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AVU
AVU
AVU - Avusa Limited - Unaudited Condensed Consolidated Financial Results For
The Six Months Ended 30 September 2009
AVUSA LIMITED
Incorporated in the Republic of South Africa
Registration number: 2008/002461/06
Share code: AVU ISIN code: ZAE000115895
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED
30 SEPTEMBER 2009
- Advertising revenues 20% down
- Operating costs held
- Strong, ungeared financial position
Overview
The recession has been more severe than expected. A 20% reduction in net
advertising revenues eroded margins in Avusa`s Media business. Whilst reduced
consumer discretionary spending impacted profitability in the group`s Retail,
Entertainment and Books and Maps businesses, these entertainment businesses
held revenue and gross margin at the level of the six months to 30 September
2008.
Financial results and position
Revenue from continuing operations decreased 5% from R2,330 billion to R2,202
billion, a decline of R128 million. This, together with a reduced gross
margin given the deterioration in market conditions, resulted in gross profit
being R91 million lower than the comparative period. Operating costs, which
show a marginal R3 million increase over last year`s costs, reflect the
successful implementation of group-wide cost-cutting initiatives. Operating
costs include R10 million of developmental losses in respect of the group`s
new digital and multi-media projects (2008: R4 million), and R14 million of
foreign exchange losses (2008: a net R1 million). Lower interest rates
resulted in net finance income reducing by R4 million compared to the prior
year.
The group`s financial position remains ungeared and strong, with net cash of
R200 million.
Operational review
Media
Advertising revenues across the board in our newspaper, magazine, digital and
out-of-home businesses were sharply lower in an extremely tough trading
period. In particular, recruitment advertising reduced as employers shed jobs
and limited appointments.
Copy sales of our titles also came under pressure, but the Sunday Times grew
its readership to 3 977 000 at a time when most of its competitors recorded
declines, thus increasing its leadership position in the South African
weekend newspaper market.
During this difficult period, our newest product, The Times, performed
outstandingly, reducing its losses to R8 million on the back of increasing
support from advertisers. Times Live, the multimedia portal for The Times,
was launched to acclaim during September 2009.
The Daily Dispatch, which underwent significant restructuring in the second
half of the 2009 financial year, posted significantly improved profits. In
addition, the title received a series of awards for its investigative
journalism.
BDFM, our 50% joint venture with Pearson, and publisher of Business Day and
Financial Mail, incurred a loss before interest and tax of R12 million
against last year`s R3 million profit, mainly as a result of development
costs and R5 million in retrenchment costs.
I-Net Bridge weathered the sharp economic downturn to produce improved
results and the Amorphous companies also increased their profits.
Career Junction was impacted by the decline in recruitment advertising in
much the same way as our newspaper businesses.
After several years of investing in quality content, our education business,
Learning Channel, gained market share and produced a strong profit
contribution.
Retail
Retail grew revenues 6%, while profit from operations, which included R9
million of digital development and online costs, declined by R12 million.
Exclusive Books increased revenue 6% over the comparative period, with same-
store revenue up 3%. Three loss-making stores were closed during the period,
while three new stores were opened. The gross margin was lower due to the
recessionary trading environment, with related stock write-downs.
Profitability was reduced by R7 million of digital development costs.
Van Schaik Bookstore, while enjoying increased revenues, was also affected by
reduced margins. Van Schaik`s online offering, which began trading in
December 2008, incurred an operating loss of R2 million.
Entertainment
The extremely competitive trading environment in the entertainment industry
resulted in lower unit selling prices and an erosion of margins. The business
unit produced a R3 million loss from operations compared to a R3 million
profit generated in the comparative period. The dramatic strengthening of the
rand over the half-year resulted in an R11 million unrealised foreign
exchange loss in the Nu Metro Film Distribution business, in contrast to a
foreign exchange gain of R1 million last year.
