| Tue 31 Aug 2004, 10:39 | | RESULTS FOR THE YEAR ENDED 30 JUNE 2004 |
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PRIMEDIA LIMITED - AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2004
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`)
THE HIGHLIGHTS
- PBIT up 30,5% to R259,1 million
- Profit before tax up 139,5% to R262,7 million
- Cash generated from operations up 81,0% to R353,6 million
- Free cash flow per share up 66,8% to 120 cents
- Headline earnings per share up 195,7% to 68 cents
- Shareholder distributions per share up 54% to 40 cents
- Ranked South Africa`s #17 most transformed company
CONSOLIDATED INCOME STATEMENT
Audited Audited
2004 2003 %
R000 R000 change
Revenue
- Continued 1 727 779 1 647 990 4,8
- Disposed entities 24 608 125 440
1 752 387 1 773 430
Operating profit before depreciation 323 454 277 327 16,6
- Continued 326 142 277 798
- Disposed entities (2 688) (471)
Depreciation (64 395) (78 796)
Operating profit before amortisation,
foreign exchange items and exceptional
items (PBIT) 259 059 198 531 30,5
Amortisation of goodwill and
intangibles (3 887) (4 393)
Foreign exchange gains/(losses) 1 030 (9 978)
Exceptional items 23 308 (13 357)
Operating profit 279 510 170 803 63,6
Net finance costs (16 462) (14 659)
Share of associated company losses (331) (46 464)
Profit before tax 262 717 109 680 139,5
Taxation (63 619) (63 889)
Profit after tax 199 098 45 791
Minority interest (24 403) (24 587)
Net profit for the year 174 695 21 204 723,9
Reconciliation of headline earnings
Net profit for the year 174 695 21 204
Goodwill amortisation 3 874 4 380
Net profit on disposal of fixed assets
and investments (8) (427)
Exceptional items: (33 235) 24 663
Impairment and write-down of
goodwill and equity investments (14 202) 32 361
Profit on disposal of assets
and investments - (5 898)
Profit on disposal of subsidiary
companies (9 189) (2 485)
Recovery of debt previously written off (9 844) -
- Other - 685
Tax effect of non-headline earnings
items 1 217 306
Headline earnings 146 543 50 126 192,4
Number of shares (000)
- Issued 216 764 216 364
- Weighted average 216 520 218 229
- Diluted weighted average 225 648 218 724
Earnings per share (cents)
- Headline 68 23 195,7
- Basic 81 10
- Diluted headline 65 23 182,6
- Diluted basic 77 10
Exceptional items
Headline reconciling items above 33 235 (24 663)
Provision for legal and other costs (5 635) (398)
Reversal of provisions 4 249 9 035
Impairment and write-down of assets (8 541) 14 137
Interest due to Receiver of Revenue - (11 468)
Gross exceptional items 23 308 (13 357)
CONSOLIDATED BALANCE SHEET
ASSETS
Non-current assets 544 730 506 617
Property, plant and equipment 259 150 284 381
Goodwill and intangible assets 105 556 6 161
Investments in associated companies 8 062 24 217
Other investments 5 524 12 122
Deferred tax asset 166 438 179 736
Current assets 438 898 425 014
Inventories 39 569 38 446
Trade and other receivables 333 332 355 856
Bank balances and cash 65 997 30 712
Total assets 983 628 931 631
EQUITY AND LIABILITIES
Share capital and reserves 333 669 302 692
Minority interest 16 238 20 246
Total shareholders` funds 349 907 322 938
Non-current liabilities 104 159 164 339
Long-term borrowings 61 912 68 350
Landlord inducement premium 17 047 19 512
Long-term provisions 24 928 76 477
Deferred tax liability 272 -
Current liabilities 529 562 444 354
Bank overdrafts and short-term borrowings - 43 360
Other current liabilities 529 562 400 994
Total equity and liabilities 983 628 931 631
Net asset value per share (cents) 154 140
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Audited Audited
2004 2003
R000 R000
Cash generated from operations 353 629 195 386
Net interest paid (14 550) (13 092)
Dividends paid to minorities (1 916) (863)
Tax (paid)/refunded (*) (63 805) 11 014
Net cash inflow from operating
activities 273 358 192 445
Net acquisition of subsidiaries, minorities
and investments (17 352) (3 937)
Loans advanced to associates
and minorities (9 983) (10 282)
Net acquisition of fixed assets
and intangibles (43 227) (45 563)
Net cash outflow from investing
activities (70 562) (59 782)
Distribution to shareholders (63 729) (28 336)
Share acquisitions and share buy back (7 540) (20 182)
Long-term borrowings repaid (52 595) (2 970)
Net cash outflow from financing
activities (123 864) (51 488)
Net increase in cash and
cash equivalents 78 932 81 175
Foreign currency translation (287) 1 964
Cash and cash equivalents at
beginning of year (12 648) (95 787)
Cash and cash equivalents at
end of year 65 997 (12 648)
(*) Settlement of R27,0 million paid to SARS, included in the year under review.
