33.2pExceptional items after tax (1.6)p – (1.6)p 1.6p

Headline earnings per share 34.1p (3.4)p 30.7p 34.8p

Fully diluted earnings per share 32.6p (2.9)p 29.7p 30.1pExceptional items after tax (1.3)p – (1.3)p 1.3p

Headline fully diluted earnings per share 31.3p (2.9)p 28.4p 31.4p

All operations in the year and in the comparative year were continuing. There is no material difference betweenprofits and losses as reported above and historical cost profits and losses.

Movement on consolidated profit and loss account – note 28.The notes on pages 38 to 55 form part of these accounts. Auditors’ report page 33.


Consolidated balance sheet30 September 1998

1998 1997

Notes £m £m £m £m

Fixed assetsIntangible assets 11 43.5 47.2Tangible assets 12 345.7 275.6Investments in joint ventures:Share of gross assets 27.3 20.2Share of gross liabilities (13.7) (9.9)

13 13.6 10.3Investments in associated undertakings 13 14.1 24.4Other investments 13 9.4 26.3

37.1 61.0

426.3 383.8Current assetsStocks 14 56.5 59.7Programme and film rights 15 138.6 136.8Trade debtors 363.9 390.1Other debtors 16 192.1 179.2Investments 17 9.1 12.4Cash and other liquid funds 18 278.8 470.9

1,039.0 1,249.1Creditors: amounts falling due within one year 19 600.2 715.3

Net current assets 438.8 533.8

Total assets less current liabilities 865.1 917.6Creditors: amounts falling due after more than one yearLoans 21 243.5 238.7Convertible debt 22 84.5 89.0Creditors 28.4 24.7Provisions for liabilities and chargesDeferred taxation 24 10.4 14.2

366.8 366.6

Net assets 498.3 551.0

Capital and reservesCalled up share capital 25 48.4 48.9Share premium account 27 118.2 115.5Other reserves 27 5.4 4.9Profit and loss account 28 325.5 381.1

Shareholders’ funds 497.5 550.4Minority interests – equity 0.8 0.6

498.3 551.0

Attributable to:Equity shareholders’ funds (before goodwill) 2,024.3 1,905.6Cumulative goodwill written off directly to reserves (1,893.2) (1,747.5)

Equity shareholders’ funds 131.1 158.1Non-equity shareholders’ funds 25 366.4 392.3

Total shareholders’ funds 497.5 550.4

M P Green, DirectorB A Cragg, DirectorApproved by the Board on 13 January 1999.

The notes on pages 38 to 55 form part of these accounts. Auditors’ report page 33.


Consolidated statement of cash flowsFor the year ended 30 September 1998

1998 1997Notes £m £m

Cash flow from operating activities 29(a) 379.3 419.9Dividends received from associated undertakings 10.3 1.0Returns on investments and servicing of finance 29(b) (16.1) (21.2)Taxation (96.2) (97.3)

Cash flow after returns on investments,servicing of finance and taxation 277.3 302.4Capital expenditure and financial investment 29(c) (124.7) (121.5)Acquisitions 33 (212.2) (172.4)Equity dividends paid (79.4) (70.1)

Cash outflow before management of liquid resources and financing (139.0) (61.6)Management of liquid resources 30 204.9 (63.3)Financing 29(d) (34.5) 202.7

Increase in cash in the year 30 31.4 77.8

1998 1997Reconciliation of net cash flow to movements in net debt Notes £m £m

Increase in cash in the year 30 31.4 77.8Cash outflow/(inflow) from decrease/(increase) in debt 36.7 (197.8)Cash (inflow)/outflow from (decrease)/increase in liquid resources (204.9) 63.3

Change in net funds resulting from cash flows (136.8) (56.7)Conversion of bonds – 64.3Debt acquired (20.3) –Loan notes issued – (7.0)Translation difference 2.6 (0.3)

Movement in net funds in the year (154.5) 0.3Opening net funds 94.7 94.4

Closing net (debt)/funds 30 (59.8) 94.7


Statement of total recognised gains and lossesFor the year ended 30 September 1998

1998 1997£m £m

Profit for the financial year attributable to shareholders 211.9 212.2Exchange differences on foreign currency net investments (16.5) (7.2)

Total recognised gains and losses for the financial year 195.4 205.0

Reconciliation of movements in shareholders’ fundsFor the year ended 30 September 1998

1998 1997£m £m

Profit for the financial year 211.9 212.2Ordinary and preference dividends (99.1) (91.2)Amortisation of 5.5p Preference share premium over redemption price (6.2) (7.4)Exchange differences on foreign currency net investments (16.5) (7.2)New share capital issued 2.7 69.2Contingent future share issues – 4.9Goodwill written off (145.7) (159.4)

Net (reduction in)/additions to shareholders’ funds (52.9) 21.1Shareholders’ funds at the beginning of the year 550.4 529.3

Shareholders’ funds at the end of the year 497.5 550.4


Principal accounting policies30 September 1998

1 Basis of preparationThe accounts are prepared under thehistorical cost convention and in accordancewith the applicable Accounting Standards in the United Kingdom.

2 ConsolidationThe consolidated financial statementsincorporate the accounts of the Company’ssubsidiary undertakings prepared to 30 September 1998. The Company has takenadvantage of the exemption in Section230(1)–(4) of the Companies Act 1985 not to present its own profit and loss account.

Companies acquired have been accounted foras acquisitions. Goodwill, whether purchasedor arising on consolidation, is written offagainst reserves in the year it arises. Nocorresponding adjustment is made in theaccounts of the Company unless there is apermanent diminution in the value of the investment.

3 Fixed asset investmentsAssociates and joint ventures are accountedfor in the Group’s accounts under the equitymethod of accounting with adjustments,where material, to conform to the Group’saccounting policies. Other fixed assetinvestments are stated at cost less amountswritten off in respect of any permanentdiminution in value.

FRS9, ‘Associates and joint ventures’, has beenadopted and, consequently, the Group’s profitand loss account, balance sheet and cash flowstatement have been presented in accordancewith the new requirements.

4 Foreign currencies

Foreign currency debtors and creditorscovered by forward currency contracts aretranslated at the contract rates of exchange.Other foreign currency denominatedmonetary assets and liabilities are translated atclosing rates of exchange. Gains and losses aretaken to the profit and loss account, exceptthat exchange differences on foreign currencyborrowings used to finance foreign currencyinvestments are taken to reserves.

Trading results of overseas subsidiaries aretranslated at weighted average rates of

exchange. Differences resulting from theretranslation of foreign currency opening netassets and results for the year at closing ratesare taken to reserves.

5 Interest rate transactionsInterest rate swap and option agreements areused to manage the interest basis ofborrowings. Interest receipts and paymentsunder these agreements are accrued so as tomatch the net income or cost with the relatedfinance expense. No amounts are recognisedin respect of future periods.

6 BorrowingsBorrowings are carried at their nominal valueadjusted for any premium or discount on issueand net of any issue costs. The premium ordiscount on issue and any issue costs arewritten off to the profit and loss account overthe life of the borrowing if it is dated.

7 TurnoverTurnover, which excludes value added tax andsales between Group companies, representsthe invoiced value of products and services.

8 Intangible assetsPre-transmission revenue expenditure(excluding programming) in respect of theTelevision Division is deferred and is chargedto the profit and loss account over the initiallicence period. Publishing rights are written offin equal annual instalments over periods of upto four years. Libraries acquired are valued atfair value on acquisition on the basis ofprojected cash flows and written down toresidual value in equal annual instalments overa period of 20 years.

9 Tangible fixed assetsTangible fixed assets are stated at historicalcost less accumulated depreciation.Depreciation is generally provided by equalannual instalments at the following rates:

Freehold property excluding land 2%–4%Leasehold property period of leasePlant and equipment 10% –33%

Depreciation is not charged on freehold land.

10 StocksStocks and work in progress are valued at thelower of cost and net realisable value.

11 Programme production and developmentProgrammes in production and acquiredprogrammes are stated at the lower of costand net realisable value. Programme materialis written off fully on first transmission or sale. Programme development expenditurerelating to programmes which have been or are anticipated to be commissioned for production is carried forward at cost. All other development expenditure iswritten off.

12 Other debtorsWhere advance payments are made inrespect of film processing and videocassetteproduction contracts, they are included inother debtors and written off against incomearising over the term of the contracts.

13 Liquid financial instrumentsLiquid financial instruments are stated at thelower of cost and market value. Interest andother income is dealt with in the period inwhich it arises.

14 PensionsThe Group maintains a number of definedbenefit and defined contribution basedpension schemes in the UK and US. The costsof providing defined benefit pensions, whichare assessed in accordance with the advice ofqualified actuaries, are charged to income on a systematic basis, with pension surpluses anddeficits amortised over the expected averageremaining service lives of current employees.The differences between the amountscharged to income and the contributionsmade to pension plans are treated as assetsor liabilities in the balance sheet. The costs ofdefined contribution schemes are chargedagainst profits in the year in which they areincurred.

15 Development expenditureAll research, development and marketingexpenditure is written off as incurred, with theexception of certain programme developmentexpenditure (see above).

16 Deferred taxationProvision is made for deferred taxation to the extent that the liability is expected to crystallise within the foreseeable future.


1 Divisional and geographical information

Turnover Operating profit Operating net assets

1998 1997 1998 1997 1998 1997£m £m £m £m £m £m

(a) Divisional analysisTelevision 793.9 785.7 160.6 150.0 187.4 205.2Video (1) 531.7 457.1 81.0 67.7 228.9 147.9Film 358.7 305.9 63.3 57.9 148.2 128.2Products 136.6 186.1 22.8 52.3 80.0 75.7Other 14.5 14.9 (9.7) (10.0) 14.7 (19.2)

1,835.4 1,749.7 318.0 317.9 659.2 537.8Digital Television 6.7 – (9.6) – 21.3 –

Total 1,842.1 1,749.7 308.4 317.9 680.5 537.8

(1) Note: included within Video are the turnover (£17.9m) and operating profit (£3.6m) of Nimbus CD InternationalInc. Group, from the date of acquisition on 25 July 1998.

(b) Geographical analysis, by destinationUnited Kingdom 969.2 939.0 195.0 196.8Europe 167.1 150.0 17.0 18.0North America (principally USA) 647.2 583.0 104.2 94.5Japan 15.3 26.2 0.9 2.5Asia and other 36.6 51.5 0.9 6.1

1,835.4 1,749.7 318.0 317.9Digital Television – all United Kingdom 6.7 – (9.6) –

1,842.1 1,749.7 308.4 317.9

(c) Geographical analysis, by originUnited Kingdom and Europe 1,251.6 1,233.9 218.6 226.7 372.5 310.4North America (principally USA) 583.8 515.8 99.4 91.2 286.7 227.4

1,835.4 1,749.7 318.0 317.9 659.2 537.8Digital Television – all United Kingdom 6.7 – (9.6) – 21.3 –

1,842.1 1,749.7 308.4 317.9 680.5 537.8

Operating net assets comprise:Intangible fixed assets 43.5 47.2Tangible fixed assets 345.7 275.6Stocks 56.5 59.7Programme and film rights 138.6 136.8Trade debtors 363.9 390.1Other debtors 174.4 161.5Creditors: amounts falling due within one year (413.7) (508.4)Creditors: amounts falling due after more than one year (28.4) (24.7)

680.5 537.8

Other debtors exclude taxes recoverable. Creditors exclude dividends payable.

