Interim Results - CARLTON...Interim Report 1999 :page one Carlton has continued to make progress with both sales and headline profit ahead of last year. Our two largest divisions,

Interim Resultsfor the six months ending 31 March 1999

A leader in digital mediawww.carlton.co.uk

Summary of Results

for the six months to 31 March 1999

Sales up 10% to £1bn. Headline pre-tax profit up 5% to £170m. Headline eps up 6% to 17.7p.

Strategic review - focus on Carlton Media Group and Technicolor.

Over £150m planned investment in digital media this year, spanning:

• Technicolor now the world’s largest independent manufacturer of digital versatile discs (DVDs).

• Free ONdigital boxes driving subscriber numbers.

• Stake in Spanish Digital Terrestrial Television.

• ITV2, Carlton Online, five digital channels launched.

• Quantel pioneering digital technology.

Dividend up by 10% to 5.95p.

Interim Financial Highlights

1994

1995

1996

1997

1998

800.

6

847.

8

896.

0

920.

6

1009

.3

Turnover - £ million

1994

1995

1996

1997

1998

12.7

15.3

17.3

16.7

17.7

1994

1995

1996

1997

1998

3.72

4.37

4.90

5.40

5.95

1994

1995

1996

1997

1998

123.

0

143.

3

162.

6

162.

3

170.

0

Headline profit before tax- £ million*

Headline earnings per share- pence*

Dividends per share - pence

* Ex

clud

es e

xcep

tiona

ls an

d di

gita

l tel

evisi

on.

Interim Report 1999 : page one

Carlton has continued to make progress with both sales and headline profit ahead

of last year. Our two largest divisions, Carlton Television and Technicolor Video, grew

strongly. The Film Division came just short of last year’s record profits and Quantel

continued to be adversely affected by market conditions.

We took a number of significant steps in the first six months including the launch, on

schedule, of ONdigital, our multi-channel pay television business, and Carlton Online,

our start-up internet business.

ONdigital has made a good start and is consistently adding to its powerful line up

of channels and services. Our free set top boxes initiative has radically cut the cost for

consumers of going digital.The initial response has been very encouraging and we now

plan to grow the business even more rapidly. Carlton now expects to invest an

additional £100m before tax in ONdigital over the current and the next financial year.

The advance of digital technology and the internet is providing a wealth of

opportunities for leading media companies like Carlton, with huge audiences, strong

programme making capability and close links with the major Hollywood studios.

Steven Cain, our new Chief Executive, has led a review of our businesses and strategy

to make sure that Carlton is as well positioned in these new markets as we are in free-

to-air broadcasting and packaged media.

Taking the year as a whole, we expect to make progress with our existing businesses,

while continuing our digital investments to enhance Carlton’s potential for future

growth.We have increased the dividend by 10%.

“The advance of digital

technology and the internet is

providing a wealth of

opportunities for . . . Carlton.

Michael P GreenChairman

26 May 1999

Carlton Communications Plc

Chairman’s Statement

”

Mission and Strategy:

Focus on Carlton Media and Technicolor

As the new Chief Executive of Carlton, I have undertaken astrategic review of our businesses to see how best to exploitour existing positions and utilise our strong cash flows - with aview to setting the agenda for the next three years.The interimstatement provides the first available opportunity to set outour strategic thinking in some detail. Progress versus our 10point plan will be reviewed with shareholders every sixmonths.

Carlton is an exciting business in an exciting industry.We arestarting the next stage of Carlton’s development with two veryvaluable core assets: Carlton Television and Technicolor. CarltonTelevision is the leading commercial broadcaster in Britain andTechnicolor is the world’s leading supplier of packaged media(film, videocassettes and DVD). Building strong marketpositions has always been Carlton’s ambition and will continueto be so in the future.

Carlton Media Group

We are announcing the formation of the Carlton Media GroupBoard bringing together the management of our television,production, international distribution, internet and homefulfilment businesses. Most of these companies will be broughttogether in our new purpose-built media headquarters inLondon.

The key strategies over the next three years to achieve thismission are as follows:

1 Build and promote the Carlton brandIn an increasingly global market place, where brands arebecoming more important and some television companiesare household names, it is far more effective to market onename - Carlton.We have recently launched Carlton Videoand Carlton Online.We want to accelerate this process inthe year ahead.

2 Grow advertising revenue ahead of RPICarlton is the leading advertising sales business within ITVand has a track record of delivering growth ahead of RPI.The success of the new ITV schedule has arrested thedecline in viewing share experienced over recent years. Inorder to build on this achievement, we will need furtherreal investment in the programme budget, a successful ITV2and a number of other targeted ITV branded channels. Ouradvertising revenue from cinemas, digital channels andinternet sites is now running at over £50m a year.