Revenues at Nu Metro Cinemas increased by 28% over the comparative period,
driven by excellent content, strategic marketing initiatives, the continuing
roll-out of 3D screens, the newly implemented site-by-site management
strategy, and increased attendances during recessionary times. Two non-
performing sites were closed in line with the business focus on premium
sites. The confectionery offering was improved and well received by cinema
patrons.
Despite the pressure on advertising sales, Popcorn Cinema Advertising
implemented cost savings on the technical side to deliver a marginally
improved financial performance.
The Home Entertainment business tracked the overall downturn in retail sales,
with lower margins as a result of retail price pressures and the lagged
impact of a weaker exchange rate. The business is well placed to trade its
way through the recession with the acquisition during the period of the Sony
Pictures Home Entertainment and Paramount/Dreamworks Home Entertainment
licences. The 20th Century Fox Home Entertainment licence terminated on 31
May 2009, and was not renewed.
Nu Metro Film Distribution benefited from increased cinema attendances, while
the Nu Metro Inspires and Nu Metro Bollywood initiatives are exciting
additions to the range and quality of content.
The Music business again saw a decline in sales in line with the global
trend. Right-sizing restructuring initiatives undertaken in the second half
of last year have borne fruit, with the business generating a small operating
profit for the half-year.
Books and Maps
Books and Maps, which incorporates Random House Struik, Struik Christian
Media, Map Studio, MapIT, Booksite Afrika, Entertainment Logistics Services
(ELS) and Compact Disc Technologies (CDT), as well as the offshore book
businesses in the United Kingdom, Australia and New Zealand, recorded a 9%
decrease in revenue, and a R6 million decrease in profit from operations.
The single largest negative contributor to the business unit`s revenue was
the reduced revenue generated by the offshore business, further impacted by a
stronger rand resulting in lower rand revenue on conversion of the foreign
currency revenue into rand. Cost-cutting undertaken at the overseas
operations allowed them to post a 14% improvement in their results. The
stronger rand, decline in backlist sales, increased product returns and
higher stock provisions impacted the margins of the South African businesses.
The Books and Maps results include a foreign exchange loss of R3 million
compared to R2 million in the prior year.
Post-balance sheet events
In line with our out-of-home growth strategy, on 1 October 2009, Avusa
acquired a 51% stake in Boo Media and Communication (Boo Media). Boo Media
develops opportunities for advertisers, particularly in shopping malls and
building wraps.
The BDFM`s Weekender was closed due to ongoing losses, and was published for
the last time on Saturday, 7 November 2009.
Outlook
We expect the softer advertising and discretionary retail environment to
continue until at least the end of Avusa`s current financial year. However,
we remain focused to meet the competitive challenge with confidence, with the
group`s business strategies and models having been revisited during the
current recession.
Adv. Dumisa Buhle Ntsebeza SC
Chairman
Prakash C Desai
Group Chief Executive Officer
Howard Benatar
Chief Financial Officer
For and on behalf of the board
Rosebank
18 November 2009
Condensed consolidated statement of comprehensive income
% Six months Six months Year
change ended ended ended
30 September 30 September 31 March
2009 2008 2009
(unaudited) (reviewed) (audited)
Rm Rm Rm
Continuing operations
Revenue (5) 2 202 2 330 4 867
Cost of sales (1 430) (1 467) (3 039)
Gross profit (11) 772 863 1 828
Operating expenses (702) (684) (1431)
Operating costs (642) (639) (1 334)
Depreciation and (54) (50) (100)
amortisation
Goodwill impairment - - (4)
Share-based payments (6) 5 7
Profit from operations (61) 70 179 397
before exceptional items
Exceptional items 7 (2) (3)
Profit from operations (56) 77 177 394
Net finance income 10 14 26
Finance income 35 42 74
Finance costs (25) (28) (48)
Share of profits of 2 - -