2 Digital Television

The Digital Television column of the Group’s profit and loss account on page 34 comprises the 50% share of the lossbefore taxation of the Group’s joint venture interest in ONdigital (1997 – £Nil) together with the net costs in respectof Carlton’s digital channels, Carlton Online and the financing cost in the period of the investment in digital televisionactivities, which is calculated on the project funding at the average interest rate earned on cash deposits. The tax reliefin relation to Digital Television includes the Group’s share of consortium relief expected to be available fromONdigital. The results of Carlton Select have been included within the Digital Television column, as its operations arenow primarily concerned with Carlton’s digital television channels. In the year to 30 September 1997 Carlton Selectmade sales of £6.3m and an operating loss of £5.5m.

Notes to the accounts30 September 1998



3 Operating profit1998 1997£m £m

Turnover 1,867.7 1,783.6Less: Share of joint ventures’ turnover (25.6) (33.9)

Group turnover 1,842.1 1,749.7Cost of sales 1,213.7 1,107.4

Gross profit 628.4 642.3Distribution costs 94.6 98.1Administrative expenses 225.4 226.3

Group operating profit 308.4 317.9

Operating profit is stated after charging:Auditors’ remuneration (1) 0.8 0.7Hire of plant and machinery 4.7 3.7Other operating lease rentals 18.3 17.9Depreciation of tangible fixed assets 54.0 44.9Amortisation of intangible fixed assets 4.0 6.0Research and development costs 10.9 11.4

(1) Additional fees paid to the auditors for non-audit services in the UK, including amounts not charged in operatingprofit, amounted to £1.4m (1997 – £0.8m).

4 Employee numbers and remuneration

(a) The average number of persons employed by the Group during the year, including executive directors, is as follows:

1998 1997

Production 9,195 8,097Selling and distribution 1,194 1,119Administration 1,239 1,239

11,628 10,455

(b) The number of employees at 30 September 13,408 10,750

(c) Group employee costs – all employees including executive directors: £m £m

Aggregate gross wages and salaries paid to the Group’s employees 256.5 223.5Employers’ national insurance contributions 22.4 19.8Employers’ pension contributions 10.2 7.6

Total direct costs of employment 289.1 250.9

The information on directors’ emoluments and share options set out ons 59 to 61 forms part of these accounts.

(d) PensionsThe Group operates a number of defined benefit and defined contribution pension schemes in its principal locations. The schemes are funded and their assets are held in separate funds administered by trustees.

Pension costs for the defined benefit schemes are assessed in accordance with the advice of independent qualifiedactuaries and are charged to the profit and loss account so as to spread the cost on a straight line basis over the averageservice lives of employees. Actuarial valuations of these schemes have been carried out in accordance with local legislativerequirements. The principal UK schemes are valued using the projected unit and the attained age methods. The principalUS scheme is valued using the projected unit credit method. The latest actuarial valuations of the UK schemes were atdates between 1 July 1996 and 5 April 1998.

The assumptions which have the most significant effect on the results of the valuations are those relating to the rate ofreturn on investments, the rates of increases in salaries and the rate of dividend growth. It was assumed that investmentreturns would be 8.25% to 9.00% per annum, that salary increases would be in the range of 6.0% to 7.5% per annum andthat dividend growth would be between 4.0% and 5.0% per annum. In addition it is assumed that pension increases willbe in the range 3.0% to 4.5% and price inflation will be in the range 4.0% to 5.0%.


4 Employee numbers and remuneration (continued)

The aggregate value of the assets held in the principal UK pension schemes as at the most recent actuarial valuationswas £288m and the actuarial value of the assets was sufficient to cover 112% of the benefits that had accrued tomembers after allowing for projected salary increases. The market value of the assets held in the principal US pensionscheme at the most recent actuarial valuation as at 1 January 1998 was US$43.8m which was sufficient to cover 145% of the accrued actuarial liability at that date. The net pension cost of the defined benefit schemes was £7.6m (1997 – £6.1m). The net pension cost of the defined contribution schemes was £2.6m (1997 – £1.5m).At 30 September 1998, accrued pension costs were £5.1m (1997 – £4.3m).

5 Exceptional items

In 1998 the exceptional item relates to the profit on sale of the Group’s interest in Getty Images Inc. (£9.6m) forwhich there is no attributable tax. In 1997 exceptional items totalled £10.4m loss before tax.

6 Net interest receivable/(payable)1998 1997£m £m

Interest receivable and similar income 35.0 23.0Interest payable and similar charges on bank loans, overdrafts and other loans:Repayable within five years, not by instalments (10.2) (9.2)Repayable in more than five years (15.8) (4.9)Finance cost of convertible debt:£64,250,000 convertible bond – (1.9)US$150,000,000 Exchangeable Capital Securities (5.7) (6.2)

3.3 0.8Joint ventures (0.5) (0.8)Associated undertakings (0.7) (0.7)

2.1 (0.7)

7 Taxation on profit on ordinary activities1998 1997£m £m

United Kingdom corporation tax based on the profits for the year at 31.0% (1997 – 32.0%) 71.0 79.3Deferred taxation (1.8) 1.8Overseas taxation 30.9 23.6Adjustments in respect of prior years (2.2) (3.8)Share of joint ventures and associated undertakings’ tax 2.3 3.2

100.2 104.1

Included in the above tax charge is tax of £Nil (1997 – relief of £1.1m) in respect of exceptional items.

8 Dividends paid and proposed1998 1997£m £m

Interim of 5.40p per Ordinary share (1997 – 4.90p per share) 33.5 29.6Adjustment to 1996 accrued dividend, paid in 1997 – 1.5Proposed final of 8.25p per Ordinary share (1997 – 7.50p per share) 50.5 45.4

Ordinary dividends 84.0 76.5

Dividend paid on 6.5p Preference shares 10.7 10.7Dividend paid and payable on 5.5p Preference shares 10.6 11.4Amortisation of the 5.5p Preference share premium over redemption price (6.2) (7.4)

Preference dividends 15.1 14.7

Total dividends 99.1 91.2



9 Earnings per share

The calculation of basic earnings per Ordinary share is based on 609,364,400 Ordinary shares (1997 – 594,776,000Ordinary shares) being the weighted average number of shares in issue during the year and the profit for the financialyear attributable to holders of Ordinary shares of £196.8m (1997– £197.5m). Headline earnings per Ordinary share iscalculated using profits attributable to Ordinary shareholders excluding the effects of exceptional items after tax of£9.6m profit (1997 – £9.3m loss). See note 5.

Fully diluted earnings per share are based on earnings of £213.9m (1997 – £215.0m) and on a weighted average of719,014,900 (1997 – 713,925,600) Ordinary shares after allowing for full conversion of the 5.5p and 6.5p Preferenceshares and the allotment of shares under share option schemes.

10 Company balance sheet1998 1997

Notes £m £m £m £m

Fixed assetsTangible assets 12 16.6 9.4Investments 13 3,666.8 2,886.2

3,683.4 2,895.6Current assetsOther debtors 16 226.5 343.4Investments 17 6.9 10.4Cash and other liquid funds 18 27.1 344.4

260.5 698.2Creditors: amounts falling due within one year 19 1,041.1 1,097.1

Net current liabilities (780.6) (398.9)

Total assets less current liabilities 2,902.8 2,496.7Creditors: amounts falling due after more than one yearLoans 21 236.3 238.0Convertible debt 22 84.5 89.0Provision for liabilities and chargesDeferred taxation 24 0.3 0.6

321.1 327.6

Net assets 2,581.7 2,169.1

Capital and reservesCalled up share capital 25 48.4 48.9Share premium account 27 118.2 115.5Other reserves 27 1,061.8 1,067.5Profit and loss account 28 1,353.3 937.2

Shareholders’ funds 2,581.7 2,169.1

Attributable to:Equity shareholders’ funds 2,215.3 1,776.8Non-equity shareholders’ funds 25 366.4 392.3

Total shareholders’ funds 2,581.7 2,169.1

M P Green, DirectorB A Cragg, Director

Approved by the Board on 13 January 1999.

The notes on pages 38 to 55 form part of these accounts. Auditors’ report page 33.


11 Intangible fixed assetsPre-transmission Publishing Rank

revenue rights and filmexpenditure other library Total

£m £m £m £m

GroupCost at 1 October 1997 30.3 5.7 30.8 66.8Expenditure – 1.4 – 1.4Retirements and disposals – (4.7) – (4.7)

At 30 September 1998 30.3 2.4 30.8 63.5

Amortisation at 1 October 1997 14.4 4.7 0.5 19.6Charge for the year 3.0 0.5 0.5 4.0Retirements and disposals – (3.6) – (3.6)

At 30 September 1998 17.4 1.6 1.0 20.0

Net book value at 30 September 1998 12.9 0.8 29.8 43.5


12 Tangible fixed assetsLand and buildings Plant and

Freehold Leasehold equipment Total£m £m £m £m

(a) GroupCost at 1 October 1997 86.5 42.0 368.5 497.0Expenditure 12.1 10.5 62.0 84.6Exchange differences (2.9) 1.1 (8.9) (10.7)Businesses acquired 3.9 – 45.0 48.9Disposals (1.2) (3.6) (12.6) (17.4)

At 30 September 1998 98.4 50.0 454.0 602.4

Depreciation at 1 October 1997 11.1 8.9 201.4 221.4Charge for the year 1.9 4.1 48.0 54.0Exchange differences (0.5) 0.3 (6.5) (6.7)Disposals (0.1) (3.6) (8.3) (12.0)

At 30 September 1998 12.4 9.7 234.6 256.7



The net book value of short leasehold property is £9.7m (1997 – £9.3m) and is included above in leasehold land and buildings.



12 Tangible fixed assets (continued)Land and buildings Plant and

Freehold Leasehold equipment Total£m £m £m £m

(b) CompanyCost at 1 October 1997 5.8 2.9 3.0 11.7Expenditure 8.9 10.4 0.3 19.6Disposals (1.3) (10.4) (0.1) (11.8)

At 30 September 1998 13.4 2.9 3.2 19.5

Depreciation at 1 October 1997 0.2 0.2 1.9 2.3Charge for the year 0.1 0.2 0.4 0.7Disposals – – (0.1) (0.1)

At 30 September 1998 0.3 0.4 2.2 2.9



The net book value of short leasehold property is £2.3m (1997 – £2.1m) and is included above in leasehold land andbuildings.

