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Primedia Limited - Annual Results
OVERVIEW
Primedia`s vision is to become a world-class, South African (SA) media
group. In order to do this, Primedia has resolved to:
Focus on the growth of its strong cash generative media businesses in SA
where it enjoys critical mass, good profitability and depth of quality
management;
Dispose of the under-performing international cinema exhibition
businesses which have significantly imbalanced the group`s media
portfolio, as well as the rest of the group`s international investments;
Strengthen the group`s balance sheet;
Enhance Black Empowerment and the pace of transformation within the
group.
During the year, Primedia went a long way in achieving these goals.
Despite the losses from the overseas operations, which caused the group
to report a significant overall loss, we nevertheless generated record
cash flow in the toughest media environment in decades. The group has
sold certain international interests and intends to continue this
process, which will further improve its financial position including the
elimination of the remaining contingent liabilities. The group has fully
provided for those assets that are under-performing and has also
absorbed the costs of restructuring the UK-based One-to-One business
including substantial redundancy costs.
Primedia looks forward to 2003 with optimism partly because it sees, in
the near term, the elimination of a material amount of the losses from
offshore investments and because the trading results for the first two
months of the financial year are significantly better than last year.
Primedia is now in the position to use its significant free cash flow to
recommence the payment of dividends, increase the buy-back programme of
its shares and seek earnings enhancing acquisitions in SA.
STRATEGIC HIGHLIGHTS
Ster-Kinekor Theatres` rationalisation strategy has been highly
successful which has resulted in market share gains and in R50 m
sustainable profitability improvements since the commence of the program
in 2000;
Innovation in the SA businesses has secured R75 m of incremental
turnover over the next two years;
The media portfolio has substantially been rebalanced following $47 m
(R500 m) of disposals by Ster Century Europe (SCE);
Contingent liabilities of R178 m associated with SCE`s disposals have
been eliminated;
Ster Century Middle East (SCME) has renegotiated leases to reduce losses
and facilitate disposal;
Substantial cost savings have been achieved in the One-to-One businesses
in the UK pursuant to the restructuring of operations and as a prelude
to their disposal as and when it is opportune;
R275 m of mainly non-core international businesses have been sold over a
two-year period (in addition to cinema disposals);
The conversion of Primedia`s debentures has strengthened the group`s
capital base by R402 m;
Continued enhancements have been made to the group`s Black Empowerment
credentials.
FINANCIAL HIGHLIGHTS
Turnover was down by 3% to R1,7 billion; however
Turnover from the SA businesses increased by 17% to R1,3 billion; and
Turnover from other continuing operations was up by 8%;
EBITDA was down 10% to R226 m; however
EBITDA from SA operations was up 16% to R221 m; and
EBITDA from other continuing operations was down 3%;
PBIT was down 9% to R150 m, however
PBIT from SA operations was up 27% to R166 m; and
PBIT from other continuing operations was down 5%;
Equity accounted losses mainly from SCE and SCME increased from R67 m to
R83 m including currency depreciation losses of R25 m;
The impairment tests applied to the group`s assets at the interim stage
was again reconsidered, on the same conservative basis, leading to final
exceptional (mostly non-cash) write-offs of R344 m for the year as
follows:
Rm
International
SCE asset and goodwill impairment 172
SCME provision 58
Primecom UK write-offs and retrenchments 65 295
South Africa
Metropolis goodwill write-off 35
Other South African impairments 14 49
Total Group 344
Primedia`s results were impacted by a $6,1 m foreign exchange loss
recognised by SCE through its income statement (a corresponding $12,8 m
currency gain on the translation of SCE`s underlying operations was
taken directly to reserves). Primedia`s proportionate share of this
foreign exchange loss amounted to R25 m (12 cents per share). This
offset a foreign exchange gain of R25 m (12 cents per share) from the
$10 m Mezzanine Note invested by Primedia into SCE in October 2001.
