| Tue 25 Sep 2007, 13:50 | | KGM - Kagiso Media - Reviewed results for the year |
|
KGM
KGM
KGM - Kagiso Media - Reviewed results for the year ended 30 June 2007
Kagiso Media Limited
(Registration number: 1957/000036/06)
("Kagiso Media" or "the group" or "the company")
Share code: KGM
ISIN: ZAE 000014007
Reviewed results for the year ended 30 June 2007
Highlights
Revenue up 22%
Headline earnings up 18%
Cash flow from operating activities up 9%
Final dividend 18 cents
Consolidated income statements for the year ended
30 June 2007 30 June 2006 Change
R`000 (Reviewed) (Audited) %
Revenue 738 307 604 795 22
Other income 28 934 16 733 73
Raw material and consumables (154 222) (121 709) 27
Commission and levies (105 409) (92 687) 14
Employee costs (107 959) (78 639) 37
Depreciation (8 163) (6 853) 19
Amortisation (20 953) (23 974) (13)
Other expenses (134 464) (91 382) 47
Operating profit 236 071 206 284 14
Finance income 10 333 5 570 86
Finance expenses (20 150) (6 865) 194
Share of results of associates 9 992 6 865 46
Profit before income tax 236 246 211 854 12
Income tax expense (93 587) (82 058) 14
Profit for the year 142 659 129 796 10
Attributable to:
- Equity holders of the company 129 810 110 027 18
- Minority interest 12 849 19 769 (35)
142 659 129 796 10
Reconciliation of headline earnings
Profit for the year attributable to 129 810 110 027 18
equity holders
Impairment of goodwill 252 -
Loss on sale of property, plant and 102 162
equipment
Headline earnings 130 164 110 189 18
Earnings per share
Earnings per share 97.6 83.2 17
Headline earnings per share 97.9 83.3 18
Diluted headline earnings per share 97.6 82.9 18
Number of shares in issue (`000s) 133 136 132 540 -
Weighted average number of shares in 132 954 132 297 -
issue (`000s)
Weighted average number of shares in 133 366 132 937 -
issue for diluted earnings per share
(`000s)
Dividend per share (cents)
Final dividend in respect of the 18 33
year under review
Interim dividend 31 40
Total dividend 49 73 (33)
Consolidated balance sheets as at
30 June 2007 30 June 2006
R`000 (Reviewed) (Audited)
Assets
Non-current assets 595 400 463 287
Property, plant and equipment 29 284 19 948
Goodwill 124 999 17 984
Intangible assets 351 570 343 678
Investment in associates 48 893 44 708
Deferred income tax assets 26 479 17 993
Loans and receivables 14 175 18 976
Current assets 304 915 236 500
Inventories 17 094 21 140
Trade and other receivables 168 182 129 885
Loans and receivables 2 065 139
Cash and cash equivalents 117 574 85 336
Total assets 900 315 699 787
Equity
Capital and reserves
Ordinary shares 1 331 1 325
Share premium 11 850 9 804
Revaluation and other reserves 88 040 87 135
Retained earnings 218 868 173 382
Total shareholders` equity 320 089 271 646
Minority interest 45 074 94 089
Total equity 365 163 365 735
Liabilities
Non-current liabilities 353 076 198 011
Borrowings 248 619 100 640
Deferred income tax liabilities 104 457 97 371
Current liabilities 182 076 136 041
Trade and other payables 164 985 124 654
Borrowings 1 829 651
Current income tax liabilities 15 262 10 736
Total liabilities 535 152 334 052
Total equity and liabilities 900 315 699 787
Consolidated cash flow statements for the year ended
30 June 2007 30 June 2006
R`000 (Reviewed) (Audited)
Cash flows from operating activities
Cash generated from operations 257 310 236 843
Finance expenses paid (5 784) (366)
Income tax paid (97 054) (95 729)
Dividends paid to shareholders (85 137) (111 299)
Dividends paid to minorities (13 000) (22 000)
Dividends paid to preference (11 033) (6 047)
shareholders
Net cash generated from operating 45 302 1 402
activities
Cash flows from investing activities
Acquisition of subsidiary, net of cash (127 023) -
acquired
Acquisition of joint venture, net of (47 459) -
cash acquired
Purchases of property, plant and (10 790) (10 842)
equipment ("PPE")