13 Fixed asset investmentsJoint Associated Other

ventures undertakings investments Total£m £m £m £m

(a) GroupAt 1 October 1997 10.3 24.4 26.3 61.0Disposals and conversion to a subsidiary (1.3) – (16.1) (17.4)Purchase of investments 22.6 – 0.8 23.4Loans 1.2 (3.0) – (1.8)Goodwill and share of reserve movements (4.2) 0.1 – (4.1)Dividends received – (10.3) – (10.3)Share of operating profit (13.9) 5.9 – (8.0)Share of interest (0.5) (0.7) – (1.2)Share of tax (0.2) (2.1) – (2.3)Exchange differences and other (0.4) (0.2) (1.6) (2.2)

At 30 September 1998 13.6 14.1 9.4 37.1

Other investments include listed investments with a market value of £5.5m (book value £5.8m) at 30 September 1998(1997 – market value £27.6m, book value £23.5m). Loans to joint ventures and associated undertakings at 30 September 1998 were £14.3m (1997 – £16.1m). The Group’s share of the undistributed post acquisition retained reserves of its associated undertakings at 30 September 1998 was £3.2m (1997 – £11.3m).

Joint ventures andSubsidiary undertakings associated undertakings

Equity Loans Equity Loans Total£m £m £m £m £m

(b) CompanyCost at 1 October 1997 2,489.9 472.5 28.6 3.8 2,994.8Disposals and repayments (803.8) (241.5) – (0.3) (1,045.6)Additions 1,352.2 710.5 45.7 – 2,108.4

At 30 September 1998 3,038.3 941.5 74.3 3.5 4,057.6

Provisions at 1 October 1997 96.3 – 12.3 – 108.6Provided in the year 278.4 – 3.8 – 282.2

At 30 September 1998 374.7 – 16.1 – 390.8

Net book value at 30 September 1998 2,663.6 941.5 58.2 3.5 3,666.8

Net book value at 30 September 1997 2,393.6 472.5 16.3 3.8 2,886.2

A list of the Group’s principal operating companies is given in note 35.


14 Stocks1998 1997£m £m

Raw materials and consumables 23.0 27.6Work in progress 8.2 7.1Finished goods 25.3 25.0

56.5 59.7

There is no material difference between the replacement cost of stocks and their carrying value.

15 Programme and film rights1998 1997£m £m

Programmes in production 22.8 33.4Completed programmes and film rights 115.8 103.4

138.6 136.8

16 Other debtorsGroup Company

1998 1997 1998 1997£m £m £m £m

Amounts falling due within one year:UK and overseas taxes recoverable 17.7 17.7 12.6 11.3Prepayments and accrued income 29.5 27.4 6.5 38.0Contract payments 33.1 18.2 – –Other, including Channel 4 rebate 42.3 50.5 – –Amounts owed by subsidiary undertakings – – 206.5 288.3Amounts falling due after more than one year:Contract payments 66.6 58.0 – –Other 2.9 7.4 0.9 5.8

192.1 179.2 226.5 343.4

17 Current asset investmentsGroup Company

1998 1997 1998 1997£m £m £m £m

Certificates of tax deposit 7.6 10.4 5.6 8.4Other 1.5 2.0 1.3 2.0

9.1 12.4 6.9 10.4

18 Cash and other liquid fundsGroup Company

1998 1997 1998 1997£m £m £m £m

Cash at bank and in hand 194.3 176.8 0.8 150.2Liquid financial instruments 84.5 294.1 26.3 194.2

278.8 470.9 27.1 344.4

Cash and other liquid financial instruments comprise bank deposits, commercial paper and government backedsecurities. All these investments have a maturity of less than one year and are subject to floating rates of interest.Included within these are US$ denominated investments with a book value of £140.5m which are held by companiesoperating in the USA. The remaining balance of cash and other liquid funds is substantially sterling-denominated.



19 CreditorsGroup Company

1998 1997 1998 1997£m £m £m £m

Trade creditors 221.7 311.3 1.2 1.7Accruals and deferred income 142.1 160.2 10.6 37.9Overdrafts and short term borrowings (note 20) 10.6 48.5 165.2 308.5Corporation tax 120.3 107.3 23.0 21.7Other creditors 49.9 36.9 0.3 0.1Dividends 55.6 51.1 55.6 51.1Amounts owed to subsidiary undertakings – – 785.2 676.1

600.2 715.3 1,041.1 1,097.1

Trade creditors and trade debtors include £44.1m (1997 – £46.4m) representing amounts not due to the Group butfor which the Group is subject to a limited recourse.

20 Overdrafts and short term borrowingsGroup Company

1998 1997 1998 1997£m £m £m £m

Overdrafts 7.6 16.0 162.2 276.0Loan notes 3.0 7.7 3.0 7.7Loans – 24.8 – 24.8

10.6 48.5 165.2 308.5

The loan notes are repayable at the option of the holder on 31 March and 30 September (or the preceding businessday) of each year until 31 March 2020 when all outstanding amounts will have been repaid.

21 LoansGroup Company

1998 1997 1998 1997£m £m £m £m

Repayable:Between one and two years 2.8 0.1 – –Between two and five years 41.5 40.5 38.3 40.2Over five years 199.2 198.1 198.0 197.8

243.5 238.7 236.3 238.0

Loans repayable between two and five years include unsecured dollar borrowings of US$65m bearing a fixed interestrate of 9.55%, repayable on maturity in June 2001. Loans repayable after five years principally comprise an unsecured£200m Eurobond stated net of the costs of issue which has a coupon of 7.625% and matures in June 2007.

22 Convertible debtGroup Company

1998 1997 1998 1997£m £m £m £m

Exchangeable Capital Securities 84.5 89.0 84.5 89.0

The US$150m undated Exchangeable Capital Securities are divided into 6,000,000 Exchangeable Capital Securities of US$25 per security with a coupon of 8% per annum, and are redeemable at the option of the Company from7 October 1998 at US$26 per security reducing each year until 7 October 2003 from which time the redemptionprice will be US$25 per security. The Exchangeable Capital Securities rank senior to the Preference shares of theCompany in the event of a winding up. The Exchangeable Capital Securities are exchangeable at the option of the Company at any time into Cumulative US Dollar-denominated Redeemable Preference shares of US$0.01 each in the Company. The rights of such Preference shares are summarised in note 25.


23 Derivatives and other financial instruments

(a) Interest rate risk profile of financial liabilitiesThe interest rate profile of the financial liabilities of the Group by currency denomination as at 30 September 1998 was:

Total Floating Fixed Fixed rate

Weighted Weightedaverage average time

rate at 30 for which September rate is fixed

£m £m £m % Years

Sterling 215.8 17.8 198.0 7.63 8.7US Dollar 122.8 – 122.8 8.48 –

Total 338.6 17.8 320.8 7.96 –

The weighted average time for which dollar borrowings and total borrowings are fixed is infinite due to theUS$150m Exchangeable Capital Securities with a coupon of 8% which are undated. The remaining dollar borrowingstotal $65m, bear an interest rate of 9.55% and mature in 2.7 years.

The sterling floating rate borrowings bear interest at various rates based on the UK Base rate.

(b) Fair values of financial assets and financial liabilitiesSet out below is a comparison by category of book values and fair values of all the Group’s financial assets andfinancial liabilities as at 30 September 1998:

Book value Fair value£m £m

Primary financial instruments held or issued to finance the Group’s operations:Overdrafts and short term borrowings (note 20) (10.6) (10.6)Loans (note 21) (243.5) (268.2)Convertible debt (note 22) (84.5) (88.3)

(338.6) (367.1)Cash and other liquid funds (note 18) 278.8 278.8Derivative financial instruments held to manage the interest rate and currency profile:Interest rate swaps – 0.2Derivative financial instruments held or issued to hedge the currency exposure on expected future sales:Forward foreign exchange contracts – 1.9

Market values have been used to determine the fair value of listed debt issued, cash and swaps. Discounted cash flows atmarket rates have been used to determine the fair value of unlisted debt. Forward foreign exchange contracts have beenvalued at the spot rate of exchange on 30 September 1998 as the contracts mature within a year.

The difference between book values and fair values of loans was primarily due to current interest rates being lower thanthose prevailing when the borrowings were raised.

(c) Gains/(losses) on hedging contractsThe table below details gains/(losses) on hedging contracts at 30 September 1998:

Total netGains Losses gains/(losses)

£m £m £m

Unrecognised gains/(losses) on hedges at 1 October 1997 1.1 (3.4) (2.3)Gains/(losses) arising in previous years that were recognised in 1998 0.5 (0.4) 0.1

0.6 (3.0) (2.4)Gains/(losses) arising in 1998 that were not recognised in 1998 1.4 – 1.4

Unrecognised gains/(losses) on hedges at 30 September 1998 2.0 (3.0) (1.0)

Of which:Gains/(losses) expected to be recognised in 1999 1.6 (0.4) 1.2Gains/(losses) expected to be recognised in 2000 or later 0.4 (2.6) (2.2)



23 Derivatives and other financial instruments (continued)

(d) Currency exposuresThe table below shows the Group’s currency exposures i.e. those transactional (or non-structural) exposures that give riseto the net currency gains and losses recognised in the profit and loss account. Such exposures comprise the monetaryassets and monetary liabilities of the Group that are not denominated in the functional currency of the operating unitinvolved, other than Carlton’s dollar borrowings which are treated as hedges of net investments in overseas operations. As at 30 September 1998 these exposures were as follows:

Net foreign currency monetaryassets/(liabilities)

US dollar Other Total£m £m £m

Functional currency of Group operationSterling (39.1) (3.6) (42.7)Other (0.7) 1.2 0.5

Total (39.8) (2.4) (42.2)

24 Deferred taxation

Movement on the deferred taxation account is as follows:Group Company

£m £m

At 1 October 1997 14.2 0.6Profit and loss account – current (1.8) –

– prior year (1.4) (0.3)Other (0.6) –

At 30 September 1998 10.4 0.3

Group Company

1998 1997 1998 1997£m £m £m £m

Deferred taxation comprises:Accelerated capital allowances 12.4 12.1 0.3 0.1Short term timing differences (8.8) (5.5) – 0.4Deferred gains 0.4 0.5 – 0.1Other 6.4 7.1 – –

10.4 14.2 0.3 0.6

Full provision has been made for deferred taxation, with the exception of £0.2m in respect of deferred gains (1997 – £0.1m).

To the extent that dividends from overseas undertakings are expected to result in additional taxes, appropriateamounts have been provided. No taxes have been provided for any unremitted earnings where remittance of thoseearnings is not anticipated in the foreseeable future.