ABRIDGED GROUP STATEMENT OF CHANGES
IN SHAREHOLDERS` EQUITY
Share capital and premium 351 362 411 738
Opening balance 411 738 449 427
Shares issued during the year - 10 795
Share buy back and movement in
treasury shares 1 667 (20 148)
Distribution to shareholders (62 043) (28 336)
Non-distributable reserves 305 119 391 989
Opening balance 391 989 487 742
Minority share of intangibles previously
written-off against share premium (32 383) 127 011
(Increase)/reduction in tax value
of trademarks previously written-off
against share premium 1 138 (165 086)
Disposal of subsidiary (5 946) (3 867)
Translation reserve movement and other (29 247) (58 578)
Movement in treasury shares (21 281) 5 278
Transfer to/(from) NDR 849 (511)
Accumulated loss (322 812) (501 035)
Opening balance (501 035) (519 656)
Net profit for the year 174 695 21 204
Transfer (from)/to NDR (849) 511
Movement in treasury shares 4 377 (3 094)
Total share capital and reserves 333 669 302 692
SEGMENT REPORT
REVENUE
Advertising 759 901 686 449
Filmed entertainment 900 028 789 552
One to one marketing 67 850 171 288
Disposed entities 24 608 125 440
Central - 701
1 752 387 1 773 430
OPERATING PROFIT BEFORE AMORTISATION,
FOREIGN EXCHANGE ITEMS AND EXCEPTIONALS
ITEMS (PBIT)
Advertising 212 400 165 876
Filmed entertainment 69 836 72 666
One to one marketing 4 025 1 452
Disposed entities (3 568) (18 457)
Central (23 634) (23 006)
259 059 198 531
OPERATING PROFIT
Advertising 181 657 154 775
Filmed entertainment 43 369 61 757
One to one marketing 5 199 (17 019)
Disposed entities 11 691 13 289
Central 37 594 (41 999)
279 510 170 803
NOTES TO THE FINANCIAL STATEMENTS
Basis of preparation
The financial statements are prepared in accordance with South African
Statements of Generally Accepted Accounting Practice applicable to interim
financial reporting. They have been prepared on a basis consistent with the
prior year.
The financial statements are prepared under the historical cost convention,
modified by the restatement of financial instruments to fair value.
Audited Audited
2004 2003
R000 R000
1 Capital expenditure, commitments
and contingencies
1.1 Future capital commitments 78 802 61 971
1.2 Financial commitments 30 288 40 128
1.3 Operating lease commitments 301 665 383 353
- Due within one year 77 832 89 598
- Thereafter 223 833 293 755
1.4 Contingent liabilities 223 108 192 394
Less: Indemnities received (142 723) (142 146)
Unindemnified contingent
liabilities 80 385 50 248
2 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.
3 Events subsequent to financial year-end
The directors are not aware of any other matters or circumstances arising
since the end of the financial year not otherwise dealt with in the commentary
to this announcement that would materially affect the operations of the group.
COMMENTARY
1 Introduction
The past twelve months have been most gratifying for the Primedia group. We can
report excellent strategic progress and good implementation on the operational
front which, combined with positive industry conditions, delivered record
results.
Highlights
- PBIT up 30,5% to R259,1 million
- Profit before tax up 139,5% to R262,7 million
- Cash generated from operations up 81,0% to R353,6 million
- Free cash flow per share up 66,8% to 120 cents
- Headline earnings per share up 195,7% to 68 cents
- Shareholder distributions per share up 54% to 40 cents
2 Strategic review
2.1 Fiscal 2004
At the commencement of the 2004 fiscal, the group codified three strategic
priorities for its domestic businesses namely:
- Enhancing the breadth of its South African media portfolio;
- Deriving benefits from group synergy; and
- Increasing black consumer patronage of the group`s filmed entertainment
products.
