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SAIL GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1941/014601/06)
Share code: SIR ISIN code: ZAE000039962
("SAIL" or "the Company")
Audited Group Results For The Year Ended 31 December 2002
INCOME STATEMENT
for the year ended 31 Audited Audited
December 2002
31 December 31 December
2002 2001
Notes R 000"s R 000"s
CONTINUED OPERATIONS
Revenue
184,027 105,136
Other income
6,856 10,507
Operating expenses
(181,839) (98,360)
Profit from operations
9,044 17,283
Finance costs
(25,560) (13,384)
(Loss) / profit after
finance costs (16,516) 3,899
Income from associates and
joint ventures
- normal operations
13,903 15,777
- amortisation of
intangibles (4,167) (1,377)
- abnormal items 1
(6,090) -
(Loss) / profit before taxation,
abnormal items and amortisation of (12,870) 18,299
group intangibles
Amortisation of intangibles 2
(19,034) (3,976)
Abnormal items 1
(75,581) (2,023)
(Loss) / profit before
taxation (107,485) 12,300
Taxation
(1,415) 3,625
(Loss) / profit after
taxation (108,900) 15,925
Minority interest
5,451 (210)
NET (LOSS) / PROFIT FOR THE
YEAR (103,449) 15,715
DISCONTINUED OPERATIONS
Revenue
(795) 3,746
Other income
(4) 11
Operating expenses
(2,224) (653)
(Loss) / profit from
operations (3,023) 3,104
Finance costs
(65) -
(Loss) / profit after
finance costs (3,088) 3,104
Income from associates and
joint ventures -
- normal operations
(5,942) (3,196)
- amortisation of
intangibles (18) (68)
Loss before taxation, abnormal items
and amortisation of group (9,048) (160)
intangibles
Amortisation of intangibles 2
(215) -
Abnormal items 1
(11,377) (2,397)
Loss before taxation
(20,640) (2,557)
Taxation
676 (901)
Loss after taxation
(19,964) (3,458)
Minority interest
1,027 -
NET LOSS FOR THE YEAR
(18,937) (3,458)
TOTAL NET (LOSS) / PROFIT FOR
THE YEAR (122,386) 12,257
RECONCILIATION OF HEADLINE
(LOSS) / EARNINGS
Attributable (loss) / earnings
* (122,386) 12,257
Adjustments
Goodwill amortisation-
associates, joint ventures and 20,091 3,938
subsidiaries
Goodwill impairment-
associates, joint ventures and 46,042 -
subsidiaries
Foreign exchange loss /
(profit) on loan to foreign 1,148 (1,042)
entity
Property, plant and equipment
impaired 12,522 -
Investment properties revalued
(1,232) -
Loss / (profit) on sale of
property, plant and equipment 15 (12)
Loss on sale / write down of
investments and loans 30,358 4,380
Headline (loss) / earnings
(13,442) 19,521
* all figures in
reconciliation are net of
minority interest and
taxation.
Headline (loss) / earnings per
share (cents) (4.91) 7.66
Continued
(2.07) 8.03
Discontinued
(2.84) (0.37)
(Loss) / earnings per share
(cents) (44.67) 4.81
Continued
(37.76) 6.17
Discontinued
(6.91) (1.36)
Weighted average shares in
issue (000) 273,940 254,776
Reconciliation of headline earnings
- 2001 (as required by circular
7/2002)
Previously reported
20,563
Adjustment per circular
7/2002
Foreign exchange profit
on loan to foreign entity (1,042)
Restated headline earnings
2001 19,521
BALANCE SHEET
at 31 December 2002
Audited Audited
31 December 31 December
2002 2001
Notes R 000"s R 000"s
ASSETS
Non-current assets
Deferred taxation
9,529 9,535
Investments and loans 1
7,431 12,267
Intangible assets 3
123,529 94,572
Property, plant and 1
equipment 36,108 53,810
Investments in associates 3
and joint ventures 55,054 163,869
231,651 334,053
Current assets
Cash and cash equivalents
27,097 38,923
Other current assets 3
55,872 47,529
Short-term investments and 1
loans 7,992 5,651
90,961 92,103
Total assets
322,612 426,156
EQUITY AND LIABILITIES
Capital and reserves
116,721 238,945
Minority interest
(854) 4,988
Total shareholders" 243,933
interest 115,867
Non-current liabilities
Interest bearing borrowings
103,363 108,589
Non-interest bearing
borrowings 2,016 4,500
Deferred taxation
154 414
Income received in advance
3,977 4,324
109,510 117,827
Current liabilities
Bank overdraft
8,996 5,935
Other current liabilities 3
51,726 36,639
Current portion of interest
bearing borrowings 32,001 19,788
Current portion of non-
interest bearing borrowings 4,512 2,034
97,235 64,396
Total equity and
liabilities 322,612 426,156