Proceeds from sale of PPE 167 -
Purchases of intangible assets (2 475) (2 659)
Loans to associates 1 442 (471)
Finance income received 10 333 5 570
Dividends received from associates 6 731 -
Net cash generated from investing (169 074) (8 402)
activities
Cash flows from financing activities
Proceeds from issue of ordinary shares 2 052 2 696
Proceeds from issue of preference 244 498 -
shares
Proceeds from borrowings 14 653 18 791
Repayment of preference shares (109 994) -
Movement in loans and receivables 4 801 (10 573)
Net cash used in financing activities 156 010 10 914
Net increase in cash and cash 32 238 3 914
equivalents
Cash and cash equivalents at the 85 336 81 422
beginning of year
Cash and cash equivalents at the end of 117 574 85 336
year
Condensed consolidated statements of changes in equity for year ended
30 June 2007 30 June 2006
R`000 (Reviewed) (Audited)
Equity at the beginning of the year 365 735 366 593
Ordinary shares issued in terms of the 2 052 2 696
Share Option Scheme
Profit for the year 142 659 129 796
Employee costs: share option scheme 905 (51)
Reversal of share based payment 813 -
liability
Acquisition of minority interests (48 864) -
Dividends paid (98 137) (133 299)
365 163 365 735
Segment analysis for the year ended 30 June
Revenue Operating
profit/(loss)
R`000 2007 2006 2007 2006
Central services 2 174 2 216 (22 513) (12 868)
Broadcasting 411 830 353 859 211 739 173 940
Information services and 153 868 135 527 47 762 39 030
solutions
Outdoor 14 314 - 593 -
Exhibitions and events 156 121 113 193 (1 510) 6 182
Total 738 307 604 795 236 071 206 284
1. Income statement
1.1 Introduction
Kagiso Media achieved an increase in revenue and operating profit of 22%
and 14% respectively. Despite increased funding costs, the profit for the
year, attributable to the company`s equity owners, increased by 18%.
The high quality of the group`s earnings contributed to the healthy cash
balance of R117.6m as at 30 June 2007. The company is investigating
various organic and acquisitive growth opportunities. In order for Kagiso
Media to take full advantage of these prospects, the board has decided,
consistent with previous indications to the market, to revert back to a
dividend policy of paying dividends at 50% of earnings. A final dividend
of 18 cents per share has been declared and together with the interim
dividend amounts to 49 cents for the full year.
1.2 Revenue
Revenue grew by 22% over the comparative period. Broadcasting increased
by 16%, driven by revenue growth from both East Coast Radio and Jacaranda
FM of 17% and 16% respectively. Revenue from LexisNexis Butterworths
("LexisNexis") improved by 14% while Kagiso Exhibitions and Events
("KEE") increased its revenue by 38%. The two biennial shows, namely Auto
Africa and Aerospace and Defence, as well as the newly purchased stand
building entity, contributed R56.1m to revenue. Revenue for Clear Channel
Merafe (Proprietary) Limited ("CCM") has been included in the results
from the effective date of 1 April 2007 and contributed R14.3m to the
revenue for the group.
1.3 Operating profit
The operating profit margin for the broadcasting division increased from
49% to 51%, which is deemed to be highly competitive for stations with a
similar footprint and functioning in comparable market sectors.
At LexisNexis, the shift in emphasis from supplying print, electronic and
online products to becoming a service provider of total solutions in
certain specialised fields, has ensured growth in the operating profit
margin from 29% to 31%.
KEE`s two biennial shows, in conjunction with the stand building unit,
recorded an average operating profit margin of 10%. Increased costs and
the absence of various profitable once-off events added to the
underperformance evident from the exhibitions and events unit.
CCM contributed R593 000 to the group`s operating profit.
