| Wed 24 Nov 2004, 17:19 | | REVIEWED INTERIM RESULTS |
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JOHNNIC COMMUNICATIONS LIMITED - REVIEWED INTERIM RESULTS
Johnnic Communications Limited
Registration number 1889/000352/06
ISIN code: ZAE 000024584
Share code: JCM
American Depositary Receipt (`ADR`) Program
CUSIP number: 47805P102
ADR to ordinary share: 1:1
www.johncom.co.za
REVIEWED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004
`Headline earnings increase by 727% to R124 million`
COMMENTARY
Overview
Strong financial results for the six-month period ended 30 September 2004
reflect the rewards of concentrating on operational value drivers and
simplifying the corporate structure to deliver on the promises made to
shareholders in recent years. These results include a positive contribution from
the acquisition of the Sowetan and an additional interest in M-Net/SuperSport.
Revenue, margins and the effective tax rate have improved compared to the prior
year.
Results
Revenue for the six months under review increased by 52% to R1 953 million
(2003: R1 284 million). Profit from continuing operations before exceptional
items rose 800% to R153 million (2003: R17 million), with headline earnings
rising 727% from R15 million in 2003 to R124 million.
Following a scheme of arrangement, M-Net/SuperSport linked shares were delisted
from the JSE and Johncom increased its effective shareholding in the linked
shares from 26,03% to 38,56% at a cost of R287 million on 15 April 2004.
In prior years, the group accounted for its interest in M-Net/SuperSport on the
equity method. Johncom now recognises M-Net/SuperSport as a jointly-controlled
entity and accounts for it in terms of accounting standard AC119: Interests in
Joint Ventures, by proportionately consolidating its results.
The group`s attributable earnings, accounting for the M-Net/SuperSport interest
on the equity method, are restated below to assist comparison with previously
reported interim results.
6 months ended 6 months ended
30 Sept 2004 30 Sept 2003 %
Reviewed Reviewed change
Rm Rm
Revenue 1 441 1 284 12
Cost of sales (875) (804)
Gross profit 566 480 18
Operating expenses - net (457) (426)
Depreciation & amortisation (42) (47)
Exceptional items 56 44
Profit from operations 123 51 141
Net finance income 2 1
Share of profits of associates 86 68
Profit before taxation 211 120 76
Taxation (28) (48)
Profit after taxation 183 72 154
Minority interests (3) (1)
Attributable earnings 180 71 154
The acquisition of New Africa Publications, owner of 50% of Sunday World and
100% of the Sowetan, effective from 2 July 2004, has not made a material
contribution for the reporting period.
OPERATIONAL REVIEW
MEDIA
A strong upturn in advertising spend benefited the group`s media titles. All the
group`s newspapers performed well, with flagship title, Sunday Times, and the
Eastern Cape newspapers leading the way.
During the period, the Competition Commission approved the acquisition by
Johncom of the Sowetan and the remaining 50% of Sunday World. These titles are
now being integrated into the Johncom media division. Circulation and
advertising sales of the Sowetan are showing strong signs of revival, following
the appointment of a new publisher and editor-in-chief from Johncom. Sunday
World is performing well ahead of expectations.
The magazine division bucked the overall trend of a static market and increased
key circulations, while digital operations recorded a strong performance,
sharply up on the previous year.
RETAIL
The group`s retail operations consist of the Exclusive Books chain and Nu Metro
Theatres. Both benefited from management attention and better retail trading
conditions.
Exclusive Books delivered 6% growth on last year, with unit sales increasing 14%
despite generally sluggish conditions in the worldwide book market.
Nu Metro Theatres increased attendances pleasingly by nearly 8%, well ahead of
general market conditions. Nu Metro Theatres has showed steady improvement in
market share and now has the top three cinemas in the country.
Both Nu Metro Theatres and Exclusive Books are cautiously optimistic that good
holiday-season sales will be achieved.
BOOKS & MAPS
The books and maps division recorded a flat performance against the prior year,
primarily due to soft retail sales in all territories at the start of the
traditional August/September pre-holiday season.
South African operations performed reasonably well as a result of good
performances in the Christian books, book distribution and electronic mapping
business units. Struik Publishers, the illustrated publishing division,
experienced difficult trading conditions with its largest customer and was also
affected by a decline in tourism and increased competition.
Offshore operations yielded mixed performances, with Australia performing well
while the UK and New Zealand lagged the prior year, mainly as a result of the
more difficult retail environment in those territories. The restructure of the
UK-based mapping division, Lovell Johns, is yielding results and it is expected
to return to profitability for the full year.