3 Double programme productionCarlton accounts for 34% of ITV’s advertising revenue butonly produces 17% of ITV’s output. Steve Hewlett and hisnew team of programme controllers, including the recentlyappointed Polly Bide, Mark Wells and Nick Symons, arecommitted to increasing our share every year.

Carlton produces almost 3,000 hours of programming forChannels 4 and 5, the BBC, Sky, Cable and ONdigital. Theacquisition of Planet 24 in April has brought The BigBreakfast and a dynamic creative team to Carlton. WaheedAlli, formerly managing director of Planet 24, has takenresponsibility for all of Carlton’s television production,including our five digital channels and Action Time.

We aim to double Carlton’s output for ITV and otherchannels within the next three years.

4 Exploit television brands and library globallyThe acquisition of the ITC library, which will now becompleted at the end of June, means that Carlton will havethe largest English language film library outside Hollywoodwith over 2,000 titles. We have over 18,000 hours of other

Carlton Media Group - Mission

Interim Report 1999 : page two Carlton Communications Plc

Chief Executive’s Review

Create, broadcast and exploithigh quality television and

internet-based entertainmentbrands globally.

2 million ONdigitalsubscribers

Grow advertisingrevenues ahead

of RPI

Build and promoteCarlton brand

Profitable onlinedestination sites

Exploit television brands globally

Double program-ming output

Interim Report 1999 : page three

programmes, including valuable children’s brands such asThunderbirds and Captain Scarlet and more recent titles suchas Tots TV.We are currently working with Nigel Stone, thecreator of the new ITV kids cartoon, Dream Street, toexploit video and television opportunities around theworld. Almost 100 lines of merchandise are currently beingdeveloped for the Carlton/Henson co-productionMopatop’s Shop and will be available in time for Christmas.We will establish closer links with international broadcastpartners and develop our merchandising capability.

5 Grow ONdigital subscriber numbers to 2 millionThe advent of free boxes, integrated digital televisions,increased coverage, an exciting programme line-up andenhanced interactivity will establish ONdigital as a leadingservice provider to the home.

Carlton will also invest in digital platforms around theworld using our expertise and gaining access to distributionfor our content. Recent developments include ourinvestment in Onda Digital, the Spanish Digital TerrestrialTelevision business.

6 Profitable on-line destination sitesGoing forward we will promote our internet sites onCarlton Television and develop complementary program-ming streams on our digital channels with a view toincreasing both advertising and transaction revenues. Wewill focus on the food, home & garden, health & beauty,entertainment and advertising categories.

Within entertainment, we already have a home shoppingfulfilment service, which sources, packages and distributesentertainment products, including books, video, computergames and DVDs, for all the major home catalogueoperators in the UK.We have the added advantage in thismarket of also manufacturing many of the DVDs, CDs andvideos.

Technicolor Group

Technicolor is a powerful and under-exploited brand, pioneer-ing colour film, videocassettes and now DVDs.

7 Global fulfilment in all packaged media formatsMost of Technicolor’s major customers are global playerswho are expecting much of their future growth to come

from the Far East and emerging markets. Technicolor isprimarily based in the US and Western Europe. Recentdevelopments include the purchase of the other 50% of ourjoint venture in Mexico and further international expansionwill follow.

8 Lower total supply chain costs for customersTechnicolor is already the lowest cost producer of highquality packaged media. We will be innovating with newtechnology, such as dye transfer, and extending ourdistribution and other services in order to reduce costs forour customers and allow them to focus on their coreactivities.

9 Full service provider for cinemasCarlton sells almost 70% of cinema advertising in the UK.During the next three years we will establish an advertisingand merchandising operation servicing the needs of cinemaowners in America. We already deliver film, posters andpromotional material to cinemas across the US.

10 Digital media asset management and distributionTechnicolor currently distributes packaged media. Quantelis a leader in digital technology and its applications.Whilstwe are enthusiastic about the future of film, we believe thatdigital media distribution to the cinema and home could bean exciting business opportunity over the next 10 years.Technicolor plans to play a key role in this development,meeting all our customers’ needs from manufacturing anddistributing packaged media to full digital delivery.


Digital assetmanagement and

distribution

Global fulfilment in all formats

Full service provider for

cinema

Lower customer supply chain costs

Global, high quality, piracy-free,low cost service partner for film and

programme makers, software developers and cinema owners

Technicolor Group - Mission

Interim Report 1999 : page four Carlton Communications Plc

Results

Carlton Media Group - record advertising growth - ITV winning viewersTurnover in the Television Division increased by 2% to £420.7m(1998: £410.9m) and operating profit rose by 15% to £87.8m(1998: £76.2m). Given the reduction of the Channel 4 fundingformula and the increase in ITV’s programme budget, thisrepresents an excellent performance.

Advertising revenue in Carlton’s three ITV regions grew by£33m or 11%.The market was buoyant throughout the periodwith particularly strong demand from telecommunications, newmedia, supermarkets and cars. In the first four months of theyear, ITV has averaged a peaktime share of over 40%, above the39% target for the year as a whole. ITV has taken share fromthe BBC and Channel 4, increasing its lead over BBC 1 duringpeaktime from 6 to 11 percentage points.