associates (net of income
tax)
Profit before taxation (53) 89 191 420
Taxation (33) (60) (130)
Income tax expense (24) (59) (128)
Secondary tax on (9) (1) (2)
companies expense
Profit after taxation (57) 56 131 290
Discontinued operations
Profit from discontinued - 39 39
operations
Profit for the period (67) 56 170 329
Other comprehensive
income
Exchange differences on (3) (6) (8)
translation of foreign
operations
Other comprehensive (3) (6) (8)
income for the period
(net of income tax)
Total comprehensive 53 164 321
income for the period
Profit attributable to:
Owners of the company (72) 45 160 305
Non-controlling interest 11 10 24
Profit for the period 56 170 329
Total comprehensive
income attributable to:
Owners of the company 42 154 297
Non-controlling interest 11 10 24
Total comprehensive 53 164 321
income for the period
Earnings per ordinary
share (cents)
Basic (72) 44 155 296
Diluted (72) 44 155 296
Earnings per ordinary
share from continuing
operations (cents)
Basic 44 117 258
Diluted 44 117 258
Earnings per ordinary
share from discontinued
operations (cents)
Basic - 38 38
Diluted - 38 38
Condensed consolidated segmental statement
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2009 2008 2009
(unaudited) (reviewed) (audited)
Rm Rm Rm
Revenue from external customers
Continuing operations
Media 1 014 1 154 2 228
Retail 483 456 1 074
Entertainment 435 422 955
Books and Maps 270 298 610
2 202 2 330 4 867
Discontinued operations
Africa - 80 80
Profit (loss) from operations
before exceptional items
Continuing operations
Media 70 144 252
Retail (2) 10 79
Entertainment (3) 3 5
Books and Maps 24 30 83
89 187 419
Corporate (13) (13) (29)
76 174 390
Share-based payments (6) 5 7
70 179 397
Discontinued operations
Africa - (15) (18)
Condensed consolidated statement of financial position
30 September 30 September 31 March
2009 2008 2009
(unaudited) (reviewed) (audited)
Rm Rm Rm
ASSETS
Non-current assets 902 800 876
Tangible and intangible assets 730 636 704
Investments and loans 42 40 38
Deferred taxation 130 124 134
Current assets 2 031 2 100 2 236
Inventories, receivables and 1 600 1 681 1 679
other current assets
Bank balances, deposits and 431 419 557
cash
Total assets 2 933 2 900 3 112
EQUITY AND LIABILITIES
Total equity 1 493 1 363 1 512
Equity attributable to owners 1 398 1 293 1 415
of the company
Non-controlling interest 95 70 97
Non-current liabilities 250 295 263
Long-term borrowings 5 29 3
Post-retirement benefits 167 173 167
liabilities
Operating leases equalisation 61 80 70
liabilities
Deferred taxation 17 13 23
Current liabilities 1 190 1 242 1 337
Payables and other current 950 995 1 187
liabilities
Short-term borrowings 9 6 9
Bank overdrafts 231 241 141
Total equity and liabilities 2 933 2 900 3 112
Net asset value per ordinary 1 347 1 245 1 363
share (cents)
Condensed consolidated statement of changes in equity
Share Accum- Owners` Non-
capital Other ulated interest controlling Total
and reserves profits Rm interest equity
premium Rm Rm Rm Rm
Rm
Balance at 1 150 (12) - 1 138 40 1 178
31 March 2008
Total (6) 160 154 10 164
comprehensive
income for the
period
Equity-settled 1 - 1 - 1
share incentive
schemes
Effect of - - - 30 30
acquisitions and
disposals
Dividends paid by - - - (10) (10)
subsidiaries to
non-controlling
interests
Balance at 30 1 150 (17) 160 1 293 70 1 363
September 2008
(reviewed)
Balance at 1 150 (12) - 1 138 40 1 178
31 March 2008
Total (8) 305 297 24 321
comprehensive
income for the
period
Equity-settled 3 - 3 - 3
share incentive
schemes
Effect of - - - 43 43
acquisitions and
disposals
Dividends paid by - - - (10) (10)
subsidiaries to
non-controlling
interests
Call options over (23) - (23) - (23)
Avusa shares
Balance at 1 150 (40) 305 1 415 97 1 512
31 March 2009
(audited)
Total (3) 45 42 11 53
comprehensive
income for the
period
Equity-settled 3 - 3 - 3
share incentive
schemes
Dividends paid by - - - (13) (13)
subsidiaries to
non-controlling
interests
Dividend paid - (62) (62) - (62)
Balance at 1 150 (40) 288 1 398 95 1 493
30 September 2009
(unaudited)
Condensed consolidated statement of cash flows
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2009 2008 2009