25 Called up share capital

1998 1997£m £m

Authorised1,016,102,510 Ordinary shares of 5p each (1997 – 1,000,000,000) 50.8 50.0169,970,267 6.5p (net) Cumulative Convertible Redeemable Preference shares of 5p each (1997 – 170,000,000) 8.5 8.5203,927,223 5.5p (net) Cumulative Convertible Preferenceshares of 5p each (1997 – 220,000,000) 10.2 11.0

69.5 69.5

US$m US$m

15,000,000 Cumulative US Dollar-denominated Redeemable Preference shares of US$0.01 each (1997 – 15,000,000) 0.2 0.2

£m £m

Issued and fully paid610,531,669 Ordinary shares of 5p each (1997 – 605,186,391) 30.6 30.3164,820,139 6.5p (net) Cumulative Convertible Redeemable Preference shares of 5p each (1997 – 164,849,872) 8.2 8.2191,678,161 5.5p (net) Cumulative Convertible Preference shares of 5p each (1997 – 207,750,938) 9.6 10.4

48.4 48.9

The following changes have taken place in the issued share capital of the Company:

From 1 October 1997 to 30 September 1998, 872,990 Ordinary shares were issued under the rules of the Company’sshare option schemes.

The 6.5p Preference shares became convertible on 31 March 1991 and continue to be so on each anniversary (or on the next business day) thereafter until 2005 on the basis of 25.83975 Ordinary shares for every 100 6.5pPreference shares. On 31 March 1998, 29,733 6.5p Preference shares were converted, in accordance with the articlesof association, by a process of consolidation and subdivision into 7,675 Ordinary shares and 22,058 non-votingdeferred shares. The deferred shares were subsequently repurchased by the Company as detailed below. The Company has the option to redeem the outstanding 6.5p Preference shares at £1 per share on 30 April 2005 (or on the next business day) and on each anniversary thereafter until 30 April 2010, when any 6.5p Preferenceshares outstanding will be redeemed at £1 per share.

The 5.5p Preference shares are convertible on the first business day of each month on the basis of 27.7775 Ordinaryshares for every 100 5.5p Preference shares. Between 1 October 1997 and 30 September 1998, 16,072,777 5.5pPreference shares were converted, in accordance with the articles of association, by a process of consolidation andsubdivision, into 4,464,613 Ordinary shares and 11,608,164 non-voting deferred shares. The deferred shares weresubsequently repurchased by the Company as detailed below. The 5.5p Preference shares are irredeemable save thatthe Company has the option to redeem any or all of them at £1 per share at any time between 2 June 2000 and1 June 2200.

In accordance with the articles of association, during the year the Company repurchased for an aggregateconsideration of 6p, and then cancelled, all 11,630,222 non-voting deferred shares issued upon the conversion of Preference shares. All authorised unissued deferred share capital was converted into authorised unissued Ordinary share capital.

On 7 October 1993, 6,000,000 Exchangeable Capital Securities of $25 per security were issued by the Companywhich are exchangeable at the option of the Company at any time into Cumulative US Dollar-denominatedRedeemable Preference shares of $0.01 each in the Company (“Dollar Preference shares”). No Dollar Preferenceshares had been issued as at 30 September 1998. The Dollar Preference shares carry a dividend entitlement of $2.25 per share per annum and are redeemable at the option of the Company from 7 October 1998 at a price of $26.125 per share, reducing each year until 7 October 2003 from which time the redemption price will be $25 per share.



25 Called up share capital (continued)

By resolution passed on 11 February 1998 shareholders’ authority was obtained for the Company to make marketpurchases of its own shares up to a maximum of 60,919,000 Ordinary shares, 16,484,000 6.5p Preference shares and 19,371,000 5.5p Preference shares, to expire on the earlier of 10 February 1999 and the date of the Company’s1999 Annual General Meeting.

Each of the three classes of Preference shares ranks pari passu for dividends or other returns of capital, in priority to any other class of shares. None of the Preference shares has voting rights except in the event of a winding up or following dividend arrears of greater than six months. In the event of a winding up, the 6.5p and 5.5p Preferenceshares have a liquidation preference of £1 per share and the Dollar Preference shares have a liquidation preference of $25 per share.

Non-equity shareholders’ funds comprise £164.8m (1997 – £164.9m) in respect of the 6.5p Preference shares and£201.6m (1997 – £227.4m) in respect of the 5.5p Preference shares.

26 Share options

At 30 September 1998, options had been granted and remained outstanding over 19,705,893 new Ordinary shares,as follows:

Option schemes Notes Exercise period Exercise price Number of shares

Executive share option schemes (a) 10.01.92 – 22.06.08 141.6p – 551p 18,686,721Central SAYE scheme (b) 01.12.98 – 31.05.01 213.2p 1,019,172

(a) The normal exercise period for options granted under the executive schemes is between 3 and 10 years from thedate of grant. Some options granted to employees in the US can be exercised in annual increments of 20%.

(b) Under the terms of the Central Independent Television P.L.C. SAYE share option scheme, employees entered intoa savings contract for a period of either 5 years or 7 years at amounts varying between £10 and £250 per month.The normal exercise periods for options granted under this scheme are the 6 month period following the fifthanniversary of the date of grant in respect of 5 year savings contracts and the 6 month period following the seventhanniversary of the date of grant in respect of 7 year savings contracts.

Following shareholder approval at an Extraordinary General Meeting in July 1998, an Inland Revenue-approved savingsrelated share option scheme was introduced in September 1998. On 2 October 1998, options over 4,238,411 newOrdinary shares were granted under this scheme.

27 Share premium account and other reservesShare

premium Otheraccount reserves

£m £m

(a) GroupAt 1 October 1997 115.5 4.9Premium on the issue of shares 2.7 –Other reserve movements – 0.5

At 30 September 1998 118.2 5.4

(b) CompanyAt 1 October 1997 115.5 1,067.5Premium on the issue of shares 2.7 –Other reserve movements – 0.5Amortisation of 5.5p Preference share premium over redemption price – (6.2)

At 30 September 1998 118.2 1,061.8

At 30 September 1998, other reserves of the Company, which were non-distributable, comprised (a) £231.9m beingthe remaining balance of special reserves created on the cancellation of the share premium account in previous years, (b) £824.5m being the amounts arising on the application of section 131(2) of the Companies Act 1985, (c) £4.9m being an estimate of the shares to be issued by way of part consideration for the purchase of Action TimeHoldings Limited in the event of certain performance targets being achieved and (d) £0.5m being a capitalredemption reserve created on conversion of Preference shares to Ordinary shares.


28 Profit and loss account

Group Company£m £m

At 1 October 1997 381.1 937.2Profit for the financial year 211.9 515.2Dividends (99.1) (99.1)Amortisation of 5.5p preference share premium over redemption price (6.2) –Goodwill written off in year (145.7) –Exchange differences (16.5) –

At 30 September 1998 325.5 1,353.3

Exchange differences in the Group are net of the movement on foreign currency borrowings and balance sheethedging of £7.2m. Included within the Company’s profit and loss account at 30 September 1998 was an amount of £909.3m which was not distributable at that date.

29 Cash flow 1998 1997£m £m

(a) Cash flow from operating activitiesOperating profit 308.4 317.9Depreciation 54.0 44.9Amortisation 4.0 6.0Stocks 4.6 (16.9)Programme and film rights (1.8) 5.5Debtors 14.3 32.0Creditors (4.2) 29.2Investments – 1.3

379.3 419.9

(b) Returns on investment and servicing of financeInterest received 36.6 22.4Interest paid (31.4) (21.5)Preference dividends paid (21.3) (22.1)

(16.1) (21.2)

(c) Capital expenditure and financial investmentPurchase of tangible fixed assets (82.7) (69.0)Disposal of investments and tangible fixed assets 29.1 4.8Other investments (71.1) (57.3)

(124.7) (121.5)

(d) FinancingIssue of shares 2.2 4.9(Repayment)/Issue of debt (36.7) 197.8

(34.5) 202.7



30 Analysis of net debt1 October Exchange Other 30 September

1997 Cash flow movement changes 1998£m £m £m £m £m

Cash at bank and in hand 176.8 23.0 (5.5) – 194.3Overdrafts (16.0) 8.4 – – (7.6)

31.4

Liquid financial instruments 294.1 (209.6) – – 84.5Loan notes (7.7) 4.7 – – (3.0)

(204.9)

Loans due within one year (24.8) 24.0 0.8 – –Loans due after more than one year (238.7) 12.7 2.8 (20.3) (243.5)Convertible debt (89.0) – 4.5 – (84.5)

36.7

Net funds/(debt) 94.7 (136.8) 2.6 (20.3) (59.8)

31 Capital expenditure – contracted forGroup Company

1998 1997 1998 1997£m £m £m £m

Expenditure on tangible fixed assets – contracted for 14.3 10.4 3.8 0.1

32 Commitments and contingent liabilities

(a) Operating leasesAt 30 September 1998 the Group had minimum annual commitments under non-cancellable operating leases as follows:

Land & 1998 Land & 1997buildings Other Total buildings Other Total

£m £m £m £m £m £m

Operating leases which expire:Within one year 2.8 0.2 3.0 1.0 0.4 1.4After one year but within five years 6.9 1.9 8.8 8.8 1.4 10.2After five years 8.8 1.1 9.9 5.8 1.1 6.9

18.5 3.2 21.7 15.6 2.9 18.5

(b) GuaranteesThe Company and certain of its UK subsidiaries have entered into cross-guarantees in connection with the Group’sUK banking arrangements. At 30 September 1998 subsidiary overdrafts amounting to £87.7m (1997 – £57.0m) werecovered by guarantees given by the Company.

The Company has guaranteed an ONdigital obligation of £10.0m.


33 Acquisitions1998 1997

Cash flow £m £m

Purchase of subsidiary undertakings (160.0) (164.5)Cash less overdrafts acquired with subsidiaries (0.7) 4.0Investment in joint ventures and associates (51.5) (11.9)

(212.2) (172.4)

In 1998 the Group acquired subsidiary undertakings for a total consideration of £162.3m, comprising cashconsideration (£156.7m), acquisition expenses (£3.3m) and accrued consideration (£2.3m). The book value of netassets acquired totalled £20.6m inclusive of £0.7m of net overdrafts acquired, resulting in goodwill of £141.7m. The major acquisition was that of Nimbus CD International Inc. which is detailed in (a) below. Other transactions are described in notes (b) to (f).