Who Wants To Be A Millionaire? won record audiences for a quizshow of over 19 million, and ITV’s exclusive live coverage of theUEFA Champions’ League has regularly attracted more than 11million viewers. ITV2, launched in December 1998, is nowavailable through ONdigital and in almost 1m cable homes.

In programme making, Carlton’s dramas Peak Practice and TheVice won over 40% shares and both have been re-commissioned for the autumn. Goodnight Mister Tom, the mostsuccessful new single drama for over two years, won thePeople’s Award at BAFTA and has sold over 100,000videocassettes. Kavanagh QC was a flagship of the new schedulein March and achieved its highest share since 1995. Carltonsupplies more children’s programmes to ITV than any othercompany. The popular series Mopatop's Shop has beencommissioned until 2001, making it ITV’s largest ever pre-school commission.

In the children’s Christmas video sell through market, CarltonVideo hit number 1 in the charts with the runaway successRudolph The Red Nose Reindeer, which sold over 430,000 copiesin the UK alone.

Our US-based joint venture, Hamdon Entertainment, co-fundsan average of 12 US made-for-television movies each year.Tworecent productions, And The Beat Goes On:The Sonny and CherStory and Love After Death with Walter Matthau scored excellentratings on CBS and ABC and look set to achieve strong sales ininternational markets.

Other recent developments include co-produced pilots for themajor US network, ABC, of the Carlton series Babes In TheWood and Neighbours From Hell. Our co-funded cinema film,Complicity, will be released in the autumn and subsequently bepremiered on ITV.

Digital television - free digital boxes driving subscribernumbersONdigital signed up more than 110,000 subscribers in its firstfour months of operation.There are now 30 channels availableas well as interactive games. In May, we were the first toannounce that our boxes would be given away free with anytelevision set costing over £199 and this week we announcedfree boxes and no connection charge.

Future developments include the launch of integrated digital TV(idTV) sets for less than £300 by a leading manufacturer, and arange of new channels and programmes including MTV, SkySports 2, exclusive coverage of next season’s EuropeanChampion’s League, and Coronation Street and Emmerdalespecials. ONdigital expects to be the first digital TV service to launch free e-mail in the autumn this year. Further inter-active services, including ISP and search engine developments,will follow.

With the news that the main satellite broadcaster is switchingoff its analogue signal in the next three years, and cable likely tofollow, we look forward to the Government announcing a datefor the end of analogue terrestrial broad-casting.

Carlton’s five digital channels launched successfully inNovember and Carlton Cinema is already the most popularmovie channel available through ONdigital. A new televisionadvertising campaign was launched in March to raise aware-ness of Carlton Cinema, Carlton Kids and the Carlton FoodNetwork. Carlton Select and Carlton Food Network are alsoavailable in over 1.5m cable homes and throughout SouthAfrica.

Carlton Online’s three destination sites - covering games,(www.jamba.co.uk), food (www.simplyfood.co.uk), and films(www.popcorn.co.uk) - have been backed by over 40advertisers and are growing strongly. Jamba, the UK’s leadinggames site, has already signed up its 100,000th registered user.Carlton Online has signed distribution deals with leadingservice providers AOL, MSN, Freeserve and Breathe and is inadvanced negotiations with many others.

Interim Report 1999 : page five

In May we announced our intention to take a stake in SpanishDigital Terrestrial Television, using our expertise in the newtechnology and providing another outlet for Carlton’s libraryand production teams.

Technicolor - the world’s largest independent DVDmanufacturerWorldwide sales and operating profit before exceptionals forFilm and Video combined were up 20% to £516.6m and 17% to£83.6m respectively. Strong sales of discs and videocassetteswere partially offset by the end of the US Sony film contract,which resulted in lower sales at Technicolor Film.

Turnover in the Video Division increased by 33% to £350.4m(1998: £262.6m) and operating profit before exceptionals roseby 32% to £52.9m (1998: £40.1m). The figures include a sixmonth contribution from Nimbus adding £52.2m to turnoverand £8.9m to operating profit.We are on target to achieve fullyear cost savings of £6m from the integration of Technicolorand Nimbus.

The video market is buoyant, with our customers Disney,Warner and DreamWorks all releasing popular titles. Thedirect-to-video market continues to expand, and all ourcustomers plan to maximise the value of their back cataloguesacross both videocassette and DVD.

The DVD market is growing rapidly, with forecasters expectingsome 6m DVD homes and over 150m discs sold worldwide bythe end of this calendar year. In addition DVD drives are nowbecoming an increasingly common feature in PCs for the home.Technicolor is now the largest independent producer of DVDswith the capability of producing all of the key formats, includingDIVX and DVD-9, and servicing all of the major markets in theUS, Continental Europe and the UK. Technicolor is alreadyworking with Disney, DreamWorks and Microsoft and areconfident of expanding our market share in the years ahead.

