| Tue 2 Sep 2003, 9:13 | | Year-end audited results 2003 and further cautiona |
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Primedia - Year-end audited results 2003 and further cautionary announcement
Primedia Limited
Incorporated in the Republic of South Africa
Registration number 1993/003355/06
Share code: PMA ISIN: ZAE000035119
Share code: PMN ISIN: ZAE000035127
("Primedia")
Year-end audited results 2003 for Primedia Limited
For the year ended 30 June 2003
Highlights
- Group operating profit up 33,2% to R198,5 million
- Core South African PBIT up 30,2% to a record R214,9 million
- Core South African HEPS 52,2 cents
- Total distribution to shareholders 26,0 cents per share
- Net short-term debt R17,2 million (2002: R115,1 million)
1. INTRODUCTION
Primedia"s results for 2003 are ahead of expectations and well above those
of 2002. The results reflect the execution of a strategy initiated some three
years ago, which has largely been achieved, and the board is confident that
Primedia is entering a new era of sustainable growth.
2. STRATEGIC HIGHLIGHTS
During the period under review and prior to reporting, Primedia has
delivered on all of its major strategic objectives being:
- The disposal of Ster Century Europe (other than Slovakia whose
disposal is currently underway);
- The disposal of loss-making UK-based one to one businesses;
- The restructuring of Ster Century Middle East; and
- The successful implementation of innovations.
Primedia"s media portfolio is now far more appropriately balanced and has
the potential to generate consistent earnings and superior cash flow.
3. FINANCIAL HIGHLIGHTS
The group generated turnover of R1,65 billion from continuing operations,
11,8% higher than last year.
Operating income increased by 33,2% to R198,5 million with the South
African businesses generating a record R214,9 million, up by 30,2%.
Group operating margins of 11,2% (2002: 8,8%) edged closer to the group"s
minimum target of 15,0%. The core South African businesses achieved operating
margins of 14,4% (2002: 12,7%).
Net finance costs include fair value adjustments of R2,8 million. Net
finance costs, excluding these fair value adjustments, declined in line with
lower levels of debt and were 16,7 times covered by operating income
(2002: 7,0 times, excluding debenture interest).
Exceptional items in the main comprised further impairments to the
investment in Ster Century Europe (now largely disposed of), interest payable to
the South African Revenue Services ("SARS") in terms of a settlement reached on
the valuation of certain group trademarks (see 5. below) and a foreign currency
translation gain relating to the provision raised last year in respect of Ster
Century Middle East.
Losses from associates declined by 44,3% to R46,5 million due mainly to
reduced losses from Ster Century Europe. Primedia"s share of Ster Century
Europe"s losses was R42,9 million (2002: R67,0 million). Ongoing losses should
not be material in future due to the sale after year-end of the remaining
territories other than Slovakia. The group"s investment in Ster Century Europe
has been fully impaired to its expected realisable value of R16,1 million (2002:
R138,6 million).
The net foreign exchange loss includes unrealised AC 133 translation
adjustments relating to outstanding forward exchange contracts and a net foreign
exchange loss of R6,5 million on forward exchange contracts that matured during
the year.
The group"s high effective tax rate of 58,3% is due to non tax-deductible
interest paid in terms of the settlement with SARS (see 5. below) and other once
off adjustments made to the deferred tax asset balance in respect of prior year
assessed losses of certain loss-making entities. Excluding these once-off
exceptional items and associates" losses, the group"s tax rate would have been
approximately 30%, the projected rate for the forthcoming year.
As was reflected at the interim stage, minorities" share of profits
increased materially, due in part to the exceptional trading performance of
Africa on Air (which owns 94.7 Highveld Stereo) and also substantively from the
rapid repayment of the loans advanced by Primedia to Africa on Air and its
empowerment partners. In the current year, the Africa on Air minorities" share
of profits amounted to R22,7 million (which affected Primedia"s HEPS by 8,1
cents relative to the previous year). For 2004, a further minor dilution is
anticipated from this structure, whereafter the minorities" share of profit will
be based on their economic interest. Due to the financing structure however, it
is projected that all of Africa on Air"s cash flow will accrue to Primedia at
least until June 2005.