(unaudited) (reviewed) (audited)
Rm Rm Rm
Net cash flows from operations 109 207 466
before working capital changes
Working capital changes (127) (227) (21)
Net cash flows from operations (18) (20) 445
Net finance income 10 9 22
Taxation paid (60) (44) (134)
Net cash flows from operating (68) (55) 333
activities
Net cash flows from investing (70) (35) (148)
activities
Net cash flows from financing (77) (11) (47)
activities
Net (decrease) increase in cash and (215) (101) 138
cash equivalents
Cash and cash equivalents at 416 275 275
beginning of the period
Foreign operations translation (1) 4 3
adjustment
Cash and cash equivalents at 200 178 416
end of the period
Notes
1. Basis of preparation
The unaudited condensed consolidated interim financial statements for
the six months ended 30 September 2009, have been prepared using
accounting policies compliant with International Financial Reporting
Standards (IFRS), IAS 34 Interim Financial Reporting, the JSE
Limited`s Listings Requirements and the South African Companies Act.
The accounting policies are consistent, in all material respects,
with those detailed in Avusa`s 2009 annual report, except for the
adoption on 1 April 2009 of those new and amended statements of
generally accepted accounting practice and interpretations of
statements of generally accepted accounting practice listed in
Avusa`s 2009 annual report with effective dates for Avusa of 1 April
2009, and those amendments included in the International Accounting
Standards Board`s annual improvements project where such amendments
are effective for Avusa on 1 April 2009. The adoption of the new and
amended statements of generally accepted accounting practice,
interpretations of statements of generally accepted accounting
practice, and improvements project amendments has not had a material
effect on the group`s financial results, but has impacted
presentation in the group`s financial statements.
In addition, the revised formula for the calculation of headline
earnings released by the South African Institute of Chartered
Accounts (SAICA) in August 2009 in the form of Circular 3/2009
Headline Earnings, was adopted by Avusa on 31 August 2009 with no
impact on the group`s reported headline earnings. The formula was
revised by SAICA to align it with changes in IFRS.
The statement and interpretation which have had the most effect on
their adoption by Avusa are IAS 1 Presentation of Financial
Statements and IFRIC 13 Customer Loyalty Programmes.
IAS 1 Presentation of Financial Statements
The amendments require information in financial statements to be
aggregated on the basis of shared characteristics, and introduce a
statement of comprehensive income. This enables users to analyse
changes in equity resulting from transactions with owners in their
capacity as owners separately from "non-owner" changes.
The revisions include changes in the titles of some of the financial
statements to reflect their function more clearly, for example, the
balance sheet is renamed the statement of financial position.
The adoption by Avusa of this amended statement has not had an impact
on Avusa`s results or financial position, but has resulted in
different presentation in the group`s financial statements.
IFRIC 13 Customer Loyalty Programmes
IFRIC 13 impacts entities that issue points to customers entitling
them to a discount on future purchases. The interpretation requires
loyalty award credits to be accounted for as a separate component of
the sale transaction in terms of which they were granted by
allocating the sale proceeds between the loyalty award and the other
components of the sale. The amount allocated to the loyalty award is
determined by reference to its fair value and is deferred until the
loyalty reward is redeemed.
Exclusive Books operates its Fanatics customer loyalty programme. The
effect of IFRIC 13 is that Exclusive Books deducts the fair value of
customer loyalty points from revenue rather than including it in
marketing expenses, as was the previous accounting treatment.
Accordingly, the revenue and operating costs were reduced by R2
million for the six months ended 30 September 2008, and by R8 million
for the year ended 31 March 2009.