Turnover in the Film Division was 2% lower at £166.2m (1998: £169.4m) and operating profit was 3% lower at £30.7m(1998: £31.6m). Excluding Sony, volumes were up strongly year-on-year as our major customers continued to release filmsmore quickly on a worldwide basis and the number of cinemascontinued to increase. The number of releases in the earlysummer months is being held back this year by strong marketexpectations for the new Star Wars film.

Technicolor Entertainment Services, our distribution business,now delivers film and promotional merchandise to some34,000 cinema screens in America on behalf of all but two ofthe major studios.

Quantel - pioneering digital technologyTurnover for Quantel and SSL was 15% lower at £59.4m (1998:£69.6m) and operating profit was 64% lower at £5.1m (1998:£14.1m). The trends which began in the first half of last yearhave continued into 1999 with both the US and Far Eastmarkets remaining subdued.

Whilst Quantel’s profits are lower, the volume of boxes soldhas increased, mainly due to the success of Editbox. However,the higher end of the market, particularly for products such as Henry and Domino has remained difficult. Overheads have been cut and staff numbers have been reduced by morethan 10%.

Quantel is tackling the uncertainty about high definition in theUS head-on by setting out a step-by-step move to digital andhigh definition television.The company has demonstrated howits current range of products can work with the new digitalstandards and has announced plans for the Editbox Chaser,allowing users to work in standard definition and high definitionside by side, and the Monty, enabling full high definition editingand special effects.

The company has continued to open up its platforms so thatcustomers can combine the power and speed of Quantelequipment with software written by third parties. The newQuantel, Editbox FX, for example, comes with over 200 ‘plug-in’applications.

Quantel is the market leader in the application of digitaltechnology for the film, video and television industries. Withthe worldwide explosion in the number of digital televisionchannels and the likely emergence of internet basedbroadcasting we continue to believe that Quantel has realpotential for future growth. As a result we will be increasingexpenditure on research and development and have recentlyappointed a new marketing director.

Steven Cain, Chief Executive26 May 1999


Interim Report 1999 : page six Carlton Communications Plc

Six months to 31 March 1999

Operating profit (before exceptionals)

Associates, before digitalNet interest, before digital

Headline profit before tax

Exceptional (charges)/income

Digital Television

Profit before tax

1999 (£m)

170.0

5.1

170.0

159.8

110.2

1998 (£m)

157.13.41.8

162.39.6

171.9

165.7

Finance Director’s Review

“Our investment in Digital Television has been

supported by strong cash generation and the

overall growth of our existing businesses”.

Overview. The increase in operating profits before digital andexceptional charges to £170.0m (1998: £157.1m) was driven bystrong growth in Television and Video, offset by reductions inFilm and Products. Organic growth in turnover and operatingprofit (before Digital Television and exceptionals) was 4% and3% respectively. Our investment in Digital Television has beensupported by strong cash generation and the overall growth ofour existing businesses.

Profit before tax.Headline profit of £170m is after associatesand interest (but before exceptionals and digital), as set out inthe table below:

Associates and joint ventures. The share of associates andjoint ventures operating profits (excluding Digital Television)increased from £3.4m in the first half of 1998 to £5.1m in 1999.The principal increases were from 20% owned Meridian andGMTV, both of which had the initial benefit of the renewal oftheir licences on new 10-year terms. Digital Television jointventures and associates includes the 50% share of ONdigital’snet costs and the 37.7% share of ITV2.

Exceptional items relate to the sale of CHE’s audio businessincluding £8.0m of goodwill reinstated and the cost ofrestructuring the US optical disc plants following theintegration of Nimbus with Technicolor. CHE, now CarltonVideo, will be based in Carlton’s new television centre and will be included in the Television Division from the start of next year.

Television:major movements.Within Television there werea number of significant changes. Carlton Television received£7.0m (1998: £13.5m) under the Channel 4 funding formula.The cost of the ITV schedule increased to £125.5m (1998£118m). Licence payments rose marginally as higher advertisingrevenue increased our percentage of qualifying revenue (PQR)payments, while the cash bids for Carlton and Westcountry,which started new ten year licences from 1st January, werelower. Overall Carlton paid cash bids of £19.0m (1998: £28.6m)and PQR payments of £42.5m (1998: £31.2m). In summary thechanges were as follows:

Overall margins in the group were stable with the increasein Television offsetting the decline in margins within Products.