Net asset value per share 42.31
(cents) 89.03
Shares in issue (000)
273,854 273,992
AUDITED STATEMENT OF
CHANGES IN EQUITY
for the year ended 31
December 2002
Distribut Non-
able
Stated reserve/ distributabl Total
e
Capital (Accumula reserves
ted loss)
R 000"s R 000"s R 000"s R 000"s
Balance at 31 December 2001
196,369 36,542 6,034 238,945
Share issue expenses
written off (266) - - (266)
Net loss for the year
- (122,386) - (122,386)
Transferred from non-
distributable reserves - 5,799 (5,799) -
Share buy back
(198) - - (198)
Foreign currency
translation reserve - - 626 626
Balance at 31 December 2002
195,905 (80,045) 861 116,721
CASH FLOW STATEMENT
for the year ended 31
December 2002
Audited Audited
31 December 31 December
2002 2001
R 000"s R 000"s
Profit / (loss) from
operations
Continued operations
9,044 17,283
Discontinued operations
(3,023) 3,104
Total profit from
operations 6,021 20,387
Interest earned
(5,979) (7,604)
Non cash flow adjustments
9,150 280
Working capital adjustments
2,880 5,547
Cash generated by operating 18,61
activities before abnormal 12,072
items
Abnormal items
(1,510) -
Cash generated by operating 18,61
activities 10,562
Other income
6,424 7,604
Finance costs
(20,360) (13,384)
Taxation paid
(5,918) (1,897)
Cash (outflow) / inflow 10,933
from operating activities (9,292)
Cash outflow from investing (42,124)
activities (4,967)
Cash flow effect of (9,330
financing activities (628)
Net decrease in cash and
cash equivalents (14,887) (40,521)
Cash and cash equivalents
at beginning of year 32,988 73,509
Cash and cash equivalents
at end of year 18,101 32,988
AUDITED SEGMENT REPORT
for the year ended 31
December 2002
Sports SAIL Other Adjustments Total
Brands: Sport
Rugby, And
cricket
and golf Enterta
inment
R 000"s R 000"s R 000"s R 000"s R 000"s
Revenue
98,092 67,311 28,580 (10,751) 183,232
Segment results
5,037 7,750 (13,618) - (831)
Other income
3,600 2,173 1,079 - 6,852
Profit from operations
8,637 9,923 (12,539) - 6,021
Analysed as follows:
Continued
9,044
Discontinued
(3,023)
6,021
Income from associates and
joint ventures- normal 13,489 436 (5,964) - 7,961
operations
Segment assets
110,048 43,925 34,951 (12,644) 176,280
Investment in associates
40,989 - 4,370 - 45,359
Investment in joint
ventures 7,756 - 1,939 - 9,695
Investments and loans
15,423
Goodwill
62,248
Deferred taxation
9,529
Taxation receivable
4,078
Total assets
322,612
Segment Liabilities
31,075 35,708 9,425 (12,644) 63,564
Long-term interest bearing
borrowings 103,363
Current portion of interest
bearing borrowings 32,001
Long-term non-interest
bearing borrowings 2,016
Current portion of non-
interest bearing borrowings 4,512
Deferred taxation
154
Taxation payable
1,135
Total liabilities
206,745
Capital expenditure
2,381 2,279 579 - 5,239
Depreciation
3,955 2,891 1 - 6,847
Impairment of property,
plant and equipment 5,347 6,575 827 - 12,749
Impairement of investments,
loans and intangible assets 27,845 15,183 18,384 - 61,412
AUDITED SEGMENT REPORT
for the year ended 31
December 2001
Sports SAIL Other Adjustments Total
Brands: Sport
Rugby, And
cricket
and
golf Enterta
inment
R 000"s R R 000"s R 000"s R 000"s
000"s
Revenue
82,967 9,851 19,284 (3,220) 108,882
Segment results
8,053 2,847 (1,031) - 9,869
Other income
3,863 89 6,566 - 10,518
Profit from operations
11,916 2,936 5,535 - 20,387
Analysed as follows:
Continued
17,283
Discontinued
3,104
20,387
Income from associates and
joint ventures- normal 11,899 4,261 (3,579) - 12,581
operations
Segment assets
131,706 19,958 58,361 (5,635) 204,390
Investment in associates
51,658 99,846 5,204 - 156,708
Investment in joint
ventures 7,161 - - - 7,161
Investments and loans
17,918
Goodwill
30,444
Deferred taxation
9,535
Total assets
426,156
Segment Liabilities
30,188 12,604 9,331 (5,635) 46,488
Long-term interest bearing
borrowings 108,589
Current portion of interest
bearing borrowings 19,788
Long-term non-interest
bearing borrowings 4,500
Current portion of non-
interest bearing borrowings 2,034
Deferred taxation
414
Taxation
410
Total liabilities
182,223
Capital expenditure
13,011 29 1,410 - 14,450
Depreciation
2,368 1,826 725 - 4,919
NOTES TO THE FINANCIAL