1.4 Finance income and expenses
Interest is earned on the surplus cash resources as well as the funds
deposited during the year into the sinking fund, which was utilised to
redeem previously issued preference shares. This fund is merely an
accumulation of cash, according to a structured arrangement, to enable
the company to redeem preference shares.
Preference shares to the value of R100m were issued at the beginning of
the financial year to fund the purchase of the extra 20% stake in
Jacaranda FM. In addition another R45m was issued in April to facilitate
the purchase of a 50.1% stake in CCM. This, together with the increases
in the prime overdraft rate, led to almost a 200% increase in finance
costs.
1.5 Income tax expense
The income tax charge remains constant at 39.6% of profit before tax,
including a Secondary Tax on Companies ("STC") charge of R20.1m (2006:
R17.5m) on the relatively high proportion of earnings distributed to
shareholders. The 15% increase in STC was a function of the increase in
preference dividends compared to the previous year, as discussed above.
1.6 Minorities` share of profits
Since 1 August 2006, minorities owned 20% of Jacaranda FM. The decrease
in minorities is reflected by the purchase of an additional 20% stake by
a wholly owned subsidiary effective on this date.
1. Balance sheet and cash flow
At the commencement of the financial year, the group`s cash resources
amounted to R85.3m. During the year, the operations generated R154.4m
after finance expenses and tax, while the group raised a net amount of
R134.5m in debt funding. Of the available cash resources, R10.8m was
applied towards the replacement of fixed assets, R174.5m towards
investments in subsidiaries and joint ventures while R109.2m was
distributed to the group`s ordinary and preference shareholders by means
of dividends. As at 30 June 2007, the cash reserves stood at R117.6m.
Cash flow remains strong, which give the group the ability to raise
further debt to fund future acquisition opportunities that may arise.
Working capital, excluding cash and cash equivalents, decreased. At the
end of the previous financial year, activities related to KEE`s two
biennial shows resulted in increased working capital levels which was not
the case as at 30 June 2007. 50.1% of all assets and liabilities of CCM
were included in Kagiso Media`s consolidated balance sheet at 30 June
2007.
A revised deferred payment structure was agreed with the holders of the
new preference shares. The effect is that a value of only 5% (previously
10%) of the original issued preference shares needs to be transferred
into a sinking fund on 31 March and 30 September respectively. The
company has an option to either transfer the funds mentioned above into a
sinking fund or redeem shares of an equivalent amount. Kagiso has elected
to redeem shares during the year. The preference shares remain redeemable
in five years, with 55% of the original issued preference shares payable
on the fifth anniversary of the issue date.
3.Review of operations
3.1 Central services
The cost of the preference shares and the group`s share of STC in all the
subsidiaries, joint ventures and associates is allocated to the central
services segment so as not to distort the performance of individual
business segments. The central services segment made a loss after tax of
R58.2m (2006:R34.6m). An increase of R2.6m in costs is attributed to the
increase in the STC charge as discussed above and R13.3m is due to an
increase in the preference dividend payment. Increased activities at
central office which included improved governance structures, research
and development into various areas, new investment opportunities, etc.
resulted in an increase in the permanent head count at head office from
10 to 16. All of these actions, including the additional staff, resulted
in an increased cost base.
3.2 Broadcasting
The advertising industry as a whole experienced a year of healthy revenue
growth measured at 17% (AdDynamix, March 2007). Television garnered the
lion`s share of the growth at 26%, while radio grew in single digits.
Radio`s overall share of advertising, however, dropped from 14% to 13%.
It is pleasing then that Kagiso Media`s broadcasting assets enjoyed an
excellent year, delivering strong revenue growth over the period. Our
primary assets, East Coast Radio and Jacaranda FM grew revenue by 17% and
16% respectively, beating the industry trend. The solid increases in
revenue took place in a period characterised by a steady rise in
inflation where the reserve bank raised interest rates to curb credit
based consumer spending.
The Radio Audience Measurement Survey (RAMS) for June 2007 shows that
Kagiso Media`s portfolio of radio stations provide advertisers with
access to 7.1 million listeners a week* across the country. This is on
par with the SABC`s commercial radio station portfolio and is the largest
reach of private radio groups in the country.