Headline EPS was up from a loss of 48,5 cents to a profit of 23,0 cents.
Core headline EPS from South African businesses was up 9,4% to 52,2 cents.
Cash flow from operating activities was up by 65,9% to R192,4 million
(2002: R116,0 million). Free cash flow generation was however up only 2,1% to
R140,8 million (2002: R137,9 million), being 70,9% of PBIT. The free cash
translation ratio was lower than the historic norm due to an accelerated
investment in film rights by Ster-Kinekor Pictures and Ster-Kinekor Home
Entertainment. This investment will be recovered as these pre-financed movies
are released. The group"s free cash flow was applied in part to extend the share
buyback programme (R7,3 million), increase the number of shares owned by The
Primedia Trust (R12,8 million) and effect the interim distribution to
shareholders (R29,0 million).
Net short-term debt at year-end declined to R17,2 million (2002: R115,1
million). Net total debt was also down significantly from R162,5 million to
R85,5 million.
4. OPERATING HIGHLIGHTS
Advertising
The advertising businesses had an exceptional year. Turnover was up 24,8%
to R686,4 million (2002:
R549,8 million) and operating income was up 30,7% to a record R165,9 million.
Operating margins also improved from 23,1% to 24,2%. Most divisions experienced
very good organic growth. Innovations boosted the results of the commuter media
and sport divisions.
Filmed entertainment
The local filmed entertainment business grew turnover by 10,0% from R717,9
million to R789,6 million. Operating income increased by 13,1% to R72,7 million,
which was a record. Ster-Kinekor Theatres posted high double-digit growth in
operating profits for the second consecutive year. Profit growth was muted due
to higher film rental payments experienced by the entire cinema exhibition
industry.
One to one
The one to one businesses in the UK posted reduced operating losses from a
loss of R21,7 million to a loss of R16,3 million. The results include an
operating loss of R9,3 million relating to Spark, which was sold in April 2003
and an onerous lease cost which contributed an R8,0 million deficit to Wheel"s
results. Subsequent to year-end, Primedia has agreed, subject to certain
suspensive conditions, to reduce its shareholding in Wheel to 20% in return for
the cancellation of the onerous lease which has undermined its profitability.
The Database Group, the only remaining operation in the UK, remains profitable.
5. SETTLEMENT WITH SARS
In order to avoid a drawn-out dispute on the valuation of the Ster-Kinekor
and Cinemark trademarks, Primedia reached settlement with SARS in June 2003. The
value that has been agreed for these trademarks is
R326,4 million, which is to be amortized over a fifteen year period. Primedia
had previously raised a deferred tax asset based on a R587,5 million trademark
value, assuming a ten-year write off period. The effects of the settlement have
been fully accounted for in these results - R23,4 million in prior year taxes is
included in the current tax charge and interest thereon amounting to R11,5
million is included in exceptional items. These amounts were payable subsequent
to year-end. In addition, an adjustment of R165,1 million has been made to
deferred tax asset balance, which has had the effect of reducing shareholders"
funds by an equivalent amount.
6. PROSPECTS
Primedia is now predominantly a South African business. Its future
performance will be influenced by local market conditions, the quality of filmed
entertainment content and the implementation of its strategy, which the
management team is confident of executing.
The Group will remain focused on maximising opportunities from organic
growth and innovative product and service offerings. Value-adding acquisitions,
geographic expansion into Africa and new media sectors will also be continuously
sought.
The continued upswing in the advertising cycle, influenced by the positive
macro economic environment, augurs well for the South African advertising
industry and most of Primedia"s businesses are well positioned to leverage this
growth due to their rights exclusivity, critical mass and brand patronage.