The group`s headline earnings per share from the SA businesses were very
badly impacted by international operations as indicated below:
2002 2001
Cents Cents
South Africa 52 43 +21%
Advertising 38 39
Filmed Entertainment 14 4
International (47) (29)
Filmed Entertainment (35) (30)
One-to-One (12) 1
Central (11) (15)
Treasury (6) (4)
Operating and non-recurring (5) (11)
costs
Debenture interest tax-effect 5 10
Foreign Exchange 0 0
SCE (12) 0
Mezzanine Note 12 0
Total Group (1) 9
Note:
The EPS for 2001 is not entirely comparable to 2002 because of the
inclusion of debenture interest for a full 12 months in 2001.
The group achieved record free cash flow of R177 m with a very high
operating profit to cash translation ratio. This is summarised below.
2002 2001
Rm Rm
South Africa 186 117 +59%
Advertising 122 126
Filmed Entertainment 64 (9)
International
One-to-One 9 21
Central including treasury (18) (30)
Total Group 177 108 +64%
The balance sheet, assisted by the conversion of the debentures, remains
strong notwithstanding the exceptional charges;
Despite a further investment of R87 m into SCE during the year, net debt
of R162 m (2001: R147 m) is more than well covered by the group`s
EBITDA. Long-term debt represents 29% of net debt;
Primedia repurchased 1% of its issued shares during the year at a cost
of R9 m.
OPERATING HIGHLIGHTS
EBITDA from the Advertising businesses was up 1% to R154 m, despite
local advertising conditions being the worst in decades, due to:
Strong performances from 702 Talk Radio and 94.7 Highveld Stereo which
increased EBITDA by 17%;
R10 m EBITDA turnaround at Megapro Marketing and Primedia Face2Face;
Cinema & Print division declining by 42%; and
Margins remained very healthy at 28,0%;
EBITDA from the group`s local Filmed Entertainment businesses was up 36%
to R88 m as a result of:
Good theatrical and video content and improved attendances per screen;
52% increase in EBITDA at Ster-Kinekor Theatres to R66 m;
Ster-Kinekor Theatres` increased market share from 53% to 60%;
Record EBITDA by Ster-Kinekor Home Entertainment at R24 m, up 69%; and
Overall margins increased from 12,2% to 12,3%;
EBITDA from One-to-One marketing was down from R59 m profit to R0,3 m
(from continuing businesses the decline was from R36 m to R0,8 m) due
to:
A major slowdown in UK Internet, technology and advertising spending;
Difficult trading conditions, however the restructuring and
repositioning process is mostly complete.
2003 STRATEGY
The disposal of underperforming international interests will continue to
release capital, eliminate contingent liabilities and the drag on group
consolidated earnings.
Innovation will continue to enhance our strength in SA. Strategies to
increase market share and improve operational efficiencies will also be
pursued. Earnings enhancing acquisitions in SA will be considered as
well as further expansion into Africa.
CORPORATE GOVERNANCE
Primedia recently announced that it had reconstituted its board and sub-
committees in line with King II.
PROSPECTS
The group expects improved earnings per share, continued strong cash
generation and a resumption of cash dividends to shareholders.
In the two-month period to August 2002, the group`s SA Advertising and
Filmed Entertainment businesses recorded turnover increases of 20% and
11% respectively. Trading by the group`s remaining international
businesses has been satisfactory.