Television division

1998 operating profit

Half-on-half increase/(decrease)Advertising revenue

Channel 4 rebateCash bids

PQR paymentsNetwork scheduleOther net changes

1999 operating profit

£ (m)

76.2

32.7

9.6

87.8

(6.5)

(11.3)

(7.5)

(5.4)

(49.6)

(10.2)

(5.1)

(6.2)

Interim Report 1999 : page seven Carlton Communications Plc

Digital Television. Digital Television comprises the net costsas set out below:

Other digital investment. Our total planned investment indigital media for the year will exceed £150m. As well as ourinvestment in digital television, we are planning some £30m ofinvestment in DVD and Quantel.

Earnings per share. Headline basic earnings per share in thefirst half of 1999 increased by 6% to 17.7p (1998 - 16.7p). Fullydiluted headline earnings per share were 16.5p up from 15.5p,an increase of 6%.

FRS14 Earnings per share has been adopted for the first time,but has no impact on the earnings per share figures.

Cash flow. Cash flow from operations of £154.4m remainedstrong and includes the cash cost of digital operations of £9.4m before cash invested in ONdigital and ITV2 of £41.8m. Overall

net debt was £48.5m at 31 March 1999, £11.3m lower than£59.8m at 1 October 1998.The second half will include all ofthe Company’s ordinary dividend payments.

Cash flow will also reflect the investments we are making in thesecond half including: the purchase of the ITC library(approximately £93m); Planet 24 (£10m); and the outstanding50% of our Mexican joint venture (£4m). These will be inaddition to our investments in digital media. A 10 year bondwas issued in March 1999 at an all in cost of 5.7% raising netcash of £247m.

Balance sheet. Our balance sheet remains very strong, withnet assets of £542.5m at 31 March 1999, an increase of £44.2msince 1 October 1998. The increase is net of the write off ofnon-marketable intangible assets amounting to £11.0m (net oftax of £4.1m), on application of FRS10 ‘Goodwill and Intangible Assets’, partly offset by a net gain on exchangedifferences of £14.2m principally relating to the retranslation ofthe Group’s net US dollar-denominated assets.

The gearing ratio, measured as net debt to shareholders’ funds,was 9% at 31 March 1999.

Year 2000 project. The Group’s Year 2000 programme,details of which were set out in the 1998 Annual Report, hascontinued during the first half of the financial year, withparticular emphasis on the development of contingency plans.

The Group estimate for the cost of the Year 2000 programme(excluding contingency plans) remains in the region of £12m to£15m. Actual costs incurred as of 31 March 1999 were £8m.

To date the Group has not identified any business criticalsystems or operating equipment under its control that cannotbe rectified before Year 2000. However, the general uncertaintyinherent in the Year 2000 issue, resulting in part from theuncertainty of the Year 2000 readiness of our businesspartners, means the Group is unable to provide categoricalassurances as to its Year 2000 compliance.

Bernard Cragg, Finance Director26 May 1999

Pre-tax loss

50% share of ONdigitalCarlton digital channels

Share of ITV2Carlton Online

Digital funding cost

£ (m)

(27.7)

(12.6)

(4.4)

(1.9)

(3.0)

(49.6)

Earnings per share - Basic

HeadlineExceptional (charges)/income

Digital Television

Reported earnings per share

1999 (pence)

17.7

16.2

10.4

1998 (pence)

16.71.6

18.3

17.6

(1.5)

(5.8) (0.7)

Fully diluted earnings per share

HeadlineExceptional (charges)/income

Digital Television

Reported earnings per share

1999 (pence)

16.5

15.2

10.2

1998 (pence)

15.51.3

16.8

16.2

(1.3)

(5.0) (0.6)

Interim Report 1999 : page eight Carlton Communications Plc

Turnover

Less: share of joint ventures

Group turnover

Group operating profit before exceptionaloperating charge

Exceptional operating charge

Group operating profit

Share of operating profit in joint ventures and associated undertakings

Loss on disposal of a businessProfit of sale of fixed asset investment

Profit before interest and taxationNet interest receivable / (payable)

Profit on ordinary activities before taxation

Tax on profit on ordinary activities

Profit on ordinary activities after taxationMinority interests

Profit for the financial periodTotal dividends

Retained profit for the period

Earnings per share (pence)

Basic earnings per shareExceptional items after tax

Headline earnings per share

Fully diluted earnings per shareExceptional items after tax

Headline fully diluted earnings per share

Dividend per share (pence)

Before Digital Television

£ million

1,011.1

1,000.5

170.0

167.5

5.1

172.6

-

164.9

159.8

107.5

0.3

107.8

44.8

63.0

Digital Television £ million

10.5

8.8

(14.5)

-

-

-

13.9

-

-

-

-

Total £ million

1,021.6

1,009.3

155.5

153.0

126.0

-

118.3

110.2

71.8

0.3

72.1

44.8

27.3

6 months to 31 March 1999

(2)

(2)

(3)

(2)

(3)

(4)

(5)

(6)

(7)

(1)

Interim Results

Unaudited consolidatedprofit and loss account

Notes

(10.6)

(2.5)

(7.7)

(5.1)

(52.3)

(1.7)

(14.5)