The local filmed entertainment businesses should continue to experience
favourable trading due to content which is expected to remain of a high standard
in the medium term. Ster-Kinekor Theatres" loyalty programmes will also continue
to drive operating performance.
With all of the loss-making one to one businesses in the UK now sold or in
the process of being sold, the one to one division should post positive results
in the year ahead, although Primedia will continue to look to dispose of the
remaining business.
Free cash flow generation is expected to continue to increase, which will
underpin shareholder distributions and allow Primedia to contemplate strategic
acquisitions.
7. CAPITAL STRUCTURE
A sub-committee of the board, comprising of directors independent of any
major shareholder, has been formed to consider and engage major shareholders on
the company"s capital structure. Proposals to enfranchise the N shares have been
received from certain of the group"s major shareholders in respect of which the
board will make its recommendations to shareholders in due course.
8. SHAREHOLDER DISTRIBUTIONS AND POLICY
The company declared an interim distribution of 13 cents per share being
approximately 50% of the core South African earnings. For the full year, the
board intends to follow a similar policy and notice is hereby given that a final
distribution out of share premium of 13 cents per share (in total R29,1 million)
in lieu of a dividend, has been awarded to shareholders recorded in the register
of Primedia at the close of business on Friday,
26 September 2003. Shareholders are advised that the last day to trade "CUM" the
distribution will be Thursday, 18 September 2003. The shares will trade "EX" the
distribution as from Friday, 19 September 2003 and the record date will be
Friday, 26 September 2003. Share certificates may not be dematerialised or
rematerialised during the period Friday, 19 September 2003 and Friday, 26
September 2003, both days inclusive. Payment will be made on Monday, 29
September 2003.
9. CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcement published on SENS
on Thursday, 24 July 2003.
As discussions are still ongoing, shareholders are advised to continue to
exercise caution in dealing with their shares until a further announcement is
made.
For and behalf of the board
AP NKUNA W KIRSH
Chairman Chief Executive
Johannesburg 2 September 2003
Directorate: AP Nkuna (Chairman), W Kirsh* (CE), MJ Bosman+, FA Gazendam*, O
Ighodaro* (CFO), HM Khoza+, I Kirsh, HM Madima, P Maw, K Pillay*, CS Seabrooke+,
BJT Shongwe, SV Zilwa+.
Company secretary: O Ighodaro
(*Executive directors +Independent non-executive directors)
Registered office transfer secretaries
6th Floor, Primedia Place, Computershare Limited
5 Gwen Lane, Sandown 2196 70 Marshall Street, Johannesburg 2001
CONSOLIDATED INCOME STATEMENT
2003 2002
Audited Audited %
R"000 R"000 Change
Revenue
- Continuing operations 1 647 990 1 474 102 11,8%
- Disposed entities 125 440 210 208
1 773 430 1 684 310 5,3%
Operating profit before
depreciation ("EBITDA") 277 327 224 870 23,3%
Depreciation (78 796) (75 839) 3,9%
Operating profit ("PBIT") 198 531 149 031 33,2%
Finance costs
- Debenture interest - (35 730)
- Net finance costs (14 659) (21 237) 31,0%
Foreign exchange (losses)/gains (9 978) 1 081
Profit before exceptional items
and amortisation 173 894 93 145 86,7%
Amortisation of intangible assets (4 393) (5 316)
Exceptional items (13 357) (343 567)
Share of associated company losses (46 464) (83 434)
Profit/(loss) before tax 109 680 (339 172)
Taxation (63 889) (26 034)
Profit/(loss) after tax 45 791 (365 206)
Minority interests (24 587) 2 153
Net profit/(loss) for the year 21 204 (363 053)
Number of shares in issue (`000)