Consolidated income statement for the year ended 30 June
Audited %
R`000 2002 2001 Change
Revenue 1 684 310 1 745 043 (3)
- Continued 1 656 785 1 534 339 8
- Disposed entities 27 525 210 704
Operating profit / (loss) before 225 951 250 025 (10)
depreciation
- Continued 226 434 233 811 (3)
- Disposed entities (483) 16 214
Depreciation (75 839) (84 540) (10)
Operating profit after 150 112 165 485 (9)
depreciation
Finance costs
- Debenture interest (35 730) (69 661) (49)
- Other interest (36 378) (39 751) (8)
Investment income 15 141 18 223 (17)
Profit before exceptional items 93 145 74 296 25
and goodwill amortisation
Goodwill amortisation (5 316) (10 723)
Exceptional items 1 (343 567) (31 682)
Share of associated company (83 434) (67 453)
losses
Loss before tax (339 172) (35 562)
Income tax expense (26 034) (11 564)
Loss after tax (365 206) (47 126)
Minority interest 2 153 5 240
Net loss for the year (363 053) (41 886)
Number of shares (`000)
- Issued 2 220 763 204 734
- Weighted average 2 212 446 201 918
- Diluted weighted average 2 212 710 204 207
(Loss) / earnings per share
(cents)
- Headline 2 (1) 9
- Basic 2 (171) (21)
- Diluted headline 2 (1) 9
- Diluted basic 2 (171) (21)
Consolidated income statements
for the year ended 30 June
Audited
South African International
operations operations
R`000 2002 2001 2002 2001
Revenue 1 294 781 1 111 333 389 529 633 710
Operating profit before 221 335 190 438 4 616 59 587
depreciation
Depreciation (55 236) (59 615) (20 603) (24 925)
Operating profit / 166 099 130 823 (15 987) 34 662
(loss) after
depreciation
Finance costs
- Debenture interest (35 730) (69 661) - -
- Other interest (31 697) (24 595) (4 681) (15 156)
Investment income 14 219 16 093 922 2 130
Profit / (loss) before 112 891 52 660 (19 746) 21 636
exceptional items and
goodwill amortisation
Goodwill amortisation (5 316) (10 723) - -
Exceptional items (48 344) (88 947) (295 223) 57 265
Share of associated (2 420) (7 922) (81 014) (59 531)
company losses
Profit / (loss) before 56 811 (54 932) (395 983) 19 370
tax
Income tax (expense) / (37 881) (21 046) 11 847 9 482
credit
Profit / (loss) after 18 930 (75 978) (384 136) 28 852
tax
Minority interest (2 230) 401 4 383 4 839
Net profit / (loss) for 16 700 (75 577) (379 753) 33 691
the year
Number of shares (`000)
- Issued 220 763 204 734 220 763 204 734
- Weighted average 212 446 201 918 212 446 201 918
- Diluted weighted 212 710 204 207 212 710 204 207
average
Earnings / (loss) per
share (cents)
- Headline 46 38 (47) (29)
- Basic 8 (37) (179) 16
- Diluted headline 46 38 (47) (29)
- Diluted basic 8 (37) (179) 16
Audited
Total group
R`000 2002 2001
Revenue 1 684 310 1 745 043
Operating profit before depreciation 225 951 250 025
Depreciation (75 839) (84 540)
Operating profit / (loss) after depreciation 150 112 165 485
Finance costs
- Debenture interest (35 730) (69 661)
- Other interest (36 378) (39 751)
Investment income 15 141 18 223
Profit / (loss) before exceptional items and 93 145 74 296
goodwill amortisation
Goodwill amortisation (5 316) (10 723)
Exceptional items (343 567) (31 682)
Share of associated company losses (83 434) (67 453)
Profit / (loss) before tax (339 172) (35 562)
Income tax (expense) / credit (26 034) (11 564)
Profit / (loss) after tax (365 206) (47 126)
Minority interest 2 153 5 240
Net profit / (loss) for the year (363 053) (41 886)
Number of shares (`000)
- Issued 220 763 204 734
- Weighted average 212 446 201 918
- Diluted weighted average 212 710 204 207
Earnings / (loss) per share (cents)
- Headline (1) 9
- Basic (171) (21)
- Diluted headline (1) 9
- Diluted basic (171) (21)
Consolidated balance sheet
for the year ended 30 June
Audited
R`000 2002 2001
Assets
Non-current assets
Property, plant and equipment 298 056 290 393