(32.1)

(46.6)

(46.6)

(3.0)

(49.6)

(35.7)

(35.7)

(35.7)

(12.3)

(2.5)

(27.0)

(7.7)

(8.1)

(38.4)

(5.8)p

(5.8)p

(5.0)p

(5.0)p

16.2p

1.5p

17.7p

15.2p

1.3p

16.5p

10.4p

1.5p

11.9p

10.2p

1.3p

11.5p

5.95p

Interim Report 1999 : page nine Carlton Communications Plc

6 months to 31 March 1998 Notes:

(1) Digital Television comprises the Group’s 50% share of the

results before taxation of ONdigital Plc and the 37.7%

share of the results of ITV2 Limited, together with the

results in respect of Carlton’s digital channels and digital

programming, Carlton Online and the financing cost in the

period of the investment in digital activities, which is

calculated on the project funding at the average interest

rate earned on cash deposits.

(2) The divisional analysis of turnover and operating profit is

set out on page 13.

(3) The sale of Carlton Home Entertainment’s audio business

gave rise to a profit before goodwill and tax of £0.3m,

goodwill written back on disposal of £8.0m and nil tax.The

exceptional operating charge relates to a reorganisation of

the Group’s US optical disc business following the

acquisition of Nimbus in 1998.Tax relief of £0.9m is

provided.

(4) Taxation is calculated at 34.8% (Interim 1998 - 30.6%,

Full year 1998 - 32.1%) reflecting the estimated pre-

Digital Television tax rate for the full year of 31.3% before

the impact of exceptional items (note 3) in the half year.

Included within taxation is overseas tax of £13.8m

(Interim 1998 - £15.6m, Full year 1998 - £30.9m).The tax

relief in relation to Digital Television includes the Group’s

share of consortium relief available from ONdigital Plc and

ITV2 Limited.

(5) Preference dividends charged are stated net of the

amortisation of the 5.5p preference share premium over

redemption price which amounted to £2.1m (Interim 1998

- £3.1m, Full year 1998- £6.2m).

(6) The calculation of basic earnings per ordinary share has

been based on earnings of £63.7m and 611.0 million

shares in issue, being the weighted average number of

ordinary shares in issue throughout the period. Headline

earnings per share is calculated using profits attributable

to ordinary shareholders excluding the after tax effect of

the exceptional items and digital television.

Fully diluted earnings per share has been based on an

adjusted weighted average number of ordinary shares of

706.7 million, and earnings of £72.1m.

(7) The interim dividend of 5.95p per share will be paid on

20 August 1999 to holders of ordinary shares on the

register on 9 July 1999.

Year to 30 September 1998

(12.7)

(52.7)

(2.9)

(2.9)

(2.5)

(5.4)

(5.4)(0.8)

(6.2)

(4.3)

(4.3)

(4.3)

(12.7)

(50.8)


£ million

930.1

917.4

157.1 -

157.1

3.4

160.5-

9.6

170.11.8

171.9

119.20.2

119.440.8

78.6


3.2-

3.2

-

--

1.9

-

-

-

-

Total £ million

933.3

920.6

154.2-

154.2

0.9

155.1-

9.6

164.71.0

165.7

114.90.2

115.140.8

74.3

18.3p

16.7p

16.8p

15.5p

17.6p

16.0p

16.2p

14.9p

5.4p

(1.6)p

(1.3)p

(0.7)p

(0.7)p

(0.6)p

(0.6)p

(1.6)p

(1.3)p


£ million

1,861.0

1,835.4

318.0-

318.0

7.5

325.5-

9.6

335.14.9

340.0

232.6-

232.699.1

133.5


6.7-

6.7

-

--

7.2

-

-

-

-

Total £ million

1,867.7

1,842.1

308.4-

308.4

300.4-

9.6

310.02.1

312.1

211.9-

211.999.1

112.8

(25.6)

(107.4)

(9.6)

(9.6)

(15.5)

(25.1)

(25.1)(2.8)

(27.9)

(20.7)

(20.7)

(20.7)

(25.6)

(8.0)

(100.2)

(1.6)p

(1.3)p

(3.4)p

(3.4)p

(2.9)p

(2.9)p

(1.6)p

(1.3)p

(1)(1)

35.7p

34.1p

32.6p

31.3p

32.3p

30.7p

29.7p

28.4p

13.65p

£ million

48.2

27.7

14.1

4.3

58.3

117.5

576.3

9.0

536.6

1,297.7

492.2

89.0

28.5

10.3

£ million

33.6

357.1

46.1

436.8

725.7

1,162.5

620.0

542.5

48.5

128.6

5.5

359.4

542.0

0.5

542.5

£ million

27.3

13.614.19.4

56.5138.6556.0

9.1278.8

1,039.0

243.584.528.410.4

£ million

43.5345.7

37.1

426.3

438.8

865.1

366.8

498.3

48.4118.2

5.4325.5

497.50.8

498.3

(20.5)