- Issued 216 364 220 763
- Weighted average 218 229 212 446
- Diluted weighted average 218 724 212 710
Earnings/(loss) per share (cents)
- Headline 23 (49)
- Basic 10 (171)
- Diluted headline 23 (48)
- Diluted basic 10 (171)
- Headline as previously stated per AC306 (1)
- Diluted headline as previously stated per AC306 (1)
CONSOLIDATED BALANCE SHEET
2003 2002
Audited Audited
R"000 R"000
ASSETS
Non-current assets 506 617 835 401
Property, plant and equipment 284 381 298 056
Intangible assets 6 161 20 745
Investment in associated companies 24 217 149 527
Other investments (at cost and directors" evaluation) 12 122 3 231
Deferred tax asset 179 736 363 842
Current assets 425 014 473 731
Inventories 38 446 31 703
Trade and other receivables 355 856 353 523
Bank balances and cash 30 712 88 505
Total assets 931 631 1 309 132
EQUITY AND LIABILITIES
Share capital and reserves 302 692 420 801
Minority interest 20 246 127 637
Total shareholders" funds 322 938 548 438
Non-current liabilities 164 339 167 095
Long-term borrowings 68 350 47 356
Landlord inducement premium 19 512 19 703
Long-term provisions 76 477 100 036
Current liabilities 444 354 593 599
Bank overdrafts and short-term borrowings 43 360 184 292
Other current liabilities 400 994 409 307
Total equity and liabilities 931 631 1 309 132
Net asset value per share (cents) 140 191
CONTRIBUTION TO CORE HEADLINE EARNINGS PER SHARE
2003 2002 %
Cents Cents Change
Core operations - South Africa (*) 52,2 47,7 9,4%
Non-core operations - international (*) (21,5) (39,2) 45,2%
Headline earnings per share before
adjusting items 30,7 8,5 261,2%
Disposed entities (3,4) (4,7)
Headline earnings impact of capital items,
foreign exchange, fair value adjustments,
exceptional items and the taxation differential (4,3) (57,4)
Debenture interest tax shield - 5,1
Headline earnings/(loss) per share 23,0 (48,5)
- Utilising PBIT, adjusted for net interest, taxed at the standard rate of 30%,
adjusted for minority interests.
GROUP SEGMENTAL REPORT
Revenue EBITDA PBIT
2003 2002 2003 2002 2003 2002
R"000 R"000 R"000 R"000 R"000 R"000
Advertising 686 449 549 794 199 329 154 002 165 876 126 923
Filmed entertainment 789 552 717 893 99 812 89 369 72 666 64 230
One to one marketing 171 288 206 140 540 1 839 (7 682) (8 949)
Disposed entities 125 440 210 208 (471) (1 497) (9 323)(12 769)
Central 701 275 (21 883) (18 843) (23 006)(20 404)
1 773 430 1 684 310 277 327 224 870 198 531 149 031
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
2003 2002
Audited Audited
R"000 R"000
Net cash inflow from operating activities 192 445 115 979
Net cash outflow from investing activities (59 782) (174 808)
Net cash (outflow)/inflow from financing activities (51 488) 39 517
Net movement in cash and cash equivalents 81 175 (19 312)
Effect of foreign exchange rate changes 1 964 (5 195)
Cash and cash equivalents at beginning of year (95 787) (71 280)
Cash and cash equivalents at end of year (12 648) (95 787)
ABRIDGED GROUP STATEMENT OF CHANGES IN SHAREHOLDERS" EQUITY
Share Non-
Capital distri- Accumu-
and butable lated
Premium Debentures reserves loss Total
R"000 R"000 R"000 R"000 R"000
Balance as at 1 July 2001 21 669 380 294 367 095 (153 315) 615 743
Shares/units issued
(net of expenses) 436 888 (380 294) 56 594
Shares bought back by
the company (9 129) (9 129)
Tax relief on intangible
assets 20 138 20 138
Foreign currency translation
reserve movement 100 347 100 347
Net loss for the year (363 053)(363 053)
Other (1) 162 161
Balance as at 30 June 2002 449 427 - 487 742 (516 368) 420 801
Change in accounting
policy - AC133 - - - (3 288) (3 288)
Restated balance as at
30 June 2002 449 427 - 487 742 (519 656) 417 513
Shares issued
(net of expenses) 10 779 - - 10 779
Shares bought back