Goodwill and intangible assets 20 745 18 114
Investments in associates 3 149 527 236 920
Other investments 3 231 47 404
Deferred tax asset 363 842 353 450
835 401 946 281
Current assets
Inventories 31 703 38 747
Trade and other receivables 353 523 367 370
Bank balances and cash 88 505 62 707
473 731 468 824
Total assets 1 309 132 1 415 105
Equity and liabilities
Share capital and premium 449 427 21 669
Debentures - 380 294
Non-distributable reserves 487 742 367 095
Accumulated loss (516 368) (153 315)
420 801 615 743
Minority interest 127 637 127 121
Total shareholders` funds 548 438 742 864
Non-current liabilities
Long-term borrowings 47 356 62 536
Provisions for liabilities and 119 739 26 264
charges
167 095 88 800
Current liabilities
Short-term borrowings 184 292 133 987
Other current liabilities 409 307 449 454
593 599 583 441
Total equity and liabilities 1 309 132 1 415 105
Net asset value per share (cents) 191 301
Consolidated cash flow statement
for the year ended 30 June
Audited
R`000 2002 2001
Operating activities
Cash generated from operations 244 432 193 318
Non-debenture interest paid (36 378) (39 751)
Investment income 15 141 18 223
Income taxes paid (17 847) (18 903)
205 348 152 887
Cash flow relating to exceptional (17 895) (43 506)
items
Cash available from operations 187 453 109 381
Debenture interest paid (71 474) (69 082)
Net cash from operating activities 115 979 40 299
Investing activities
Loans advanced to associate (90 945) -
companies
Acquisition of property, plant and (68 855) (79 333)
equipment
- Expansion capital expenditure (45 316) (48 793)
- Replacement capital expenditure (43 539) (30 540)
- Capital expenditure funded by 20 000 -
landlord
Acquisition of net trading assets (34 752) (247 018)
Total proceeds
- Disposal of business 8 309 176 343
- Disposal of property, plant and 14 863 15 547
equipment
Other investing activities (3 428) (4 429)
Net cash used in investing (174 808) (138 890)
activities
Financing activities
Net proceeds from issue of shares 50 372 22 430
Buy back of shares in the company (9 129) -
(Decrease) / increase in long-term (1 726) 23 401
borrowings
Net cash from financing activities 39 517 45 831
Net decrease in cash and cash (19 312) (52 760)
equivalents
Cash and cash equivalents at (71 280) (17 667)
beginning of year
Effect of foreign exchange rate (5 195) (853)
changes
Cash and cash equivalents at end (95 787) (71 280)
of year
Consolidated statement of changes in shareholders` equity
for the year ended 30 June
Audited
Share Non-
capital distri- Accumu-
and Deben- butable lated
R`000 premium tures reserves loss Total
Balance at 1 July 3 025 374 645 380 914 (91 999) 666 585
2000 as previously
reported
Change in
accounting policy:
- Provision for (16 219) (16 219)
post-retirement
medical benefits
- Provision for (2 130) (2 130)
leave pay
Restated balance 3 025 374 645 380 914 (110 348) 648 236
at 1 July 2000
Units issued 18 658 9 574 28 232
Units held in The (14) (3 925) (18 237) (22 176)
Primedia Trust
Tax relief on 21 889 21 889
intangible assets
Net loss for the (41 886) (41 886)
year
Translation (17 774) (17 774)
reserve movement
Transfer to non- 1 081 (1 081) -
distributable
reserves
Other (778) (778)
Balance at 30 June 21 669 380 294 367 095 (153 315) 615 743
2001
Shares / units
issued:
- Capitalisation 11 570 9 003 20 573
issue in lieu of
debenture interest
- Acquisition of 2 472 3 749 6 221
interest in
Metropolis*
- Conversion of 393 046 (393 046) -
debentures (net of
units held by The
Primedia Trust)
- Capitalisation 31 953 31 953
issue in lieu of
debenture interest
- Share buy back (9 129) (9 129)
- Share issue (2 153) (2 153)
expenses
Units held in The (1) (949) (950)
Primedia Trust
Tax relief on 20 138 20 138