The following strategic progress was made in this regard during the fiscal:
- On 23 April 2004, Primedia announced that it had entered into an agreement to
acquire the shares in and claims against New Africa Media Holdings (Proprietary)
Limited (`NAMH`), whose sole asset after restructuring will be the shares in and
shareholder claims against KFM (Proprietary) Limited (`KFM`). This acquisition
is subject to approval by ICASA and the shareholders of New Africa Investments
Limited (`NAIL`). Following the purchase of NAMH, the profit contribution from
94.7 Highveld Stereo is expected to reduce from 47% to 39% when factoring in the
results of KFM on a pro forma basis for the year ended 30 June 2004.
- Extracting synergies between the group`s businesses is now well engrained in
Primedia`s culture. During the year, synergies between the advertising
businesses have yielded very positive early results; with approximately R25
million of incremental advertising spend being generated from the group`s
Strategic Advertising Unit. These synergies have boosted operating margins in
the advertising businesses.
- The group`s strategy of attracting more black consumers to engage in our
cinema and home entertainment offerings has not yet delivered material results.
The recent purchase of an additional 30,5% economic interest in 94.7 Highveld
Stereo, taking the group`s stake to 85,8%, was another strategic milestone,
which also resulted in significant wealth creation for our empowerment partners
whose shareholding in the business was financed by Primedia. 94.7 Highveld
Stereo is a premium radio brand, much sought after by advertisers and one that
has a growing share in its target market. Going forward, this acquisition will
enable Primedia to fully access the significant cash flows generated by the
business. Primedia has facilitated Mineworkers Investment Company`s increased
interest in 94.7 Highveld Stereo from 2,2% to 14,2% with effect from 1 July
2004, in accordance with its transformation objectives.
As part of the group`s strategy of disposing of all of its international
interests, loss-making Wheel Group was disposed of during the year, realising a
R12,1 million exceptional profit. Subsequent to year-end, Ster Century Middle
East has agreed to sell its underlying operations for US$4,5 million, subject
to certain conditions. Primedia expects to receive 50% of the net proceeds
after costs. Following these disposals, the group will have disposed of all
loss-making international businesses, with its remaining international asset
being UK based The Database Group, which is profitable.
2.2 Fiscal 2005
Our strategy for 2005 is to focus on growing shareholder value through the
group`s five identified growth pillars namely: organic growth, innovation,
geographic expansion into Africa, acquisitions and entry into new growth media
sectors. In respect of the latter, Primedia has established a new division (`New
Frontiers`) which will have two arms, one for advertising and one for
entertainment. Through New Frontiers, we intend to partner innovative
entrepreneurs with our strategic and financial backing to enable their
businesses to grow into major media platforms.
The group`s key strategic priorities for 2005 are as follows:
Maximising free cash flow
Following the acquisition of NAMH and the additional 30,5% economic interest in
94.7 Highveld Stereo, borrowings will increase by around R300 million during the
2005 fiscal. Given its significant cash generating capability, the group should
expunge this debt within a four year time-frame whilst maintaining shareholder
distributions in line with its existing distribution policy and pursuing
investments in new growth areas.
Continued enhancements to the group`s media portfolio
In line with the group`s strategy of balancing the earnings from its media
assets, we will endeavor to reduce the level of 94.7 Highveld Stereo`s
contribution to the group`s PBIT to around 25% to 30%. This will be achieved
through organic and innovative growth from our other media assets, including the
contribution from the New Frontiers division.
Black consumer market filmed entertainment
Based on experience gained in the 2004 fiscal, we expect to increase our
penetration into the black consumer market, both within our cinemas and home
entertainment businesses.
3 Financial results
3.1 Income statement
The group generated turnover of R1,75 billion for 2004. This was marginally down
on last year`s R1,77 billion due to the sale of the loss-making one to one
operations. Importantly, the South African operations increased turnover by
12,4% to R1,68 billion.
Group PBIT before exceptional items and foreign exchange items was up 30,5% to
R259,1 million, due to a 20,7% increase in PBIT from South African operations to
R259,4 million, as well as significantly reduced losses from the international
businesses disposed of. It is worth highlighting that this is the third
consecutive year of double-digit growth from the South African operations which
have delivered a 25,6% compound annual growth rate in PBIT since 2001. This
performance has been underpinned by our strategy of focusing on the domestic
market as well as having a balanced portfolio of advertising and content
businesses.
Group PBIT margins before exceptional items and foreign exchange items reached
14,8% (2003: 11,2%), with South African operations achieving margins of 15,5%
(2003: 14,4%).