HOME ENTERTAINMENT
A strong second quarter contributed to 20% growth in divisional sales on last
year, resulting from better-than-expected sales of key titles: The Passion of
the Christ, Star Wars Trilogy and Brother Bear, and good catalogue growth on
DVD. However, higher-than-expected trade credits, content shifts and lower
margins on catalogue impacted on the profit from operations in the retail
business.
Piracy remains an ongoing challenge in the industry, eroding sales of new
releases. A major industry-wide marketing campaign to alert consumers to the
problem of piracy has been launched in the run-up to the festive season.
On a strategic level, management has renewed important studio licences and has
embarked on a targeted campaign to drive DVD sales over the holiday period. The
division has a strong line-up for the second six-month period.
MUSIC
Developments in the international music industry and market dynamics impacted on
the performance of the Gallo music group during the period under review. Total
revenue was 8% below the comparative period. However, improved margins,
effective cost control and strategic marketing initiatives by management
contributed to improved results from operations relative to the previous period.
Gallo maintained its strategic focus on the local music industry and achieved
growth in units sold. Foreign royalty income and effective cost control
contributed positively to the results of the Gallo music publishers division.
Management is confident that, given a strong festive trading quarter,
repositioning of Warner Music International and favourable licence negotiations,
performance will improve in the six-month period ahead.
AFRICA
Johncom Africa has continued its expansion programme into east and west Africa,
exploring various media and entertainment opportunities.
In addition to the two cinema sites currently trading under the
Nu Metro brand, two more cinema sites and two media stores are planned to open
within the next six months.
Following our investment in Business Day Media Limited in Nigeria, we have
relaunched the BusinessDay in that country, which is showing steady improvement.
The investment committee has approved capital expenditure for a number of
additional projects for the 2005 and 2006 financial years.
DISTRIBUTION, MANUFACTURING & SUPPORT SERVICES
Nu Metro Film Distribution released the controversial The Passion of the Christ,
which exceeded all expectations and is currently the fourth-biggest grossing box
office release in South African history.
Licensors Warner Bros and 20th Century Fox contributed with a strong line-up of
product, including Harry Potter - Prisoner of Azkaban, Day After Tomorrow, Troy,
I, Robot and Garfield.
Compact Disc Technologies performed exceptionally well. An increased supply of
DVD product, as well as audio and CD Rom discs, has assisted in increasing
output. Better-than-anticipated levels of CD manufacturing also contributed to
overall performance.
Entertainment Logistic Services, South Africa`s leading distribution platform
for music, VHS and DVD product, continues to enjoy increased volumes due to
improved trade at customer level.
PAY TELEVISION (M-Net/SuperSport)
A higher subscriber base in South Africa during the review period resulted in
increased subscription revenue. Advertising revenue benefited from the positive
consumer spending environment during the period. The strong rand, however,
continued to have a negative impact on revenue from the rest of the African
continent. The results were also adversely affected by the revaluation of
outstanding financial instruments in terms of accounting standard
AC133: Financial Instruments - Recognition and Measurement.
ASSOCIATED COMPANIES
Caxton and CTP Publishers and Printers
Limited (CTP)
Johncom`s share of profits from CTP for the six-month period was ahead of both
expectations and the comparable period. CTP benefited from the increased
advertising expenditure of major retailers and packaged goods manufacturers in
newspapers and magazines.
DIVIDENDS
During the financial reporting period, cash balances reduced as a result of an
increased shareholding in M-Net/SuperSport and the acquisition of 90,5% of New
Africa Publications. Accordingly, no dividend is proposed at the interim period.
PROSPECTS
Given increased consumer spending in a low interest rate environment and
improved advertising expenditure, the solid trading results of the first half
should be mirrored in the second half as we enter a festive season that is
widely expected to be buoyant.