intangible assets
Net loss for the (363 053) (363
year 053)
Translation 100 347 100 347
reserve movement
Other 1 111 1 111
Balance at 30 June 449 427 - 487 742 (516 368) 420 801
2002
Notes
R`000 2002 2001
1. Exceptional Items
Assets impaired 109 170 70 054
Cost of acquisitions not completed - 826
Goodwill impaired 107 794 -
Provision for onerous leases 4 935 32 008
Loss/(profit) on disposal and write-down of 103 773 (106 801)
assets
Restraint of trade payments - 1 365
Retrenchment and restructuring costs 17 895 34 230
343 567 31 682
Income tax relief (5 231) (15 893)
Minority interests (1 880) (8 968)
336 456 6 821
2. (Loss) / earnings per share
Loss for the year (363 053) (41 886)
Debenture interest 35 730 69 661
Goodwill amortisation 5 316 10 723
Net (profit) / loss on disposal of (1 330) 779
property, plant and equipment
(323 337) 39 277
Headline earnings adjustments:
Cinema closure provision costs incurred (4 029) (5 568)
Exceptional items:
- Assets / goodwill impaired 216 964 70 054
- Net loss/(profit) on disposal and write- 103 773 (112 237)
down of assets
- Cinema closure costs and onerous leases 4 935 31 508
- Restraint of trade payments - 1 365
(1 694) 24 399
Tax effect of non-headline earnings items - (3 770)
Attributable to outside shareholders - (3 191)
Headline (loss) / earnings (1 694) 17 438
Number of shares in issue (`000) 220 763 204 734
Weighted average number of shares in issue 212 446 201 918
(`000)
Diluted weighted average number of shares 212 710 204 207
in issue (`000)
Loss per share (cents)
- Basic (171) (21)
- Diluted (171) (21)
Headline (loss) / earning per share
(cents)
- Basic (1) 9
- Diluted (1) 9
Notes
R`000 2002 2001
3. Investments in associates
Listed company - 22 954
Unlisted companies 149 527 213 966
149 527 236 920
Market value of listed company - 21 772
Directors` value investments in
unlisted associates at cost
Notes
R`000 2002 2001
4. Commitments
4.1 Capital commitments
Capital expenditure
Contracted 4 529 18 101
Authorised, but not yet contracted 22 160 68 370
26 689 86 471
To be expended:
Within one year 26 689 53 050
Within two years - 20 495
Within three years - 11 040
Within four years - 1 886
26 689 86 471
4.2 Financial commitments
Film rights 81 247 50 758
Less: amounts recoverable from third (32 073) (19 072)
parties
49 174 31 686
Other commitments 920 -
50 094 31 686
4.3 Operating lease commitments
Future lease payments expiring within:
One year 74 712 59 737
Two to five years 210 429 166 476
After five years 280 549 250 022
565 690 476 235
5. Contingent liabilities
5.1 Bank and other guarantees 9 036 8 574
5.2 Parent company guarantees - Ster 37 553 35 776
Century Middle East
5.3 Parent company guarantees - Ster
Century Europe
Bank guarantees - 116 914
Lease guarantees 177 970 174 386
177 970 291 300
Less:
Anticipated release within one year - (23 891)
Anticipated release within two years (30 546) -
Anticipated release within three years - (19 500)
Indeterminate release date 147 424 247 909
Comparative figures
Certain comparative figures have been restated so as to provide more
meaningful information
7. Changes in accounting policies
The year-end results have been prepared in accordance with South African
Statements of Generally Accepted Accounting Practice. There have been no
changes effected to any accounting policies during the year, other than
as stated below:
Employee benefits: AC 116 (revised)
This revised statement deals with the accounting and disclosure for all
employee benefits. The effect of adopting this statement has been to
raise the provisions for post-retirement medical liability and leave
pay. The leave pay liability is calculated at total cost to company. The
comparatives have been restated accordingly.