(572.0)

(13.7)

(600.2)

Interim Report 1999 : page ten Carlton Communications Plc

Fixed assets

Intangible assetsTangible assets

Investments in joint ventures:Share of gross assets

Share of gross liabilities

Investment in associated undertakingsOther investments

Current assets

StocksProgramme and film rights

DebtorsInvestments

Cash and other liquid funds

Creditors: Current

Net current assets

Total assets less current liabilities

Creditors: Long term

LoansConvertible debt

CreditorsDeferred tax

Capital and reserves

Share capitalShare premiumOther reserves

Profit and loss account

Minority interests

31 March 1999 30 September 1998

(8)

Unaudited consolidated balance sheet

Interim Results

Notes

Interim Report 1999 : page eleven Carlton Communications Plc

Operational cash flows

Operating profitDepreciation and amortisation

Movement in working capital

Cash flow from operating activities

Dividends from an associate

Returns on investment and servicing of finance

Net interest received/(paid)Preference dividends paid

Taxation

Capital expenditure and financial investment

Purchase of tangible fixed assetsDisposal of investments and tangible fixed assets

Other investments

Cash flow before acquisitions, management of liquid resources and financing

Acquisitions and disposals

Purchase of subsidiary undertakingsDisposal of subsidiary undertakings

Investment in joint ventures and associates,including funding of ONdigital

Equity dividends paid

Management of liquid resources

Financing

Share issuesNet issue/(repayment) of debt

(Decrease)/increase in cash in the period

6 months to31 March 1999

£ million

155.5

32.4

154.4

-

-

53.3

0.9

-

8.1

247.0

255.1


£ million

154.227.117.2

198.5

-

8.3

-

110.1

-

-

1.2

Year to30 September 1998

£ million

308.458.012.9

379.3

10.3

5.2

29.1

152.6

-

204.9

2.2

31.4

(33.5)

(2.2)

(10.6)

(12.8)

(28.7)

(39.2)

(20.4)

(59.6)

(4.1)

(46.4)

(49.6)

(278.9)

(20.1)

(11.0)

(2.7)

(21.2)

(29.1)

(35.4)

(64.5)

(1.6)

(7.1)

(8.7)

(207.6)

(3.1)

(1.9)

(108.1)

(21.3)

(16.1)

(96.2)

(82.7)

(71.1)

(124.7)

(160.7)

(51.5)

(212.2)

(79.4)

(36.7)

(34.5)

Unaudited statement of consolidated cash flows

Interim Results

Analysis of net debt

Carlton Communications PlcInterim Report 1999 : page twelve

(Decrease)/increase in cash in the period

Cash (inflow)/outflow from (increase)/reduction in debtCash outflow/(inflow) from increase/(decrease) in liquid resources

Change in net debt resulting from cash flowsDebt acquired

Translation difference

Movement in net debt in the yearOpening net (debt)/funds

Closing net (debt)/funds


£ million

278.9

11.8

-

11.3


£ million

3.1207.6

102.6

101.094.7

195.7


£ million

31.436.7

2.6

94.7

(20.1)

(247.0)

(0.5)

(59.8)

(48.5)

(108.1)

(1.3)(0.3)

(204.9)

(136.8)(20.3)

(154.5)

(59.8)

Cash at bank and in handOverdrafts

Liquid financial instrumentsLoans due within one year

Loans due after more than one yearConvertible debt

Net debt

Cash and other liquid fundsOverdrafts and short term borrowings

LoansConvertible debt

Net debt

At 1 October1998

£ million

194.3

84.5

£ million

278.8

Cash flow

£ million

6.6278.9

0.1

-

11.8

Exchangemovements

£ million

5.6---

At 31 March1999

£ million

173.2

363.4

£ million

536.6

(7.6)

(3.0)(243.5)(84.5)

(59.8)

(10.6)(243.5)(84.5)

(59.8)

(26.7)

(247.1) (1.6)(4.5)

(0.5)

(1.0)

(2.9)(492.2)(89.0)

(48.5)

(1.0)(495.1)(89.0)

(48.5)

Balance sheet analysis of net debt

Interim Results

Reconciliation of net cash flow to movements in net debt


£ million

420.7

350.4

166.2

59.4

3.8

1,000.5

-

8.8

1,009.3


£ million

410.9262.6169.469.64.9

917.4-

3.2

920.6


£ million

87.8

52.9

30.7

5.1

170.0

153.0


£ million

76.240.131.614.1

157.1-

154.2

(6.5)

(2.5)

(14.5)

(4.9)

(2.9)

Unaudited reconciliation of movements in shareholders’ funds

Divisional information

Carlton Communications PlcInterim Report 1999 : page thirteen

Interim Results

Profit for the period

Ordinary and Preference dividendsAmortisation of the 5.5p Preference share premium

over redemption priceExchange differences on foreign currency net investments

New share capital issuedOther reserve adjustments

Goodwill reinstated on sale of businessesGoodwill written off on acquisitions

Net increase in shareholders’ fundsShareholders’ funds at the beginning of the period