East Coast Radio 94-95fm: Durban`s No.1 Hit Music Station was named
favourite radio station in KwaZulu Natal in `The Daily News Readers
Choice award` this year and remains one of the top three radio stations
in the country, based on its share of revenue. The station has always
been at the centre of innovation in radio and has been acknowledged in
professional media journals for its ability to devise new programming
concepts and deliver unique solutions to advertisers.
Jacaranda 94.2: Life`s Greatest Hits has a wide footprint covering four
provinces but derives the bulk of its revenue from its exposure in
Gauteng. It is also the dominant commercial radio operation in Tshwane.
The station is branded Jacaranda 94.2 within its Gauteng footprint, while
also operating a transmitter split in Limpopo and Mpumalanga provinces.
In these regions, the station is branded Jacaranda RMfm and offers a
tailored product for its audience outside Gauteng. The station received
several accolades during the period under review including being voted
favourite radio station by the readers of the Pretoria News and named as
one of the top three radio stations in South Africa by readers of CEO
Magazine.
OFM: The sound of your life showed revenue growth of 22% and similar
growth in overall audience numbers of 23% year-on-year over a 7 day
listening period. Besides continuing to leverage off its sports
sponsorships of local cricket and rugby teams, the OFM brand also pulled
off a number of other branding coups, one of these displacing a national
radio station as a headline sponsor of Aardklop in Potchefstroom. A
notable achievement during the period under review includes adopting and
launching the Word of Mouth Forum, ("WOMF"), a blog that derives
advertising revenue, inline with the radio station`s strategy of
diversifying revenue streams.
Kagiso Media has a 25.1% indirect economic interest in Kaya FM: Good
music, good friends, a Gauteng based radio station. This strategic stake
positions the group in the most lucrative advertising market in the
country and provides it with exposure to the rapidly expanding black
middle class.
Heart 104.9: Cape Town soul targets both male and female listeners in the
Cape Town metropole within LSM 6-10, aged 25 to 49. The station currently
has a listener market share of 20% of this market category, making it the
second largest station in this market. Heart 104.9 is limited by a
tightly regulated footprint that severely curtails its reach, relative to
its primary regional competitors who are endowed with a larger coverage
area. The station intends applying for a wider transmitter network based
on an ICASA commitment to increase the footprint of Greenfield licensees.
Kagiso Media owns a 33.3% economic interest in this Cape Town based radio
station and has offered consultancy services since August 2005. Revenue
has improved by 127% since the previous reporting period.
iGagasi 99.5: The new sound of the city targets listeners that live in
the two primary cities of Durban and Pietermaritzburg within KwaZulu
Natal. They are generally English and isiZulu speakers, within the 18-34
age group and LSM 5-8. Kagiso Media has a 33.3% economic interest in the
station and has offered consultancy services to the station over its
launch phase between August 2005 and February 2007. In the year under
review, total audience grew 61.5% when measured over a 7 day listening
period. Revenue was up 215% in the same period
PrimetimeKagiso trading as RadioMinds is a 50/50 joint venture between
Kagiso Media and Primetime International, a large media entity in India.
RadioMinds is currently in a start up phase. The venture intends to offer
clients services in three key areas, namely radio training, strategic
research and radio sales. It also has an online presence via
www.radiominds.com.
RadMark is the national sales representative for Kagiso Media`s stations.
While the period under review saw constraints on spending being applied
through rising interest rates, higher fuel prices and rising inflation,
RadMark`s executive team perceives the advertising industry to be
healthier than it has been for some time, based on factors like bad debt
and late payments being at their lowest level in years. RadMark`s
portfolio of stations has ensured a year of excellent revenue growth,
contrary to the radio industry`s growth of only 8% (based on AdDynamix
data for March 2007).