- by company (7 347) (7 347)
- by The Primedia Trust (12 801) (12 801)
Capital distribution to
shareholders (29 029) (29 029)
Capital distribution to
The Primedia Trust 693 693
Foreign currency translation
reserve movement (58 984) (58 984)
Reduction in tax value of
trademarks previously written-off
against share premium (165 086) (165 086)
Minority share of trademarks
previously written-off against
share premium following
re-assessment of trademark
valuations in subsidiaries 127 011 127 011
Net profit for the year 21 204 21 204
Other 16 1 306 (2 583) (1 261)
Balance as at 30 June 2003 411 738 - 391 989 (501 035) 302 692
NOTES
Basis of preparation
The annual financial statements have been prepared in accordance with South
African Statements of Generally Accepted Accounting Practice. They have been
prepared on a basis consistent with the prior year, except for the adoption of
AC133 Financial Instruments: Recognition and Measurement. The financial
statements are prepared under the historical cost convention, modified by the
restatement of financial instruments to fair value. Certain comparative figures
have been reclassified so as to provide more meaningful information.
The effect of the change in accounting policy in respect of AC133 is as follows:
Gross Tax effect Minorities Net effect
R"000 R"000 R"000 R"000
Restatement of opening
accumulated loss (5 244) 1 561 395 (3 288)
Effect on current year
attributable profits (16 182) 4 855 1 052 (10 275)
(21 426) 6 416 1 447 (13 563)
2003 2002
R"000 R"000
1. Exceptional items
Net profit/(loss) on disposal and write down of assets 8 383 (103 773)
Retrenchment and restructuring costs 828 (17 895)
Assets and goodwill impaired (18 909) (216 964)
Interest due to Receiver of Revenue (11 468) -
Release of post retirement medical benefits provision 9 035 -
Provision for onerous leases (541) (4 935)
Other (685) -
(13 357) (343 567)
Taxation (2 965) 5 231
Minority interest - 1 880
Net effect of exceptional items (16 322) (336 456)
2. Headline earnings/(loss) per share
Net profit/(loss) for the year 21 204 (363 053)
Goodwill amortisation 4 380 5 316
Capital items 24 236 254 634
Tax effect of non-headline earnings items 306 -
Headline earnings/(loss) per Circular 7/2002 50 126 (103 103)
Reconciliation to headline loss per AC306
Headline earnings as detailed above (103 103)
Debenture interest 35 730
Cinema closure costs and onerous lease charges incurred 4 935
Cinema closure costs and onerous leases provided for (4 029)
Impairment of non-equity accounted investments in associates 64 773
Headline loss as previously stated (1 694)
3. Long-term provisions
Post retirement medical benefits 13 694 22 173
Ster Century Middle East constructive obligation 48 653 67 764
Onerous leases and cinema closures 4 444 -
Other 9 686 10 099
76 477 100 036
4. Capital expenditure, commitments and contingencies
Net capital expenditure for the year 44 753 53 992
Future capital commitments 61 971 26 689
Financial commitments 40 128 50 094
Operating lease commitments 383 353 565 690
Due within one year 89 598 74 712
Thereafter 293 755 490 978
Total contingent liabilities 192 394 225 117
Less: Indemnities obtained from purchasers
of SCE"s underlying operations (142 146) -
Unindemnified contingent liabilities 50 248 225 117
5. Subsequent events
In July 2003, Mineworkers" Investment Company (Pty) Ltd acquired a 25%
shareholding in Primedia Outdoor (Pty) Limited.
6. Audit report and annual financial statements
Deloitte & Touche has audited the group"s annual financial statements. The
unqualified audit report, together with the annual financial statements, are
available for inspection at the company"s registered office.
Date: 02/09/2003 08:30:22 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