Profit before taxation was up 139,5% to R262,7 million, mainly due to the
group`s increased PBIT, the elimination of equity accounted losses from Ster
Century Europe (R42,9 million in 2003) following the final disposal of the
remaining territories last year and the R1,0 million foreign exchange gain
versus last year`s loss of R10,0 million. Net interest paid was also marginally
up on the prior year, due to the cessation of interest income of R6,5 million
from Ster Century Europe which has now been disposed of, and interest paid of
R4,4 million in respect of capitalised finance leases recognised at the end of
the last fiscal.
Net profit for the year increased significantly from R21,2 million to R174,7
million due to the aforementioned and a lower effective tax rate resulting
mainly from assessed losses recognised during the year. Minority interests
remained at the same levels, notwithstanding 94.7 Highveld Stereo`s 30,3% growth
in PBIT, due to the acquisition of the additional 30,5% economic interest in
94.7 Highveld Stereo during the year.
Group earnings per share increased by 170,0% to 81 cents and headline earnings
per share increased by 195,7% to 68 cents. As the group is now essentially South
African- based, this performance compares favourably to the 52 cents from the
South African operations reported last year. The results include a R17,6 million
impairment of the group`s investment in film rights, arising from a more
conservative basis of accounting for the film rights, coupled with lower
projected revenues therefrom due to the stronger rand. R10,6 million of the
impairment has been reflected as an exceptional item, being the amount that
would have been recognized had the same policy been adopted in the prior year.
The level of the impairment provision in respect of film rights is not expected
to recur going forward.
3.2 Balance sheet
The group`s balance sheet remains strong at the year-end, with the group being
effectively ungeared.
3.3 Cash flow
Cash generated from operations increased by 81,0% to R353,6 million, largely due
to the 16,6% improvement in EBITDA to R323,5 million (2003: R277,3 million) as
well as a R9,2 million release of working capital. Furthermore, free cash flow
generated was at a record high of R259,1 million (excluding the once-off SARS
tax settlement of R27,0 million in respect of the Ster-Kinekor trademark), due
to the aforementioned as well as reduced net capital expenditure of R43,2
million (2003: R45,6 million). The group`s significant free cash flow was
deployed in cash distributions to shareholders out of the share premium (R63,7
million), earnings enhancing acquisitions of minority interests in group
subsidiaries (R17,4 million) and the repurchase of shares by the share trust
(R7,5 million). In order to take advantage of the significant strengthening of
the rand against the US dollar, the group also expunged its share of Ster
Century Middle East`s borrowings (R42,6 million), previously treated as a
constructive obligation.
3.4 Subsequent events
Subsequent to the year-end, Africa on Air (Proprietary) Limited received
notification from the South African Revenue Service (SARS) of its intention to
fully disallow the tax amortisation of the 94.7 Highveld trademark for all
periods subsequent to 31 January 1997. Africa on Air intends to object against
assessments raised in respect of the disallowance of the trademark amortisation.
In the unlikely event that the objection is completely unsuccessful and no value
at all is attached to the Highveld trademark,
- Africa On Air would be obliged to pay approximately R64 million in additional
income tax for all periods up to 30 June 2004, before interest and penalties if
any;
- In terms of the acquisition of the additional 30,5% economic interest in
Africa On Air, Primedia will recover from Hosken Consolidated Investments
(`HCI`), 30,5% of any amounts assessed in respect of the trademarks; and
- Any income tax payable in respect of the trademark will not impact on
Primedia`s earnings but will reduce the non-distributable reserves created on
recognition of the deferred tax asset at acquisition.
4 Divisional review
4.1 Advertising
The advertising businesses had an outstanding year. Turnover increased by 10,7%
to R759,9 million, which translated into a 28,0% increase in PBIT before
exceptional items and foreign exchange items, to R212,4 million. PBIT margins
increased from 24,2% to a very healthy 28,0%. The previous year`s results were,
however, bolstered by the once-off benefit from the 2003 Cricket World Cup,
which contributed R40 million of turnover and R9 million of incremental PBIT. On
a comparable basis, group turnover and PBIT would have increased by 15,4% and
34,8% year on year.
The strength of the domestic economy coupled with improved business confidence
has created very favourable conditions in the advertising industry, with
advertising spend growing at a faster rate than the growth in gross domestic
product. This, coupled with the divisions` operational and innovative focus, as
well as the benefits from extracting synergies, translated into excellent
overall results. Very good comparable growth was achieved across all divisions.