3.3 Information services and solutions
LexisNexis Butterworths ("LexisNexis") delivered another strong
performance, with revenue up 14% to R307m and operating profit up 22% to
R95m. Kagiso Media accounts for 50% of these results on a line-by-line
basis. Revenue from online information solutions continues to deliver
excellent growth, up 34% on last year. A number of new online solutions
were launched in the year, including, LexisNexis Select an online
solution specifically developed for the legal profession in the medium
market and a legal client development tool Law24. Printed publications
from a South African source continue to be the cornerstone for the
business at 55% of total revenue. The Africa division had a very pleasing
year with revenue up 25% on last year. The online risk management
business delivered double digit growth for the year, with the background
screening business Refcheck performing exceptionally well.
3.4 Outdoor
During the year under review Kagiso Media partnered with MSG Afrika Media
(Proprietary) Limited to establish an outdoor company. The new venture,
Kagiso Outdoor, is 65% owned by Kagiso Media and 35% by MSG Afrika Media.
Kagiso Outdoor concluded its first transaction by acquiring 50.1% of CCM,
an out of home advertising company. CCM`s focus had been in the airport
and rail advertising markets and is the biggest operator in the country`s
major airports. Kagiso Media has included this entity`s results, as a
joint venture, in the group`s performance from the effective date of 1
April 2007. This investment has increased the group`s advertising
platform offerings.
3.5. Exhibitions and events
With effect from 1 July 2006, Kagiso Exhibitions and Events acquired 100%
of the issued share capital in Eyethu Exhibitions (Proprietary) Limited
("Eyethu"), an events stand building entity for R2.5m. KEE is now able to
offer its customers a turnkey solution including all aspects relating to
the staging of shows or events including inter alia the planning,
managing and facilitation thereof. Eyethu contributed R18.6m to the
revenue for the year under review. KEE is a strong company with a leading
brand and industry reputation in the market-place. It owns premier assets
and employs a diverse team of highly skilled, experienced and dedicated
professionals. The company has recently under-performed primarily due to
some fundamental shortcomings in the management of basic business
operations and principles. Management, led by a newly appointed CEO, has
prepared a strong turn-around strategy and Kagiso Media is confident that
the team will successfully implement and execute this to ensure future
growth and a sustainable business into the future.
4. Business combinations
The acquisition of 50.1% of Clear Channel Merafe (Proprietary) Limited
("CCM")
On 1 April 2007 Kagiso Media Limited acquired 65% of Kagiso Outdoor
(Proprietary) Limited which in turn purchased 50.1% of the issued share
capital of CCM for a consideration of R46m settled in cash. The cash was
raised via the issue of preference shares to the existing preference
shareholders. The acquired business contributed revenues of R14.3m and
profit of R433 000 to the group for the period ended 30 June 2007.
If the acquisition had occurred on 1 July 2006, the contributions to the
group`s revenue would have been R54.3m and the contributions to the
profits would have been a loss of R234 000. These amounts have been
calculated using the group`s accounting policies and by adjusting the
results of the joint venture to reflect the additional amortisation that
would have been charged assuming the fair value adjustments to intangible
assets had applied from 1 July 2006, together with the consequential tax
effects.
The goodwill is attributable to the future benefits of increased
advertising platforms available to the Kagiso Media customer base.
Details of the net assets acquired and goodwill are as follows:
On acquisition
date
(R`000)
Total purchase consideration 45,991
Fair value of net assets acquired (21,972)
Goodwill 24,019
The assets and liabilities arising from the acquisition are as follows:
Fair value on Acquiree`s
acquisition carrying
date amount on
acquisition
date
(R`000) (R`000)
Property, plant and equipment 14,342 14,342
Intangible assets 58,995
Deferred tax on intangible assets (17,109)
Deferred income tax assets 6,765 6,765
Loans and receivables 92 92
Liability for straight lining of leases (27,044) (27,044)
Cash and cash equivalents 8,471 8,471
Inventories 6,011 6,011
Trade and other receivables 6,114 6,114
Trade and other payables (5,874) (5,874)
Net assets acquired 50,763 8,877
Kagiso Media group`s share in the fair
value of net assets acquired 21,972
Minorities (7,690)
Kagiso Media`s share in the fair value
of net assets acquired 14,282
Purchase consideration 45,991
Cash and cash equivalents in
business acquired (3,305)
Cash outflow on acquisition 42,686
5. Accounting policies
The consolidated annual financial statements of the group are presented
in accordance with, and comply with, International Financial Reporting
Standards ("IFRS") and International Financial Reporting Interpretations
Committee ("IFRIC") interpretations issued and effective as at 30 June
2007. The policies have been consistently applied for all the years
presented.