The effects of the above changes are as follows:
Gross Tax effect Net after tax
R`000 R`000 R`000
Restatement of 2001 opening
accumulated loss in respect of
prior year adjustments:
Provision for post-retirement 23 170 6 951 16 219
medical benefits
Provision for leave pay 2 974 844 2 130
26 144 7 795 18 349
The effect of the above changes are a net charge to the income statement
for the current and prior year as follows:
2002
Provision for post-retirement 1 503 451 1 052
medical benefits
Provision for leave pay 2 763 829 1 934
4 266 1 280 2 986
2001
Provision for post-retirement - - -
medical benefits
Provision for leave pay 372 80 292
372 80 292
8. Events subsequent to financial year end
Other than as mentioned below, the directors are not aware of any other
matters or circumstances arising since the end of the financial year not
otherwise dealt with in this report or annual financial statements that
would materially affect the operations of the group.
8.1 Share buy-backs
The company acquired 2 427 985 "N" shares at an average price of 376
cents per share prior to year-end. Subsequent to year-end these "N"
shares have been cancelled and the listing terminated on the JSE
Securities Exchange South Africa with effect from 30 August 2002.
8.2 Sale of cinemas in Poland and Greece by Ster Century Europe
Ster Century Europe signed agreements prior to 30 June 2002 for the sale
of its cinemas in Poland and Greece. The conditions relating thereto
were fulfilled and the sales were completed subsequent to the year-end,
in July 2002. The key terms and effects of the sales were as follows:
- the total proceeds received by Ster Century Europe were US$30,2
million (approximately R314,8 million); and
- Ster Century Europe realised a net exceptional profit on the
disposals of US$5,1 million (approximately R53,2 million) which profit
will be accounted for in the year ending 30 June 2003.
Consolidated segmental reporting
for the year ended 30 June
Audited
R`000 Revenue Ebitda
2002 2001 2002 2001
Advertising 549 794 544 085 154 002 152 147
Filmed Entertainment 717 893 531 667 88 451 65 092
One-to-One Marketing 388 823 458 107 825 36 463
Companies disposed 27 525 210 704 (483) 16 214
Central 275 480 (16 844) (19 891)
1 684 310 1 745 043 225 951 250 025
Audited
R`000 Depreciation PBIT
2002 2001 2002 2001
Advertising 27 079 31 032 126 923 121 115
Filmed Entertainment 25 139 26 339 63 312 38 753
One-to-One Marketing 21 926 16 630 (21 101) 19 833
Companies disposed 134 8 846 (617) 7 368
Central 1 561 1 693 (18 405) (21 584)
75 839 84 540 150 112 165 485
Audited
Operating Operating
assets liabilities Capex
R`000 2002 2001 2002 2001 2002 2001
Advertising 321 123 308 894 135 107 122 611 43 866 37 820
Filmed 301 992 276 329 275 042 220 590 30 5941 19 114
Entertainment
One-to-One 134 182 150 955 112 922 89 734 14 033 18 843
Marketing
Central (671) 10 696 129 321 139 665 362 3 556
756 626 746 874 652 392 572 600 88 855 79 333
Excludes deferred tax, tax, goodwill and intangible assets, investments,
associated companies, debenture interest payable and amounts due to
vendors.
1. Includes capital expenditure of R20 m funded by landlord
Report of the independent auditors
for the year ended 30 June 2002
TO THE MEMBERS OF PRIMEDIA LIMITED
We have audited the annual financial statements and the group annual
financial statements of Primedia Limited, set out on pages 1 to 39 for
the year ended 30 June 2002. These financial statements are the
responsibility of the company`s directors. Our responsibility is to
express an opinion on these financial statements based on our audit.
Scope
We conducted our audit in accordance with statements of South African
Auditing Standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance that the financial statements are
free of material misstatement.
An audit includes:
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements;
assessing the accounting principles used and significant estimates
made by management; and
evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Audit opinion
In our opinion, the financial statements fairly present, in all material
respects, the financial position of the company and of the group at 30
June 2002 and the results of their operations and cash flows for the
year then ended in accordance with South African Statements of Generally
Accepted Accounting Practice and in the manner required by the Companies
Act in South Africa.
Deloitte & Touche
Chartered Accountants (SA) Sandton
Registered Accountants and Auditors 20 September 2002
Date: 25/09/2002 10:20:26 AM Produced by the JSE SENS Department
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