(a) On 25 July 1998, the Group acquired the entire share capital of Nimbus CD International Inc. for a total cashconsideration of £159.2m including accrued consideration of £2.3m and acquisition expenses of £1.5m. The assetsand liabilities of the acquired company are set out below:

AccountingBook policy Fair valuevalue and GAAP adjustments Fair value

£m £m £m £m

Tangible fixed assets 53.5 a (4.0) b (2.9) 46.6Stock 2.1 – – 2.1Debtors 18.4 – c (0.4) 18.0Cash 1.2 – – 1.2Creditors (21.1) d (0.7) e (0.6) (22.4)Long term debt (20.1) – – (20.1)Corporation tax and deferred tax 4.1 f (8.0) f (0.5) (4.4)Other (0.6) 0.2 – (0.4)

Net assets acquired 37.5 (12.5) (4.4) 20.6

Goodwill 138.6

Total consideration and acquisition expenses 159.2

a Alignment of plant and machinery asset lives.b Land and buildings have been adjusted to open market value. c Write off of deferred financing costs and additional bad debt provisions.d Alignment of royalties accruals and income recognition policies.e Provision for leasehold property dilapidations and other provisions.f Tax effect of fair value and accounting policy adjustments.

(b) On 5 March 1998, the Group acquired the 50% which it did not already own of the issued share capital ofTechnicolor Milan S.p.A. (formerly Euphon Technicolor S.p.A.) for a total consideration of £2.5m. The book value of net assets acquired was £1.2m resulting in goodwill of £1.3m.(c) On 10 June 1998, the Group purchased the entire issued share capital of National Screen Service Limited for a total consideration of £3.4m. The book value of net assets acquired was £0.2m resulting in goodwill of £3.2m.(d) On 31 July 1998, the Group purchased a 50% joint venture interest in the issued share capital of Central deVideo, S. de R. L. de C. V. for a total consideration of £6.0m. The book value of net assets acquired was £2.0mresulting in goodwill of £4.0m.(e) During the year the Group invested £45.5m in its joint venture ONdigital.(f) Other acquisition transactions principally relate to adjustments arising on transactions completed in 1997 for which there was a net cash inflow of £2.8m and a net credit to goodwill of £1.6m.



34 Related party transactions

The Group entered into the following material transactions with related parties during the year:

Balances owed to/ Value of sales to/(due from) the Group (purchases from)

1998 1997 1998 1997Related party Relationship Note £m £m £m £m

Independent TelevisionNews Limited Associated Company (a) (1.4) (1.6) (18.1) (21.8)London News Network Limited Joint venture (b) (1.9) (1.9) (11.6) (12.7)

(a) Purchase of news programmes.(b) Purchase of news programmes and transmission.

In 1998 the Group’s financing activities with related parties included the repayment of a £3.0m loan made to Independent Television News and an equity investment in ONdigital of £45.5m.

35 Principal operating companies

(a) Subsidiary undertakings Country of incorporation Division

Action Time (UK) Limited * TelevisionCarlton Broadcasting Limited *Carlton Digital Channels Limited *Carlton Online LimitedCarlton Sales Limited **Carlton Screen Advertising Limited *Carlton Television Limited *Carlton 021 Limited *Central Independent Television P.L.C. *Carlton International Media Limited *Westcountry Television Limited*

Carlton Home Entertainment Limited * VideoELAP Music A/S * DenmarkEuronimbus S.A. (70%)* LuxembourgNimbus Manufacturing, Inc.* USANimbus Manufacturing (UK) Limited*Technicolor Distribution Services Limited **Technicolor Milan S.p.A.* ItalyTechnicolor Optical Media Services ** USATechnicolor Scandinavia A/S* DenmarkTechnicolor Spain S.A. * SpainTechnicolor Videocassette B.V. * HollandTechnicolor Videocassette of Michigan, Inc. * USATechnicolor Videocassette, Inc. * USATechnicolor Video Services (UK) Limited *


35 Principal operating companies (continued)

(a) Subsidiary undertakings Country of incorporation Division

Complete Post-Production Center, Inc. * USA FilmMetrocolor London Limited *Superhire LimitedThe Moving Picture Company Limited *Technicolor Entertainment Services ** USATechnicolor, Inc. * USATechnicolor Limited *Technicolor S.p.A. * ItalyTVI Limited

Cabletime Limited ProductsQuantel Limited *Solid State Logic Limited *

Carlton Credit Corp * USA OtherCarlton Books LimitedComelim Circuits Limited

All subsidiary companies are wholly owned and are incorporated and operating in the UK (and are registered in England and Wales) except as noted. * Indirect holdings. ** Trading as divisions of subsidiary companies.

(b) Joint ventures and associated undertakings

Country Nominal Number of Proportionof registration/ value of Ordinary shares of shares heldincorporation Ordinary shares in issue by the Group

TelevisionBritish Digital Broadcasting

Holdings Limited (1) England and Wales £0.10 83,001,000 50%Event Television Limited England and Wales £1 1,500,000 50%GMTV Limited England and Wales £1 2,000,000 20%Independent Television News Limited England and Wales £1 400,000 20%London News Network Limited (2) England and Wales £1 100 50%Meridian Broadcasting Limited England and Wales £1 30,000,000 20%

VideoCentral de Video, S. de R.L de C.V. (3) Mexico Ps28,053,000 2 50%

The Group has a 50% interest in an unincorporated joint venture, Hamdon Entertainment, operating in the US in theTelevision Division.The Group has a 50% interest in an uncertificated limited liability company, 3DCD, operating in the US in the Video Division.

Notes(1) British Digital Broadcasting Holdings Limited owns 100% of the issued share capital of British Digital BroadcastingPLC, which trades as ONdigital.(2) The Group also owns 50% of the 2,250,000 7% Cumulative Preference shares of £1 each in issue.(3) The capital stock is divided into 2 equity quotas, the value of each being 28,053,000 Pesos.


Corporate governance

In the opinion of the directors, the Companycomplied with the provisions of the CadburyCommittee’s Code of Best Practicethroughout the year.

The Company’s auditors have reviewed thedirectors’ compliance statement and theirreport is provided on page 33.

Board of directorsThe Board consists of ten directors, of whom six are non-executive.

The Board meets regularly throughout theyear, normally eight times a year. It retains full and effective control over the Companyand monitors the executive management.Board meetings follow a formal agenda ofmatters specifically reserved for decision by the Board. The Company Secretary and Finance Director are responsible forensuring that applicable rules and regulationsare complied with and Board proceduresare followed.

Non-executive directorsThe six non-executive directors carrysignificant weight in Board decisions. Withtheir different backgrounds, they bring awide range of experience and expertise tothe Company’s affairs and an independentjudgement on issues of strategy, performanceand resources. Appointments are normallyfor an initial term of three years which maybe extended by mutual consent foradditional three year periods.

Nomination committeeA nomination committee, consisting of amajority of non-executive directors and the Company’s Chairman, is responsible for reviewing and making proposals to theBoard on the appointment of directors.The members of the committee are: M P Green (Chairman of the committee),A D A W Forbes and Sir Sydney Lipworth.The members of the committee, togetherwith Sir Derek Birkin and Sir Brian Pitman,interviewed candidates and recommended S A Cain for appointment as the new Chief Executive of the Company. The fullBoard approved the committee’srecommendation.

Remuneration committeeThe remuneration committee is comprisedsolely of non-executive directors: Sir DerekBirkin (Chairman of the committee),A D A W Forbes and Sir Sydney Lipworth.

The report of the remuneration committeeis set out on pages 57 and 58.

Audit committeeThe audit committee is comprised solely ofnon-executive directors: Sir Sydney Lipworth(Chairman of the committee), Sir DerekBirkin, A D A W Forbes and L F Hill.

The Company’s audit committee meets at least four times a year to monitor the accounting policies, internal controls and financial reporting of the Group.The external auditor attends all the meetings and has direct access to thecommittee Chairman.

Directors’ responsibilitiesDirectors are required by the CompaniesAct 1985 to ensure that financial statementsfor each financial year are prepared whichgive a true and fair view of the state ofaffairs of the Company and the Group as at the end of the financial year and of theprofit or loss for that period. In preparingthe financial statements, the directorsconfirm that suitable accounting policieshave been used and applied consistently;reasonable and prudent judgements andestimates have been made; and the financialstatements have been drawn up on a goingconcern basis. Applicable accountingstandards have been followed.

It is also the directors’ responsibility toensure that adequate accounting records aremaintained; to safeguard the assets of theCompany and the Group; to maintain a system of internal financial control; and to prevent and detect fraud and other irregularities.

Internal financial controlsThe Company has established financial and managerial procedures. Such a system can provide only reasonable and not absolute assurance against anymisstatement or loss. These can besummarised as follows:

Control environment – clear managementresponsibilities are established for theexecutive directors and the directors of each of the operating companies.These are laid down in the Company’sManagement Policies.

Risk management – operating companymanagement have a clear responsibility for the identification of risks facing each of the businesses, and for putting in placeprocedures to mitigate and monitor risks.Each operating company is required toprepare a risk assessment which is reviewedby the internal audit function. The executivedirectors together with the rest of theBoard monitor this process.

Information and control systems – the Grouphas a comprehensive process of annualbudgets and detailed monthly reportingtogether with weekly cash reporting.The annual budget of each operatingcompany is reviewed by the executivedirectors and the Board approves the overall Group budget as part of its normal responsibilities.

Monitoring system – the financial controls are monitored by management review, the internal audit function and by the audit committee. All operating companiesare required to certify to the Board that a comprehensive system of financial controls was in place throughout the period.

The audit committee has reviewed theeffectiveness of the internal financial controlsof the Group for the period 1 October1997 to 30 September 1998.

Going concernBased on normal business planning and control procedures, the directors have a reasonable expectation that theCompany and the Group have adequateresources to continue in operationalexistence for the foreseeable future. For this reason, the directors continue to adopt the going concern basis inpreparing the accounts.


Report of the remuneration committee

The remuneration committeeThe remuneration committee (thecommittee) is comprised solely of thefollowing non-executive directors: Sir Derek Birkin (Chairman of thecommittee), A D A W Forbes and Sir Sydney Lipworth. Two executivedirectors, including the Company’s Chairman, assist the committee except inrelation to matters specifically concerningtheir own remuneration. The committeedoes not retain a firm of remunerationconsultants, but seeks professional advice on an ad hoc basis.

Compliance with best practiceThe Group has complied fully throughoutthe period with Section A of the bestpractice provisions annexed to the Stock Exchange listing rules.

The committee confirms that fullconsideration has been given to Section B of the best practice provisions annexed to the Stock Exchange listing rules.

General policyIn determining the remuneration packages of the executive directors, the committeehas regard to two fundamental principles:* the importance of recruiting and retainingmanagement of the highest calibre; and* linking reward to the Company’sperformance.The committee has applied these principlesto develop remuneration packages which:* provide a competitive base salary designedto attract and retain executive directors ofthe highest calibre and to reflect their roleand experience;* provide incentive arrangements which aresubject to challenging performance targets,reflect the Company's objectives andrecognise the importance of motivatingmanagement to focus on annual, as well aslonger-term, performance; and* directly align the interests of the executivedirectors with those of shareholders.