The statements have been prepared in accordance with IAS 34.
6. Annual financial statements
The annual financial statements for the year to 30 June 2007, including a
notice of the annual general meeting, will be posted to shareholders by
no later than 2 November 2007.
7. Independent review by auditors
These consolidated results have been reviewed by our auditors
PricewaterhouseCoopers Inc. who have performed their review in accordance
with the International Statement on Review Engagements 2410. A copy of
their unqualified review report is available for inspection at the
registered office of the company.
8. Dividend
In the year under review 64 cents per share was distributed to
shareholders by way of dividends. Notice is hereby given that a final
dividend of 18 cents (2006: 33 cents) per share has been declared in
respect of the year ended 30 June 2007 and is payable to holders of
ordinary shares recorded in the register of the company on Friday, 19
October 2007.
The following salient dates apply to this dividend:
Last date to trade cum- dividend Friday, 12 October 2007
Shares commence trading ex-dividend Monday, 15 October 2007
Record date Friday, 19 October 2007
Payment of the dividend Monday, 22 October 2007
Share certificates may not be dematerialised or rematerialised between
Monday, 15 October 2007 and Friday, 19 October 2007, both days inclusive.
In terms of the Companies Act, the directors confirm that, after the
payment of the above dividend, the company will be able to meet its
commitments and settle its liabilities as these fall due in the ordinary
course of business and that its consolidated assets, fairly valued,
exceed its consolidated liabilities.
9. Prospects
Kagiso Media`s radio stations are consistently rated among the top three
revenue earners in the industry. This position is further enhanced by
Jacaranda FM`s progressive market share growth in the key Gauteng market.
The broadcasting businesses continue to explore opportunities to engage
listeners and customers via multiple platforms and also to ensure
effective communication for advertisers.
Kagiso Media`s broadcasting assets remain well-positioned in the current
economic environment and have proven in the last financial year that they
are able to absorb a perceived slow down in the economic growth. The
group remains confident that the stations in its portfolio will continue
to deliver competitive results in the radio market.
LexisNexis has delivered 13 consecutive years of double-digit growth and
will continue to invest and launch new products, service and solution
offerings. The strategic change from being a research based organisation
to one that provides a "total solution" to its customers will continue to
be the base of the strategy to ensure strong sustainable growth into the
future.
KEE had a difficult year. It has historically been dependant on a limited
number of high-earning exhibition assets. Going forward a mitigating
strategy of containing risks and growing sustainable revenues will
involve, inter alia, the acquisition of complementary high-growth assets,
as well as the incremental introduction of new company-developed
exhibitions and events. It is envisaged that this will create a stable
income base in the medium and longer term.
Overall, the group is expected to continue to deliver good growth.
* Includes all radio stations in which Kagiso Media has an interest.
Listener numbers derived from the Radio Audience Measurement Survey
("RAMS") results released in June 2007.
On behalf of the board
W R Jardine
Chairman
M Morobe
Chief executive officer
25 September 2007
Registered Office: 1st Floor Kagiso House, 16 Fricker Road, Illovo, 2196,
PO Box 724, Northlands, 2116
Directors: W R Jardine (Chairman), M J N Njeke (Deputy chairman),
M Morobe* (Chief executive), O C Essack*, S Pienaar*, H I Appelbaum,
W C Ross#, Y I Mahomed, R M Motanyane#
* Executive
# Independent
Transfer Secretaries: Link Market Services South Africa (Proprietary)
Limited, 5th Floor, 11 Diagonal Street, Johannesburg, 2001, PO Box 4844,
Johannesburg, 2000
Company Secretary: S Pienaar
Sponsor: Investec Bank Limited
Auditors: PricewaterhouseCoopers
www.kagisomedia.co.za
Date: 25/09/2007 13:50:26 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