Shareholders’ funds at the end of the period


£ million

72.1

14.2 10.5

8.0-

44.5497.5

542.0


£ million

115.1

1.2--

61.4550.4

611.8


£ million

211.9

2.7--

550.4

497.5

(44.8)

(2.1)

(13.4)

(40.8)

(3.1)(10.4)

(0.6)

(99.1)

(6.2)(16.5)

(145.7)

(52.9)

TelevisionVideo

FilmProducts

Other

Exceptional charge - VideoDigital Television

Turnover Operating Profit

Unaudited attributable shareholders’ funds

Interim Report 1999 : page fourteen

Interim Results

Equity shareholders’ funds (before goodwill)

Cumulative goodwill written off directly to reserves

Equity shareholders’ fundsNon-equity shareholders’ funds

Total shareholders’ funds

As at 31 March

1999

£ million

2,081.5

196.3345.7

542.0

As at 30 September

1998

£ million

2,024.3

131.1366.4

497.5

(1,885.2) (1,893.2)

Notes (continued):

(8) Creditors: current

(9) With effect from 1 October 1998, the Group has adopted new accounting standards FRS10

to 14. Pursuant to FRS10 goodwill on acquisition will henceforth be capitalised and amortised

over its useful economic life and non-marketable intangible assets of £15.1m (together with

related deferred tax of £4.1m) previously carried in the balance sheet have been de-

recognised as an other reserve movement. Under the transitional provisions of FRS10, goodwill

written off on acquisitions in prior years has not been reinstated. The financial effect of the

changes arising on introduction of these new standards is immaterial and prior year accounts

have not been restated. In the comparative period the charge for amortisation of non-

marketable intangible assets was £1.5m and the related tax credit was £0.4m.

(10) The financial information set out in this announcement does not constitute the Company’s

statutory accounts. Statutory accounts for the year ended 30 September 1998 which received

an auditor’s report which was unqualified and did not contain any statement concerning

accounting records or failure to obtain necessary information and explanations, have been filed

with the Registrar of Companies.

31 March 1999

£ million

353.6

3.9

91.9

122.6

572.0

30 September 1998

£ million

413.7

10.6

55.6

120.3

600.2

Creditors

Overdrafts and short term borrowings

Dividends payable

Taxation

We have reviewed the interim financial information for the six months ended31 March 1999 set out on pages 8 to 14 which is the responsibility of, andhas been approved by, the directors. Our responsibility is to report on theresults of our review.

Our review was carried out having regard to the Bulletin ‘Review of InterimFinancial Information’, issued by the Auditing Practices Board. This reviewconsisted principally of applying analytical procedures to the underlyingfinancial data, assessing whether accounting policies have been consistentlyapplied, and making enquires of Group management responsible for financialand accounting matters.The review excluded audit procedures such as testsof controls and verification of assets and liabilities, and therefore wassubstantially less in scope than an audit performed in accordance withAuditing Standards.Accordingly we do not express an audit opinion on theinterim financial information.

On the basis of our review:

• in our opinion the interim financial information has been prepared usingaccounting policies consistent with those adopted by CarltonCommunications Plc in its financial statements for the year ended 30September 1998 other than where changes are necessary to implementthe new accounting standards detailed in note 9; and

• we are not aware of any material modifications that should be made tothe interim financial information as presented.

Chartered Accountants, London26 May 1999

Review report by the auditors to Carlton Communications Plc

Directors

Associate Directors

Company Secretary

Investor Relations

Sir Derek Birkin,TD *Steven Cain (Chief Executive)Bernard Cragg (Finance Director)Anthony Forbes*David Green *Michael Green (Chairman)Leslie Hill*Sir Sydney Lipworth, QC*Sir Brian Pitman*Nigel Walmsley (Executive Director)

* Non-executive

The Hon Piers InskipMatthew KearneyWilliam Rollason

David Abdoo, LLB

David Cameron


25 Knightsbridge, London SW1X 7RZTel: +44 171 663 6363Fax: +44 171 663 6300www.carltonplc.co.uk

AuditorsPricewaterhouseCoopers

StockbrokersCazenove & CoWarburg Dillon Read

RegistrarsComputershare Services PLCPO Box 82, Caxton HouseRedcliffe Way, Bristol BS99 7NHListing: London Stock Exchange(Symbol CCM)

ADR DepositaryMorgan Guarantee Trust Company of New York, PO Box 8205Boston MA 02266-8205USAListing: NASDAQ (Symbol CCTVY)

Documents

Interim Results - CARLTON...Interim Report 1999 :page one Carlton has continued to make progress with both sales and headline profit ahead of last year. Our two largest divisions,