Remuneration packageThe four components of the remunerationpackage are base salary and benefits, annualcash bonus, long-term incentivearrangements and pension. The followingsections provide an outline of currentpractice with regard to each component.

Base salary and benefitsBase salary and benefits are determined onan annual basis by the committee after areview of the individual's performance andmarket trends.

For guidance, the committee has regard to available research and publishedremuneration information on comparablecompanies. Salary policy within the rest ofthe Group is also taken into consideration.Benefits typically include a car and life,disability and health insurance. The value of benefits is not pensionable.

Annual cash bonusThe directors' annual performance-relatedcash bonus scheme provides executivedirectors with an incentive to achievedemanding short-term performance targets. Under the scheme, a bonus of up to 50% ofbase salary can be earned. The bonusearned, which is not pensionable, dependsupon the Company's performance asmeasured against a specific target or targetsset by the committee each year.

For the year under review, the targetsrelated to annual share price performanceand EPS performance against budget, andthe bonus earned under the scheme wasjust over 10% of base salary. For the currentfinancial year, the same targets will apply.

Long-term incentive arrangementsShare optionsNew executive share option and SAYEschemes were approved by shareholders inJuly 1998. The new executive share optionscheme is designed to replace the previousscheme under which no further grants willbe made. Directors can participate in theSAYE scheme and options granted to themunder that scheme are included in the tableon page 60. They can also be grantedoptions under the new executive scheme,but not if they are being granted awardsunder the long-term incentive share (LTIS)plan referred to below.

No executive share options had sinceJanuary 1995 been granted to directors whoparticipated in the LTIS plan. Previous optiongrants were retained and those thatremained outstanding as at 13 December1998 are disclosed on page 60.

During the year under review awards weremade under the LTIS plan. These aredisclosed on page 61. The committee hasdecided that for the current year shareoptions are to be granted to directors. The grant will be made as part of an annual phased grant of share options andaccordingly no further awards will be madeto the directors under the LTIS plan for solong as they are being granted these options.Exercise will be subject to satisfaction of performance conditions set by thecommittee each year. The performancecondition for the share options which are to be granted to the directors in thecurrent year will be that the Company’s EPS growth in a three year period musthave exceeded the rate of RPI inflationduring that period by 9%.

Deferred annual bonus share plan (DABS)The plan, which operates on an annual basis,provides that a participant may choose toinvest up to 50% of his/her net (i.e. aftertax) annual cash bonus to purchase CarltonOrdinary shares (bonus shares). Theinvesting participant is then conditionallyawarded a number of Carlton Ordinaryshares (restricted shares) with a value that is the gross (i.e. pre-tax) equivalent of theannual cash bonus so invested. Provided thebonus shares are retained for three yearsand the participant remains employed by theGroup for four years (three years in respectof the first awards made in February 1996),the restricted shares will thereafter becomeavailable to the participant.

All employees who have to date beeninvited to participate in the plan have on each occasion chosen to invest themaximum 50% of their cash bonuses to purchase bonus shares.

The directors' interests in restricted sharesconditionally awarded under this plan aredisclosed on page 61.

Long-term incentive share plan (LTIS)The plan provides for a participant to beconditionally awarded a number of CarltonOrdinary shares with a value equating to apercentage of his/her base salary. Thepercentage is determined by the committee.Provided the participant remains employedby the Group for four years, the Company's

Report of the remuneration committee


performance, measured on the basis of total shareholder return (i.e. share pricemovement and dividends paid) against theFTSE-100 companies (TSR) over a threeyear performance period will determinewhat proportion (if any) of the award willvest at the end of four years. The proportionand targets are determined by thecommittee.

Participants have been conditionally awardedshares over 100% of base salary and on thebasis that top quartile TSR performanceover the three year performance period willresult in the full award vesting, performancebelow 65th place will result in none of theaward vesting and performance betweenthese points will result in some of the awardvesting, calculated on a sliding-scale basis.

The directors’ interests in the sharesconditionally awarded under this plan are disclosed on page 61.

PensionsAll executive directors are eligible toparticipate in a directors' contributorydefined benefit pension scheme, within themain Carlton Communications Plc Grouppension scheme. The directors' pensionscheme enables members to retire at age

60 with a maximum pension after 30 years'pensionable service equivalent to 2/3rds of final pensionable salary. Pensionable salaryis basic salary, excluding bonuses. Finalpensionable salary is the average ofpensionable salary over the last three yearsbefore retirement. On death beforeretirement, a lump sum equal to four timespensionable salary is paid, together with aspouse's pension of 4/9ths of pensionablesalary. Pensions in payment are guaranteedto increase in line with inflation up to 5% a year.

M P Green and J F de Moller participate inthe directors' pension scheme and details of their pension benefits are disclosed onpage 59.

B A Cragg and N N Walmsley do notparticipate in the directors' pension schemeand company contributions made during theyear into their respective money purchasepension plans are disclosed on page 59.

Service contractsNo executive director has a service contractcontaining a notice entitlement exceedingone year, except B A Cragg whose servicecontract is terminable upon two years'notice by either party.

None of the executive directors has a service contract which provides forpredetermined amounts of compensation in the event of early termination. Thecommittee's policy on early termination is to provide compensation which reflects the Company's contractual obligations, whilst emphasising the duty to mitigate to the fullest extent practicable.

Outside appointmentsExecutive directors are encouraged toaccept non-executive directorships offeredby FTSE-250 companies and otherorganisations which provide industryexperience or public service. Outsideappointments are subject to prior Boardapproval, taking into account existing dutiesand potential conflicts of interest. Fees paidfor these services are normally retained by the executive director concerned.

Non-executive directors' feesThe executive directors are responsible forsetting the non-executive directors' fees.Non-executive directors do not receivebenefits or pension contributions from theGroup and do not participate in any Groupincentive scheme.


Directors’ remunerationFor the year ended 30 September 1998

The remuneration of each of the directors is set out below:

Annual Total TotalSalary Salary Benefits bonus remuneration remuneration

1998 1997 1998 1998 1998 1997£000 £000 £000 £000 £000 £000

ExecutiveM P Green 550 495 51 57 658 558

B A Cragg 250 218 22 26 298 252

J F de Moller 300 260 20 31 351 289

N N Walmsley 255 245 21 27 303 424

Non-executiveSir Derek Birkin 35 35 – – 35 35

A D A W Forbes 35 35 – – 35 35

D B Green 35 35 – – 35 35

L F Hill 35 35 – – 35 35

Sir Sydney Lipworth 35 35 – – 35 35

Sir Brian Pitman (a) 20 – – – 20 –

1,550 1,393 114 141 1,805 1,698

Notes(a) Sir Brian Pitman became a director of the Company on 1 March 1998. (b) For the purposes of Schedule 6 to the Companies Act 1985 (as amended), the Company is required to makecertain disclosures regarding directors' emoluments which are derived from the information set out above and fromthe information contained in the Company's 1997 Report and Accounts:(i) M P Green (Chairman) was the highest paid director for 1998 and 1997. His accumulated total accrued pension in 1998 was £59,000, as set out in the table below. In 1997, it was £44,500.(ii) In 1997, the directors’ aggregate total remuneration was £1,716,000, which included the fees of a previous non-executive director.

Directors’ pensionsFor the year ended 30 September 1998

B A Cragg and N N Walmsley did not participate in the directors' pension scheme and company contributions of£67,100 (1997 – £58,500) and £71,910 (1997 – £68,550), respectively, were made during the year into their moneypurchase pension plans.

The following information relates to the two directors (1997 – two directors) who participated during the year in thedirectors' pension scheme. The pension entitlements shown are the amounts which would be paid annually from age60, based on service to 30 September 1998:

Director’s Increase in accrued Accumulated totalAge at contributions in pension during accrued pension at

Director 30 September 1998 the year (a) the year (b) 30 September 1998£000 £000 £000

M P Green 50 25 13 59J F de Moller 51 14 81 196

Notes(a) These relate to the contributions paid in the year by the director under the terms of the scheme.(b) The increase in accrued pension during the year excludes any increase for inflation.


Directors’ interestsFor the year ended 30 September 1998

ShareholdingsDirectors and their interests in the Company’s Ordinary share capital on the dates given below were as follows:

1 October 30 September 13 December1997 1998 1998

M P Green 13,335,204 13,336,376 13,336,376Sir Derek Birkin 2,500 2,500 2,500B A Cragg 14,697 15,381 15,381A D A W Forbes 6,250 6,250 6,250D B Green 12,507,174 12,507,174 12,522,299L F Hill 79,889 79,889 79,889Sir Sydney Lipworth 6,250 30,453 30,453J F de Moller 193,228 193,843 193,843Sir Brian Pitman N/A – 1,082N N Walmsley 105,106 105,686 105,686

Notes(a) The interests of M P Green and D B Green include a holding of 11,204,330 shares in the name of TangentIndustries Limited, a company controlled by M P Green.(b) The interests of M P Green, B A Cragg, J F de Moller and N N Walmsley include the bonus shares they haverespectively purchased in connection with the Company's deferred annual bonus share plan.(c) The Company has an employee share ownership plan (ESOP). Pursuant to the requirements of theCompanies Act 1985, each executive director is deemed to be interested in the shares held for the purposes of the ESOP. These interests have not been included in the above figures. The number of shares held for thepurposes of the ESOP was 536,633 Ordinary shares on 1 October 1997 and 542,614 Ordinary shares on 30 September 1998 and on 13 December 1998.(d) Save as disclosed on this page and on page 61, the directors had no interests in the Company’s issued sharecapital on the given dates.

OptionsDetails regarding the directors’ SAYE and executive share options over Ordinary shares are set out below:

Held on Held on Held on1 October 30 September 13 December

Notes 1997 1998 1998

M P Green (c) 28,712 28,712 28,712(b) (f) 40,000 40,000 40,000

(g) – – 5,164

B A Cragg (e) 27,500 27,500 27,500(b) (f) 53,250 53,250 53,250

J F de Moller (d) 45,000 45,000 45,000(e) 81,250 81,250 81,250

N N Walmsley (c) 35,460 35,460 35,460(b)(f) 113,750 113,750 113,750

(h) – – 2,919

Notes(a) During the year under review, no directors' options were granted, exercised or had lapsed. For 1997, the aggregate gains for all directors' options exercised during the year were £141,501.(b) Exercise of these options is subject to a performance condition, that the Company's EPS growth in a three yearperiod must have exceeded the rate of RPI inflation during that period by 6%. This condition has been satisfied.

Period of exercise Exercise price

c) 4 January 1996 – 3 January 2003 282pd) 11 January 1997 – 10 January 2004 384pe) 26 May 1997 – 25 May 2004 360.4pf) 3 January 1998 – 2 January 2005 358.4pg) 1 December 2003 – 1 June 2004 (SAYE) 334ph) 1 December 2001 – 1 June 2002 (SAYE) 334p

The market price of an Ordinary share on 30 September 1998 was 392p and the range of prices during the yearto 30 September 1998 was between 380p and 585p.