Mashudu Ramano Connie Molusi
Chairman Group Chief Executive Officer
Prakash Desai
Group Finance & Operations Director
24 November 2004
Income Statement
Notes 6 months 6 months % 12 months
ended ended change ended
30 Sept 30 Sept 31 March
2004 2003 2004
Reviewed Reviewed Audited
Rm Rm Rm
Revenue 1 953 1 284 52 2 698
Continuing 1 953 1 268 54 2 682
Disposed - 16 16
Cost of sales (1 201) (804) (1 645)
Gross profit 752 480 57 1 053
Operating expenses - net (554) (426) (845)
Depreciation (40) (39) (77)
Amortisation of intangibles (6) (3) (8)
Goodwill amortisation - (5) (9)
Profit from operations before 152 7 2 071 114
exceptional items
Continuing 153 17 800 132
Disposed (1) (10) (18)
Exceptional items 4 56 44 (29)
Profit from operations 208 51 308 85
Finance costs (27) (20) (19)
Finance income 13 21 33
Share of profits of associates 5 52 68 189
Profit before taxation 246 120 105 288
Taxation 6 (63) (48) (95)
Profit after taxation 183 72 154 193
Minority interests (3) (1) (6)
Attributable earnings 180 71 154 187
RECONCILIATION OF ATTRIBUTABLE
EARNINGS
TO HEADLINE EARNINGS
Attributable earnings 180 71 154 187
Exceptional items after taxation and
minority interests (56) (60) (19)
Goodwill amortisation after minority - 4 9
interests
Headline earnings 124 15 727 177
Basic earnings per ordinary share
(cents)
Attributable 173 68 154 179
Headline 119 14 727 170
Continuing
Attributable 174 89 96 203
Headline 120 25 380 188
Disposed
Attributable (1) (21) (24)
Headline (1) (11) (18)
Diluted earnings per ordinary share
(cents)
Attributable 169 68 149 178
Headline 117 14 736 168
Number of ordinary shares in issue
Weighted average (`000) 104 189 104 189 104 189
Diluted weighted average (`000) 106 202 104 189 105 246
At period end (`000) 104 189 104 189 104 189
Statement of Changes in Equity
6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2004 2003 2004
Reviewed Reviewed Audited
Rm Rm Rm
Balance at 1 April 1 706 1 480 1 480
Attributable earnings 180 71 187
Variation of interests in associates (17) (2) 15
Dividend paid (42) (31) (31)
Exchange differences arising on
translation of foreign entities - 3 -
Unrecognised loss in associate now
proportionately consolidated (22) - -
Movement on revaluation reserve
arising on revaluation of listed equities (72) 6 55
Ordinary shareholders` interest 1 733 1 527 1 706
Segmental Analysis
BUSINESS GROUPING 6 months 6 months % 12 months
ended ended change ended
30 Sept 30 Sept 31 March
2004 2003 2004
Reviewed Reviewed Audited
Rm Rm Rm
Revenue
Continuing operations
Media 645 530 22 1 091
Retail 336 307 9 666
Books & Maps 138 140 (1) 267
Home Entertainment 158 132 20 282
Music 74 80 (8) 184
Africa 5 1 400 2
Distribution, manufacturing & 85 78 9 190
support services
Pay television 512 - -
1 953 1 268 54 2 682
Disposed operations
Hammicks - 16 16
1 953 1 284 52 2 698
Profit (loss) from operations
before exceptional items
Continuing operations
Media 58 26 123 77
Retail 2 (12) 117 13
Books & Maps 7 6 17 11
Home Entertainment 17 16 6 31
Music (1) (2) 50 11
Africa (8) (4) (100) (6)
Distribution,manufacturing & (7) (13) 46 (5)
support services
Pay television 85 - -
153 17 800 132
Disposed operations
Hammicks (1) (10) (18)
152 7 2 071 114
Balance Sheet
As at Notes 30 Sept 30 Sept 31 March
2004 2003 2004
Reviewed Reviewed Audited
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 288 245 203
Goodwill and intangible assets 365 37 48
Investments and loans 7 980 871 890
Deferred taxation 104 83 113
1 737 1 236 1 254
Current assets 1 814 1 201 1 466
Other current assets 1 453 880 925
Listed equities 8 34 75 125
Bank balances, deposits and cash 9 327 246 416
Total assets 3 551 2 437 2 720
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` interest 1 733 1 527 1 706
Minority interests 35 9 28
Total equity 1 768 1 536 1 734
Non-current liabilities 194 143 143
Long term liabilities 10 34 25 17
Provision for post-retirement medical costs 128 113 121
Deferred taxation 32 5 5
Current liabilities 1 589 758 843
Non-interest bearing liabilities 1 396 676 743
Interest bearing liabilities 193 82 100
Total equity and liabilities 3 551 2 437 2 720
Net asset value per ordinary share
Book value (rand) 17 15 16
Cash Flow Statement
Note 6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2004 2003 2004
Reviewed Reviewed Audited
Rm Rm Rm
Cash inflows/(outflows) from operating 117 (25) 113
activities
Cash (outflows)/inflows from investing (277) 244 265
activities
Cash outflows from financing activities (21) (171) (164)
Net (decrease)/increase in cash and cash (181) 48 214
equivalents
Cash and cash equivalents at beginning of 332 116 116
period
Foreign entities translation adjustment - 6 2
Cash and cash equivalents at end of period 9 151 170 332
Notes
1. Basis of accounting
These summarised consolidated interim financial statements have been
prepared using accounting policies that comply with the South African Statements
of Generally Accepted Accounting Practice dealing with Interim Financial
Reporting and the requirements of the South African Companies Act. The
accounting policies are consistent with those used in the annual financial
statements for the year ended 31 March 2004, except for the adoption of AC140 :
Business Combinations, in terms of which goodwill is no longer amortised and is
instead considered for impairment under
AC128 : Impairment of Assets. The effect of this change in accounting policy is
a reduction of R6 million in amortisation charged to the income statement.