% Six months Six months Year
change ended ended ended
30 September 30 September 31 March
2009 2008 2009
(unaudited) (reviewed) (audited)
Rm Rm Rm
2. Exceptional items
Profit on disposal 5 - -
of property
Fair value 2 (2) (5)
adjustment of
investments
Pension fund surplus - - 1
apportionment
Other - - 1
7 (2) (3)
3. Discontinued
operations -
Nigerian and Kenyan
interests
Revenue - 80 80
Loss from operations - (15) (18)
Net finance costs - (5) (4)
Loss before taxation - (20) (22)
Taxation - - -
Loss after taxation - (20) (22)
before profit on
sale
Non-controlling - (1) (1)
interest
- (21) (23)
Sale of Nigerian and
Kenyan interests
Profit on sale - 60 62
Profit from - 39 39
discontinued
operations
4. Reconciliation
between earnings and
headline earnings
Earnings 45 160 305
Profit on disposal (5) - -
of tangible and
intangible assets
Profit on sale of - (60) (62)
discontinued
operations
Impairment of - - 3
property, plant and
equipment
Total tax effect - - -
Attributable to non- - - -
controlling interest
Headline earnings (60) 40 100 246
Headline earnings
per ordinary share
(cents)
Basic (60) 39 97 239
Diluted (60) 39 97 239
5. Shares in issue
Shares in issue at 103 821 159 103 821 159 103 821 159
beginning of the
period
Less: Call options (1 379 978) (382 734) (1 379 978)
over Avusa shares
Adjusted shares in 102 441 181 103 438 425 102 441 181
issue at end of the
period
Weighted average for 102 441 181 103 438 425 102 939 803
the period
Weighted average for 102 481 865 103 456 723 102 958 271
the period (diluted)
At 30 September 2009, Avusa held 1 379 978 call options over Avusa
shares as hedges against share incentives granted. 382 734 call
options were acquired by Avusa as part of the assets purchased from
ElementOne, and 997 244 were bought in October 2008. The call options
over Avusa shares have zero strike prices, and are treated for
accounting purposes as treasury shares. Avusa`s September 2008
financial results released in November last year did not treat the
call options over Avusa shares as treasury shares. These comparatives
have therefore been restated accordingly. The dilution arises as a
result of equity-settled share incentives in issue.
6. Earnings per ordinary share
The calculation of basic earnings and headline earnings per ordinary
share is based on earnings of R45 million (2008: R160 million) and
headline earnings of R40 million (2008: R100 million) respectively,
and on a weighted average of 102 441 181 (2008: 103 438 425) ordinary
shares in issue.
The calculation of diluted earnings and headline earnings per
ordinary share is based on earnings of R45 million (2008: R160
million) and headline earnings of R40 million (2008: R100 million)
respectively, and on a weighted average of 102 481 865 (2008: 103 456
723) diluted ordinary shares in issue.
30 September 30 September 31 March
2009 2008 2009
(unaudited) (reviewed) (audited)
Rm Rm Rm
7. Contingent liabilities and
operating lease commitments
Contingent liabilities 8 13 10
Operating lease commitments 562 568 611
- due within one year 163 109 176
- due after one year 399 459 435
8. Capital expenditure
commitments
Contracted but not 16 8 10
provided for
Approved but not yet - 2 23
contracted for
16 10 33
Company secretary: JR Matisonn
E-mail: matisonnj@avusa.co.za
Directors: DB Ntsebeza (Chairman), PC Desai* (Group Chief Executive Officer),
H Benatar* (Chief Financial Officer), MD Brand, YZ Cuba,
LM Machaba-Abiodun, S Matiwaza+, Z Mtshotshisa+, TRA Oliphant,
MJ Willcox, TA Wixley, MSM Xayiya
*Executive +Alternate
Address: 4 Biermann Avenue, Rosebank, 2196, Johannesburg?
PO Box 1746, Saxonwold, 2132
These results may be viewed on the internet at http://www.avusa.co.za
Date: 20/11/2009 07:05:03 Produced by the JSE SENS Department.
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