DABS and LTISConditional awards of Ordinary shares have been made to the directors under the deferred annual bonus share plan(DABS) and the long-term incentive share plan (LTIS) as set out below. A summary of both plans can be found onpages 57 and 58.

Held on Awarded Vested Held on Held on1 October during during 30 September 13 December

Notes 1997 the year the year 1998 1998

IM P Green DABS (1) 23,718 – – 23,718 23,718(2) 20,331 – – 20,331 20,331(2) – 1,953 – 1,953 1,953

LTIS (1) 113,253 – – 113,253 113,253(2) 90,163 – – 90,163 90,163(2) – 115,789 – 115,789 115,789

B A Cragg DABS (1) 11,331 – – 11,331 11,331(2) 8,996 – – 8,996 8,996(2) – 860 – 860 860

LTIS (1) 50,120 – – 50,120 50,120(2) 39,708 – – 39,708 39,708(2) – 52,631 – 52,631 52,631

J F de Moller DABS (1) 12,386 – – 12,386 12,386(2) 10,598 – – 10,598 10,598(2) – 1,025 – 1,025 1,025

LTIS (1) 59,036 – – 59,036 59,036(2) 47,358 – – 47,358 47,358(2) – 63,157 – 63,157 63,157

N N Walmsley DABS (1) 11,595 – – 11,595 11,595(2) 10,165 – – 10,165 10,165(2) – 966 – 966 966

LTIS (1) 56,626 – – 56,626 56,626(2) 44,626 – – 44,626 44,626(2) – 53,684 – 53,684 53,684

Notes(1) These conditional awards were made on 29 February 1996. They take the form of options granted overOrdinary shares. Subject to certain conditions being satisfied (as summarised on pages 57 and 58), the options areexercisable within seven years of the date of grant, at a nominal price and, under DABS, became exercisable from 1 January 1999 and, under LTIS, will normally become exercisable from 1 January 2000. (2) These conditional awards were made on 6 February 1997 and on 4 December 1997. They take the form ofallocations of Ordinary shares. Subject to certain conditions being satisfied (as summarised on pages 57 and 58),these allocations will normally vest from 1 January 2001 (in respect of the awards made on 6 February 1997) and from 1 January 2002 (in respect of the awards made on 4 December 1997).(3) The rules of the DABS and LTIS plans provide for the early vesting of conditional awards in certain prescribedcircumstances or at the committee’s discretion.(4) The value of an award will be recognised in the financial year in which the award vests – an award will vest assoon as the option or allocation to which it relates first becomes exercisable or vests. No award vested during the year under review or the previous year.


Appendix30 September 1998

The following pages contain a translation into ECUs (pages 62 and 63) and US dollars (pages 64 and 65) of the Group’s 1998 profit and loss account and balance sheet prepared under UK Generally Accepted Accounting Principles (UK GAAP).

1998BeforeDigital Digital 1997

Television Television Total TotalConsolidated profit and loss account ECUm ECUm ECUm ECUm

Turnover 2,685.4 9.7 2,695.1 2,573.7Less: share of joint ventures (36.9) – (36.9) (48.9)


Group operating profit 458.9 (13.8) 445.1 458.7Share of operating profit in joint ventures and associated undertakings 10.8 (22.4) (11.6) 13.7

469.7 (36.2) 433.5 472.4Exceptional profit on sale of fixed asset investment 13.8 – 13.8 –Exceptional provision for loss on closure of business – – – (9.2)Share of associates’ exceptional loss – – – (5.8)

Profit on ordinary activities before interest 483.5 (36.2) 447.3 457.4Net interest receivable/(payable) 7.1 (4.0) 3.1 (1.0)

Profit on ordinary activities before taxation 490.6 (40.2) 450.4 456.4Taxation on profit on ordinary activities (155.0) 10.4 (144.6) (150.2)

Profit on ordinary activities after taxationattributable to shareholders 335.6 (29.8) 305.8 306.2Dividends (including non-equity) paid and proposed 143.0 – 143.0 131.6


Earnings per share (ECU)Basic earnings per share 0.52 (0.05) 0.47 0.48Exceptional items after tax (0.03) – (0.03) 0.02

Headline earnings per share 0.49 (0.05) 0.44 0.50

Fully diluted earnings per share 0.47 (0.04) 0.43 0.43Exceptional items after tax (0.02) – (0.02) 0.02

Headline fully diluted earnings per share 0.45 (0.04) 0.41 0.45

These statements of consolidated financial information reflect a translation of the Group’s financial statements using ECU1.443/£, the rate in effect at 30 September 1998.


Consolidated balance sheet 1998 1997

Consolidated balance sheet ECUm ECUm ECUm ECUm

Fixed assetsIntangible assets 62.8 68.1Tangible assets 498.8 397.7Investments in joint ventures:Share of gross assets 39.4 29.1Share of gross liabilities (19.8) (14.2)

19.6 14.9Investments in associated undertakings 20.3 35.2Other investments 13.6 37.9

53.5 88.0

615.1 553.8Current assetsStocks 81.5 86.1Programme and film rights 200.0 197.4Trade debtors 525.2 563.0Other debtors 277.2 258.6Investments 13.1 17.9Cash and other liquid funds 402.3 679.5

1,499.3 1,802.5Creditors: amounts falling due within one year 866.1 1,032.2


Total assets less current liabilities 1,248.3 1,324.1Creditors: amounts falling due after more than one yearLoans 351.4 344.4Convertible debt 121.9 128.4Creditors 41.0 35.6Provisions for liabilities and chargesDeferred taxation 15.0 20.6

529.3 529.0


Capital and reservesCalled up share capital 69.8 70.6Share premium account 170.6 166.7Other reserves 7.8 7.1Profit and loss account 469.7 549.8


719.0 795.1


Equity shareholders’ funds 189.2 228.1Non-equity shareholders’ funds 528.7 566.1




1998BeforeDigital Digital

Television Television Total 1997Consolidated profit and loss account US$m US$m US$m US$m

Turnover 3,161.8 11.4 3,173.2 3,030.3Less: share of joint ventures (43.5) – (43.5) (57.6)


Group operating profit 540.3 (16.3) 524.0 540.1Share of operating profit in joint ventures and associated undertakings 12.7 (26.3) (13.6) 16.2

553.0 (42.6) 510.4 556.3Exceptional profit on sale of fixed asset investment 16.3 – 16.3 –Exceptional provision for loss on closure of business – – – (10.9)Share of associates’ exceptional loss – – – (6.8)

Profit on ordinary activities before interest 569.3 (42.6) 526.7 538.6Net interest receivable/(payable) 8.4 (4.8) 3.6 (1.2)

Profit on ordinary activities before taxation 577.7 (47.4) 530.3 537.4Taxation on profit on ordinary activities (182.5) 12.2 (170.3) (176.9)

Profit on ordinary activities after taxationattributable to shareholders 395.2 (35.2) 360.0 360.5Dividends (including non-equity) paid and proposed 168.4 – 168.4 154.9


Earnings per share (US$)Basic earnings per share $0.61 ($0.06) $0.55 $0.56Exceptional items after tax ($0.03) – ($0.03) $0.03

Headline earnings per share $0.58 ($0.06) $0.52 $0.59

Fully diluted earnings per share $0.55 ($0.04) $0.51 $0.51Exceptional items after tax ($0.02) – ($0.02) $0.02

Headline fully diluted earnings per share $0.53 ($0.04) $0.49 $0.53

These statements of consolidated financial information reflect a translation of the Group’s financial statements usingUS$1.699/£, the rate in effect at 30 September 1998.


Consolidated balance sheet 1998 1997

Consolidated balance sheet US$m US$m US$m US$m

Fixed assetsIntangible assets 73.9 80.2Tangible assets 587.3 468.2Investments in joint ventures:Share of gross assets 46.4 34.3Share of gross liabilities (23.3) (16.8)

23.1 17.5Investments in associated undertakings 24.0 41.5Other investments 16.0 44.7

63.1 103.7

724.3 652.1Current assetsStocks 96.0 101.4Programme and film rights 235.4 232.4Trade debtors 618.2 662.8Other debtors 326.4 304.5Investments 15.5 21.1Cash and other liquid funds 473.7 800.0

1,765.2 2,122.2Creditors: amounts falling due within one year 1,019.7 1,215.3


Total assets less current liabilities 1,469.8 1,559.0Creditors: amounts falling due after more than one yearLoans 413.7 405.6Convertible debt 143.6 151.2Creditors 48.2 42.0Provisions for liabilities and chargesDeferred taxation 17.7 24.1

623.2 622.9


Capital and reservesCalled up share capital 82.2 83.1Share premium account 200.8 196.3Other reserves 9.2 8.3Profit and loss account 553.0 647.4


846.6 936.1


Equity shareholders’ funds 222.7 268.6Non-equity shareholders’ funds 622.5 666.5




Set out below is a restatement of the Group’s net income and shareholders’ equity in accordance with US GAAP.

Approximate cumulative effect on shareholders’ equity of differences between UK and US GAAP

1998 1997US$m* US$m*

Shareholders’ equity per UK GAAP 845.3 935.1Approximate cumulative effect of differences between UK GAAP and US GAAP 2,502.1 2,398.0

Approximate shareholders’ equity as adjusted for US GAAP 3,347.4 3,333.1

Attributable to:Ordinary shareholders 2,724.9 2,666.6Preference shareholders 622.5 666.5

3,347.4 3,333.1

Approximate effect on net income of differences between UK and US GAAPIncome for the financial year attributable to holders of Ordinary shares, per UK GAAP 334.4 335.6Approximate effect on net income of differences between UK GAAP and US GAAP 125.9 121.0

Approximate net income attributable to holders of Ordinary shares under US GAAP 208.5 214.6

Approximate net income as adjusted for US GAAP:per Ordinary share $0.34 $0.36per American Depositary share $1.71 $1.79

* These reconciliations of net income and shareholders’ equity reflect a translation of these statements usingUS$1.699/£, the rate in effect on 30 September 1998.

Summary of differences between UK and US GAAPThe Group’s financial statements are prepared in accordance with UK GAAP which differs in certain significant respectsfrom US GAAP. These differences relate principally to the following items and the approximate effect of the necessaryadjustments is shown in the foregoing tables.

Goodwill and US purchase accountingUnder UK GAAP, the company has charged goodwill arising on business combinations treated as purchases directlyto reserves. Under US GAAP, intangibles, including goodwill, in respect of business combinations treated as purchaseswould be charged against income over their estimated lives. Any intangible relating to a business sold in the year iswritten off in determining the profit or loss on disposal. In determining the differences between UK GAAP and USGAAP shown above, US GAAP has been applied using amortisation periods in respect of goodwill of up to 40 yearsand in respect of other intangibles arising on acquisition, of up to 20 years.