The initial accounting for the increased interest in M-Net/SuperSport has been
provisionally determined. Any adjustment arising from the completion of the
initial accounting will be recognised by year-end, and is not expected to have a
material impact on these interim results.
2. Earnings per ordinary share
The calculation of attributable earnings per ordinary share and basic
headline earnings per ordinary share is based on attributable earnings of R180
million (2003: R71 million) and headline earnings of R124 million (2003: R15
million) respectively, and a weighted average of 104 189 314 (2003: 104 189 314)
ordinary shares in issue. The calculation of diluted attributable earnings per
ordinary share and diluted headline earnings per ordinary share is based on
attributable earnings of R180 million (2003: R71 million) and headline earnings
of R124 million (2003: R15 million) respectively, and a weighted average of 106
201 896 (2003: 104 189 314) ordinary shares in issue.
3. Reviewed results
These interim results have been reviewed by our auditors, Deloitte &
Touche, who reported, `Based on our review nothing has come to our attention
that causes us to believe that the accompanying interim financial information is
not fairly presented, in all material respects, in accordance with South African
Statements of Generally Accepted Accounting Practice applicable to Interim
Financial Reporting, and the Companies Act in South Africa.` A copy of their
complete unqualified review report is available for inspection at the registered
office of the company.
6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2004 2003 2004
Reviewed Reviewed Audited
Rm Rm Rm
4. Exceptional items
Surplus realised on sale of listed 53 69 58
equities
Net loss on disposal of Hammicks - (11) (6)
Impairment of leases and assets at - (9) (79)
various Nu Metro Theatres sites
Other 3 (8) (2)
56 41 (29)
Share of associated company exceptional - 3 -
items
56 44 (29)
5. Share of profits of associates
Share of profits earned by associated 52 68 221
companies
Reduction for unrecognised losses in - - (32)
respect of the prior period adjustment
arising from the adoption of AC133
52 68 189
6. Tax rate reconciliation % % %
Standard rate 30 30 30
Deferred taxation not raised on assessed 3 16 5
losses
Expenses not deductible for tax purposes 6 - 1
Exempt and capital profits (7) (11) (6)
Difference attributable to associates (6) 3 3
Other - 2 -
26 40 33
Rm Rm Rm
7. Investments and loans
Interest in associates 886 866 883
Listed shares at carrying value 445 533 438
Unlisted shares at carrying value 441 333 445
Other investments and loans 94 5 7
980 871 890
Market value of listed shares 705 701 731
Directors` valuation of unlisted shares 648 669 1 218
8. Listed equities at market value
Investment in MTN Group Limited 34 75 125
9. Cash and cash equivalents
Bank balances, deposits and cash 327 246 416
Call borrowings (176) (76) (84)
151 170 332
10.Net cash
Cash and cash equivalents 151 170 332
Long term liabilities (34) (25) (17)
Short term borrowings (17) (6) (16)
100 139 299
11.Capital expenditure incurred 61 31 59
12.Contingent liabilities and commitments
Guarantees 3 35 21
Unconditional purchase obligations - 465 - -
program & film rights
Contingent liabilities 12 1 12
Operating leases 714 883 784
- within one year 81 105 99
- more than one year 633 778 685
13.Capital expenditure commitments
Contracted - 4 -
Approved but not contracted 42 63 23
42 67 23
The capital expenditure will be funded from future cash flows and borrowings.
JOHNNIC COMMUNICATIONS LIMITED (Johncom) Incorporated in the Republic of South
Africa. Registration number 1889/000352/06. Share code: JCM. ISIN Code: ZAE
000024584. American Depositary Receipt (ADR) programme CUSIP No: 47805P102.
ADR to ordinary share: 1:1
Johncom House, 4 Biermann Ave, Rosebank 2196, Johannesburg
PO Box 1746, Saxonwold, 2132, Gauteng. www.johncom.co.za
Directors: M E Ramano (Chairman), A C G Molusi# (Group Chief Executive Officer),
P C Desai#, N Jacobsohn#, P M Jenkins#, C B Brayshaw,
D M Mashabela, J R D Modise, W S Moutloatse, T R A Oliphant, K C Ramon,
T A Wixley.
#Executive Director.
Company secretary: J R Matisonn.
These results may be viewed on the internet at http://www.johncom.co.za E-
mail: matisonnj@johncom.co.za