Particularly good performances were achieved by 94.7 Highveld Stereo, Primedia
Instore, Rank TV, Rank Branding, Primedia Outdoor, iafrica.com and Cinemark.
4.2 Filmed entertainment
The filmed entertainment division achieved a 14,0% increase in turnover to
R900,0 million (2003: R789,6 million). PBIT before exceptional items and foreign
exchange items was however marginally behind last year`s R72,7 million. PBIT
margins declined from 9,2% to 7,8%. This was largely due to the once-off
provisioning for film rights at Ster-Kinekor Pictures referred to earlier, as
well as lower levels of revenue from pay TV sales, which are priced in US
dollars. Excellent results were achieved at Ster-Kinekor Theatres, which
produced a 18,3% increase in PBIT notwithstanding a 3% decline in attendances.
This was achieved through improved cost control and operational efficiencies
particularly in catering. The result is even more impressive given that Ster-
Kinekor Theatres was 31,7% down at the interim stage. Ster-Kinekor Home
Entertainment`s performance was also outstanding, growing its PBIT by 34,8% with
Sony Playstation once again making a very good contribution.
4.3 One to one marketing
Turnover for the one to one marketing division declined by 11,1% to R67,8
million. However, PBIT before exceptional items and foreign exchange items
increased from R1,5 million to R4,0 million, with PBIT margins increasing from
1,9% to 5,1%. Both the UK-based The Database Group and the South African-based
Knowledge Factory performed well. These businesses have focused on higher
margin revenue streams and are moving their business offerings away from
commodity-based data products and services to strategically based advisory
services using high level of analytics.
5 Prospects
Primedia has a strong management team and the appropriate assets to deliver on
its growth strategy going forward. The advertising industry should continue to
prosper, given the current favourable economic conditions, which are influenced
by lower interest rates. Filmed content, which primarily drives our cinema
exhibition and home entertainment businesses, is expected to be of at least the
same quality as this last fiscal and given the strength of the rand, our home
entertainment businesses should continue to prosper. Overall, we expect
reasonable organic growth and real growth in earnings in the forthcoming year.
6 Transformation
Transformation has for many years been at the forefront of our strategy.
Acknowledging Primedia`s success in this regard, the group was ranked #17 as the
most empowered company of the top 200 listed companies in South Africa in 2004
and #2 in the media sector by the Financial Mail/Empowerdex rating. Furthermore
the group was ranked #3 in transformation at Board and executive management
level, both of which are 60%-represented by black individuals, and #13 on the
list of the Top 25 Empowerment Companies in South Africa for employment equity.
The representation of women remains a high priority for the group and Primedia
was recently acknowledged by the SA Women Inc. Leadership Census and was ranked
#14 out of the top 29 most represented companies in South Africa.
7 Distributions out of share premium
The group`s distribution policy is to maintain a cover of approximately 2 times.
In line with the group`s improved earnings and cash flow in the current fiscal,
the Board has resolved to pay a total distribution of 40 cents per share (1,7
times cover), which is 54% higher than in the previous year. This will result in
shareholders receiving a final distribution of 24,3 cents in addition to 15,7
cents declared at the interim stage.
Accordingly, notice is hereby given that a final cash distribution out of share
premium of 24,3 cents, in lieu of a dividend, has been awarded to shareholders
recorded in the register of the company at the close of business on Friday, 1
October 2004. Shareholders are advised that the last day to trade `cum` the
distribution will be on Thursday, 23 September 2004 and the shares will trade
`ex` the distribution from Monday, 27 September 2004. Share certificates may not
be rematerialised or dematerialised during the period Monday, 27 September 2004
to Friday, 1 October 2004, both days inclusive. Payment will be made on Monday,
4 October 2004.
In terms of the requirements of the Companies Act, the directors confirm that
after the payment of the distribution, the company will be able to pay its debts
as they become due in the ordinary course of business and its consolidated
assets, fairly valued, will exceed its consolidated liabilities.
For and behalf of the Board
AP NKUNA W KIRSH O IGHODARO
Chairman Chief Executive Chief Financial Officer
Johannesburg
2 September 2004
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+ N Canca
(* Executive directors + Independent non-executive directors)
Company secretary: O Ighodaro
Registered office Transfer secretaries
6th Floor Primedia Place Computershare Limited
5 Gwen Lane Sandown 2196 70 Marshall Street
Johannesburg 2001
www.primedia.co.za