Ordinary dividendsUnder UK GAAP, final Ordinary dividends are provided for in the fiscal year in respect of which they are recommendedby the Board of Directors for approval by the shareholders. Under US GAAP, such dividends are not provided foruntil approved by the shareholders.

Television intangibleIn its UK GAAP accounts, the Company has deferred its pre-transmission revenue expenditure (excluding programming)in respect of the Television division, and will charge such amounts to the profit and loss account over the initial 10 year licence period ending 31 December 2002. In presenting amounts under US GAAP, such expenditures werecharged to the profit and loss account as incurred.

Pension costsDifferences between the UK and US GAAP figures arise from the requirement to use different actuarial methods andassumptions and the method of amortising surpluses or deficits.

Programme production and developmentUnder UK GAAP programme production costs are written off fully when the material is first transmitted. Under US GAAP costs are written off over the expected useful life of the material, using the income forecast method.


Historical record

1998 1997 1996 1995 1994 1993* 1992* 1991* 1990* 1989*£m £m £m £m £m £m £m £m £m £m

Profit and loss accountTurnover (1) 1,835.4 1,749.7 1,677.5 1,579.6 1,404.7 1,004.7 635.2 538.0 697.6 518.2Operating profit (1) 318.0 317.9 291.0 248.5 187.7 118.4 85.3 65.0 115.2 70.2Profit before tax (1) 340.0 316.3 295.1 246.7 190.2 126.1 100.2 79.2 103.1 83.7Retained profit 112.8 121.0 118.5 96.0 66.6 46.1 29.2 18.3 32.1 31.3

Basic earnings per share (1)(2) 35.7p 33.2p 31.6p 26.1p 21.5p 16.8p 13.4p 10.2p 12.6p 13.7pTotal dividend perOrdinary share (2) 13.65p 12.4p 11.1p 9.4p 8.3p 7.5p 6.8p 6.2p 5.6p 3.8pDividend cover (times covered) 2.3 2.6 2.7 2.6 2.2 2.2 2.0 1.6 2.2 3.7

1998 1997 1996 1995 1994 1993 1992 1991 1990 1989£m £m £m £m £m £m £m £m £m £m

Balance sheetFixed assets 426.3 383.8 312.4 295.6 290.5 268.2 213.9 170.3 178.6 205.6Net current assets 438.8 533.8 484.7 442.0 351.8 356.9 336.7 283.3 247.1 109.5Long term creditors and deferred taxation (366.8) (366.6) (266.2) (268.9) (295.6) (196.0) (163.6) (97.5) (83.4) (99.8)

Net assets 498.3 551.0 530.9 468.7 346.7 429.1 387.0 356.1 342.3 215.3

* Restated for FRS3.

(1) 1998 figures are stated before Digital Television. Digital Television results comprised turnover (£6.7m), operating loss(£9.6m) and loss before tax (£27.9m). The net reduction in basic EPS due to Digital Television was 3.4 pence.(2) Basic earnings per share and dividends per share have been restated for a 3 for 2 capitalisation issue on 26 February 1996.

Historical record – ECU conversion (1)

ECU millions 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989

Profit and loss accountTurnover 2,648.5 2,524.8 2,420.6 2,279.4 2,027.0 1,449.8 916.6 776.3 1,006.6 747.8Operating profit 458.9 458.7 419.9 358.6 270.9 170.9 123.1 93.8 166.2 101.3Profit before tax 490.6 456.4 425.8 356.0 274.5 182.0 144.6 114.3 148.8 120.8Retained profit 162.8 174.6 171.0 138.5 96.1 66.5 42.1 26.4 46.3 45.2

Basic earnings per share (ECU) 0.52 0.48 0.46 0.38 0.31 0.24 0.19 0.15 0.18 0.20Total dividend perOrdinary share (ECU) 0.20 0.18 0.16 0.14 0.12 0.11 0.10 0.09 0.08 0.05Dividend cover (times covered) 2.3 2.6 2.7 2.7 2.6 2.2 2.0 1.6 2.2 3.7

ECU millions 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989

Balance sheetFixed assets 615.1 553.8 450.8 426.6 419.2 387.0 308.7 245.7 257.7 296.7Net current assets 633.2 770.3 699.4 637.8 507.6 515.0 485.9 408.8 356.6 158.0Long term creditors and deferred taxation (529.3) (529.0) (384.1) (388.0) (426.6) (282.8) (236.1) (140.7) (120.3) (144.0)

Net assets 719.0 795.1 766.1 676.4 500.2 619.2 558.5 513.8 494.0 310.7

(1) The £-denominated historical record has been translated at the £/ECU rate of 1.443, the rate in effect at 30 September 1998.


Summary Notice of Annual General Meeting

Summary of business to be transacted at the 1999 Annual General Meeting and at the separate Class Meetings of the holders of 6.5p (net) Cumulative Convertible Redeemable Preference shares (the “6.5p Preference shares”) and 5.5p (net) Cumulative Convertible Preference shares (the “5.5p Preference shares”).

The full text of the Notices of the Meetings, together with a letter from the Chairman explaining the special businessto be transacted, is set out in a separate document which is enclosed with this Report and Accounts.

The Annual General Meeting of the Company will be held at Armourers’ Hall, 81 Coleman Street, London EC2 on 10 February 1999 at 10.30 am. Separate Class Meetings of the holders of 6.5p Preference shares and 5.5p Preference shares will be held immediately following the conclusion of the Annual General Meeting.

Business to be transacted at the Annual General Meeting(1) To receive and adopt the Report and Accounts for the year ended 30 September 1998.(2) To declare a final dividend.(3) To appoint the auditors and authorise the directors to determine their remuneration.(4) To re-elect Sir Derek Birkin as a director.(5) To re-elect D B Green as a director.(6) To re-elect L F Hill as a director.(7) To re-elect Sir Brian Pitman as a director.(8) To re-elect S A Cain as a director.(9) To authorise the directors to allot Ordinary shares.(10) To disapply pre-emption rights.(11) To renew the directors’ authority to allot dollar-denominated shares.(12) To authorise the Company to make market purchases of its own shares.

Business to be transacted at the separate Class Meeting of the holders of 6.5p Preference shares(1) To sanction the authority for the Company to make market purchases of its own shares.(2) To permit the Company to use capital profits or reserves to make market purchases of its own shares.

Business to be transacted at the separate Class Meeting of the holders of 5.5p Preference shares(1) To sanction the authority for the Company to make market purchases of its own shares.

Proxy Forms for use in connection with the business to be transacted at the Annual General Meeting and at theseparate Class Meetings of the holders of 6.5p Preference shares and 5.5p Preference shares, respectively, are to befound within the enclosed document containing the full text of the Notices of the Meetings.

The paper used in this annual report is made from 100% chlorine free pulp. The mill is committed to theenvironment and has invested greatly in improving environmental protection since 1975. Supplementary requirementsof the pulp are from sustainable sources.

Financial calendar 199913 January 1999 Annual Report posted to shareholders10 February 1999 Annual General Meeting1 April 1999 & 1 October 1999 5.5p Preference dividends payable6 April 1999 Final dividend for 1998 payableEnd May 1999 Announcement of results for the six months ending 31 March 19991 July 1999 & 1 January 2000 6.5p Preference dividends payableMid August 1999 Interim dividend for 1999 payableEarly December 1999 Announcement of results for the year ending 30 September 1999

Analysis of Ordinary shareholdings at 14 December 1998Number of Ordinary

holders % shares held %

Size of holdings:1–200 1,129 6.19 126,436 0.02201– 400 1,481 8.12 444,031 0.07401– 600 2,015 11.05 1,041,452 0.17601–1,000 4,268 23.40 3,513,579 0.581,001– 5,000 7,263 39.82 15,001,507 2.465,001–10,000 694 3.80 4,908,217 0.8010,001–20,000 319 1.75 4,636,460 0.7620,001– 50,000 300 1.64 9,969,880 1.6350,001–100,000 215 1.18 15,346,289 2.51100,001 and above 557 3.05 556,230,576 91.00

18,241 100.00 611,218,427 100.00

RegistrarsThe Company’s share registers are administered by Computershare Services PLC and all correspondence regardingOrdinary or Preference shares should be sent to them at the following address: PO Box 82, Caxton House, Redcliffe Way, Bristol BS99 7NH. Telephone 0117 930 6666.

StockbrokersThe Company’s stockbrokers are Cazenove & Co and Warburg Dillon Read.

Dividend Reinvestment Plan (DRIP)The DRIP enables Ordinary shareholders to sign a mandate so that their dividend payments can be automaticallyapplied to purchase additional Ordinary shares in a convenient and cost-effective manner. Further details on the DRIPcan be obtained from Computershare Services PLC by telephoning 0117 930 6600.

Personal equity plans (PEPs)The Carlton Communications Plc General and Single Company PEPs are managed by The Royal Bank of Scotland plc.Further details on the PEPs can be obtained from The Royal Bank of Scotland plc by telephoning 0131 523 9792.

American Depositary Shares (ADSs)Morgan Guaranty Trust Company of New York is the Depositary for the Company’s ADSs and their address forenquiries is P.O. Box 8205, Boston, MA, 02266-8205, USA, Tel: 1-800-428-4237. ADSs are evidenced by AmericanDepositary Receipts (ADRs). Each ADS represents five Ordinary shares. The ADSs are listed on NASDAQ andtraded under the symbol CCTVY. More information about ADSs is available on J P Morgan’s website (www.adr.com).

Carlton Communications Plc’s websiteUpdated information, including recent press releases and the current market price of Ordinary shares, is available onthe Company’s website, www.carltonplc.co.uk. Carlton’s entertainment and lifestyle websites can be accessed throughwww.carlton.co.uk.

Entertainment and lifestyle websitesCarlton’s entertainment and lifestyle sites are: www.jamba.co.uk, www.popcorn.co.uk and www.simplyfood.co.uk.

Credits:Page 14 “Armageddon”. Copyright The Walt Disney Company. All rights reserved.Page 14 “Lethal Weapon 4”. Copyright 1998 Warner Bros. All rights reserved.Page 17 “The Prince of Egypt”. Courtesy of DreamWorks PicturesTM and Copyright DreamWorksLCC.Page 17 “Saving Private Ryan”. Photo: David James Copyright 1998TM and DreamWorksLCC.

Paramount Pictures. Amblin Entertainment. All rights reserved.Page 18 “Lost In Space”. Copyright MCMXCVIII New Line Productions Inc. All rights reserved.Page 18 “Hornblower”. With kind permission from United Productions for Meridian Broadcasting.

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Documents

Carlton Television’s stunning adaptation of Daphne du ... · Daphne du Maurier’s Frenchman’s Creek, pictured on the front cover, was a highlight of ITV’s 1998 Christmas schedule