STATEMENTS
Audited Audited
31 December 31 December
1) Abnormal items 2002 2001
In the group R 000"s R 000"s
Continuing operations
Investment property
revalued (1,267) -
Foreign exchange
profit (3,643) -
Property, plant and
equipment impaired 12,469 -
Loss on sale of
businesses / investments 2,573 -
Loss on impairment of
businesses/ investments 19,742 2,023
Direct costs related
to international expansion 5,394 -
Intangible assets
impaired 40,313 -
75,581 2,023
Taxation and outside
shareholders effect (1,692) -
73,889 2,023
Discontinued operations
Property, plant and
equipment impaired 1,547 -
Loss on sale of
businesses / investments 8,473 2,397
Intangible assets
impaired 1,357 -
11,377 2,397
Taxation and outside
shareholders effect (464) -
10,913 2,397
Income from Associates and
Joint ventures
Continuing operations
Intangible assets
impaired 6,090 -
2) The estimated useful lives of intangible
assets have been reviewed and adjusted for
existing market conditions.
3) SAIL Sport and Entertainment (formerly Vodacom Sport and Entertainment) was
carried as an investment in associate at 31 December 2001 pending Competition
Commission approval. The business was acquired 1 September 2001 and while
Competition Commission approval was pending SAIL had significant influence in
the business but did not have control. At 20 February 2003 approval was given at
which date the business became a subsidiary. This accounts for the significant
decrease in investments in associates as well as the increase in Goodwill. The
conversion of SAIL Sport and Entertainment from an associate to a subsidiary
combined with the sale of the retail component of SAIL"s golf investment is the
cause of the increase in accounts receivable and accounts payable included in
other current assets and other current liabilities.
This report has been prepared in accordance with South African Genarally
Accepted Accounting Practices and the principles applied are consistent with
those of 2001 except for the adoption of AC135. The financial information has
been audited by our auditors, Deloitte & Touche, who"s unqualified audit opinion
is available for inspection at the registered office of the company.
Review of results
The worldwide decline in market conditions, coupled with a shift in the business
and financial models of the sports and entertainment industry, have moved the
board of SAIL to review, as indicated in both the 2002 interim results and the
trading update issued on 7 March 2003, the carrying value and sustainability of
certain of its businesses, and to restructure the SAIL Group.
It was deemed prudent to impair certain investments and in certain instances
fast track the amortisation of goodwill to match future revenue streams with
contracted revenue. The impairments are disclosed under note 1. This resulted in
the company making an attributable loss for the year ended 31 December 2002.
On 5 February this year, SAIL announced that it had appointed Selwyn Nathan as
Group Chief Executive and would be restructuring and refocusing the business
from a passive investment model to an active, operational model. As a
consequence of the restructure, certain companies do not form part of the
strategy going forward and have thus been discontinued. These include the sport
ticketing and publishing businesses.
In spite of the above, the Group continues to show good revenue growth from its
core businesses in the new-year. Most of the losses outlined above were of a
non cash flow nature.
Revenue for the year to 31 December 2002 increased by 75% as a result of SAIL
Sport and Entertainment (SSE) being consolidated for 10 months in the current
period. The increase of 85% in operating expenses is attributable to the
consolidation of SSE, as well as the poor trading performance of SAIL"s
investment in rugby and golf and indirect costs associated with SAIL"s
international expansion. The proposed investment in the West Indies was not
pursued due to a change in market conditions, and direct costs previously
capitalised have been written off. The SSE business traded profitably and was
ahead of budget for the 2002 financial year.
Finance costs increased due to higher interest rates and the loan to finance the
SSE acquisition was included for a full year compared to 3 months for the prior
year. In addition, a provision has been made for an interest penalty on a
structured financing deal that SAIL inherited on acquiring the Blue Bulls
Company.
Management believes that the restructuring of the business and the corresponding
adjustments to the balance sheet place the company in a stronger position to
execute its new strategy, which is elaborated on below.
Last year, it was reported that SAIL was operating under four independent
business units: SAIL Capital, SAIL Sports Brands, SAIL Sport and Entertainment,
and SAIL Global. In support of its new strategy, these units are being
collapsed into the group and a new divisional structure has been put in place
comprising two business units and two support units.
Review of Operations
Sports Rights and Brand Commercialisation
This new division houses SAIL"s portfolio of sports brands and provides services
to brands that SAIL does not have a shareholding in.
The Sports Rights and Brand Commercialisation division was unable to meet its
targets during 2002. This was mainly due to the impact of poor on-field
performance of the Blue Bulls in 2001, the lack of high profile games at both
the Blue Bulls and Western Province"s home grounds, and the smaller brands not
performing well.
The Blue Bulls came out national champions in rugby by winning the coveted
Bankfin Currie Cup, and the Vodacom Eagles won the Vodacom Cup. The on-field
successes led to increased sponsorships being secured towards the latter part of
the year and subsequent to year-end for the Blue Bulls, the Bulls Super 12 side
and Securicor Loftus.
Substantial inventory in the form of unsold sports suites and sponsorships
exists in this business which, going forward the division will focus on
activating in order to increase the value of these investments. In terms of
brands in which SAIL does not have an investment, there is an opportunity to
provide professional services both to mainstream sporting brands as well as to
brands operating in Cinderella sports.
Corporate Marketing
The Corporate Marketing division, as it is now known, is the area within SAIL
that provides sponsorship and event management services to corporates with the
primary objective of building clients" brands while optimising their marketing
spend.
SAIL Sport and Entertainment, which is now housed in the Corporate Marketing
division, delivered a sterling performance. Gross profits for the year under
review increased by 13%. This company, which was a single client business on
acquisition, acquired six further clients in the year under review. This
division also manages SAIL"s investment in EduSport, a specialised sport and
incentive travel company, which was appointed as the exclusive international
inbound tour operator for the World Cup Cricket. It has also been appointed as
one of the official travel agents in South Africa for Rugby World Cup 2003.
Group Strategy
Subsequent to its 2002 year-end, SAIL has undergone a dramatic change of
direction that will re-shape the structure, management, orientation and culture
of the business, activate existing revenue opportunities and unleash new revenue
opportunities going forward.
Internationally, the financial and business models in the sporting industry
changed virtually overnight, and SAIL has been at the forefront of adapting to
these changes. Following the successful integration of the Vodacom Sport and
Entertainment business, subsequently renamed SAIL Sport and Entertainment, which
was acquired in 2001, the Group is moving to an active, operational approach
from a passive, investment approach.
Capacity exists throughout the business to increase revenues without increasing
costs and this capacity is being activated. Higher delivery expectations in
terms of all elements of service and quality have been established, and the SAIL
team is working hard to meet and exceed these.
Over the years, SAIL has acquired a substantial portfolio of investments and,
while it added value to those investments, it was essentially a passive
investor. Going forward, SAIL will only make investments that fall within its
core business, where it has active management input, and can actively add
substantial value and thereby maximise profitability. As a result, any
investment that does not fall within the core business will be exited. In
addition an investment that does not perform on the basis that it was originally
purchased for, or has been evaluated as having no potential, will be exited.
In 2003, SAIL will focus on generating profits and cash out of the existing
business and adding to the client base. Whereas in the past SAIL"s
opportunities for generating fresh revenue were dormant, the new group strategy
has opened up a wide range of opportunities that will be pursued vigorously.
SAIL is in the fortunate position that a significant portion of its revenue is
contractual and guaranteed for two to three years, depending on the contract.
SAIL is uniquely positioned in the sporting industry - no other operation can
provide the total solutions that add value at every point in a transaction that
SAIL can. A new energy and vibrancy has infused the business that will convert
to greater client satisfaction, professional fulfilment for staff, and better
returns to shareholders.
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