| Mon 21 Feb 2005, 15:11 | | Interim Results |
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Kagiso Media Limited - Unaudited Interim Results For The Six Months Ended 31
December 2004 and interim dividend declaration
KAGISO MEDIA LIMITEDRegistration number 1957/000036/06(`Kagiso Media` or `the
Company`)Share code: KGM ISIN: ZAE000014007
Unaudited interim results for the six months ended 31 December 2004 and interim
dividend declaration
Headline EPS up 14%Gearing introduced on the Balance SheetInterim dividend of 42
cents per share-up 10,5%Effective control assumed of Jacaranda 94.2
Condensed Consolidated Balance Sheet
31 December 31 December 30 June
2004 2003* 2004
(R`000) (Unaudited) (Unaudited) (Audited)
ASSETS
Non-current assets 115 464 66 602 63 736
- Property, plant and equipment 14 668 15 231 13 509
- Intangible assets 68 708 3 400 17 186
- Investment in associates 21 226 35 152 15 272
- Deferred tax 10 862 12 819 17 769
Current assets 266 303 159 147 206 625
- Inventory 8 859 6 002 8 782
- Deferred expenses 13 577 10 802 8 558
- Trade and other receivables 136 231 65 210 100 973
- Cash and cash equivalents 107 636 77 133 88 312
Total assets 381 767 225 749 270 361
EQUITY AND LIABILITIES
Shareholders` interest 157 609 159 222 148 813
Minority interest 11 201 28 38
Total equity 168 810 159 250 148 851
Non-current liability - Preference 82 498 - -
shares
Current liabilities 130 459 66 499 121 510
- Deferred revenue 17 228 3 908 36 653
- Trade and other payables 82 561 50 179 69 473
- Tax 29 118 12 174 15 162
- Shareholders for dividend 1 552 238 222
Total equity and liabilities 381 767 225 749 270 361
*Restated
Condensed Consolidated Cash Flow Statement
Six Twelve
months ended months
ended
30 June
2004
31 December 31 December
2004 2003*
(R`000) (Unaudited) (Unaudited) (Audited)
Cash flows from operating activities
Cash generated by operating activities 112 851 57 573 104 400
Increase in working capital (46 693) (15 514) (1 387)
Net cash inflow from operating activities 66 158 42 059 103 013
Net finance income 2 771 3 171 5 723
Tax paid (21 291) (12 802) (33 680)
Dividend received from associates - - 26 283
Dividend paid to group shareholders (55 122) (25 849) (75 341)
Dividend paid to minority shareholders - (88) (88)
Net cash (outflow)/inflow from operating (7 484) 6 491 25 910
activities
Cash flows from investing activities (57 763) (3 002) (13 316)
Net additions to property, plant and (4 301) (3 002) (5 290)
equipment
Additions to intangible assets (82) - (2 247)
Investment in subsidiary and associate, net (53 380) - (4 373)
of cash acquired
Investment in joint venture, net of cash - - (1 406)
acquired
Cash flows from financing activities 84 571 - 2 074
Proceeds from issue of new shares, net of
share issue expenses
- ordinary shares 2 073 - 2 074
- preference shares 82 498 - -
Net increase in cash and cash equivalents 19 324 3 489 14 668
Cash and cash equivalents at beginning of 88 312 73 644 73 644
the period
Cash and cash equivalents at end of the 107 636 77 133 88 312
period
* Restated
Condensed Consolidated Statement of Changes in Shareholders` Interest
Six Twelve
months ended months
ended
30 June
2004
31 December 31 December
2004 2003*
(R`000) (Unaudited) (Unaudited) (Audited)
Shareholders` interest at the 148 813 131 976 131 976
beginning of the period
Issue of new shares, net of share 2 073 - 2 074
issue expenses
Net profit for the period 61 845 53 095 90 104
Dividend paid (55 122) (25 849) (75 341)
Shareholders` interest at the end of 157 609 159 222 148 813
the period
* Restated Condensed Consolidated Income Statement
Six Twelve
Months ended months
ended
30 June
Change 2004
% (Audited)
31 December 31 December
2004 2003*
(Unaudited) (Unaudited)
(R`000)
Revenue 266 264 148 155 79,7 297 503
Profit before interest, 112 851 57 871 95,0 104 649
tax, depreciation and
amortisation
(`EBITDA`)
Depreciation and (3 379) (2 426) (39,3) (5 709)
amortisation
Profit from operations 109 472 55 445 97,4 98 940
Net finance income 2 771 3 171 (12,6) 5 723
Preference dividend (1 331) -
Share of results of 4 408 21 834 (79,8) 37 399
associates before tax
Profit before tax 115 320 80 450 43,3 142 062
Tax (42 312) (27 363) (54,6) (51 976)
Profit from ordinary 73 008 53 087 37,5 90 086
activities
Minority interest (11 163) 8 - 18
Net profit for the period 61 845 53 095 16,5 90 104
EARNINGS PER SHARE
Headline earnings per 47,3 41,5 14,0 70,2
share (cents)
Earnings per share 47,3 41,1 15,1 69,5
- basic (cents)
- diluted(cents) 46,6 40,4 15,3 68,3
Number of shares in issue 131 243 129 244 1,2 130 244
(`000s)
Weighted average number 130 754 129 244 1,2 131 894
of shares in issue
(`000s)
RECONCILIATION OF HEADLINE EARNINGS
Net profit for the period 61 845 53 095 16,5 90 104
Profit on sale of - - - (251)
property, plant and
equipment
Amortisation of goodwill - 484 - 1 106
(1)
Headline earnings 61 845 53 579 15,4 90 959
(1) In terms of the latest accounting convention, goodwill is no longer
amortised.* RestatedIntroduction
For the six months to 31 December 2004 Kagiso Media recorded headline earnings
per share of 47,3 cents, an increase of 14% over that of the comparative period.
The buoyant consumer spend over the festive season, and strong demand from
advertisers for airtime, translated to revenue increases at the group`s radio
stations of between 10% and 16% over last year. In each instance, this revenue
performance enhanced the earnings before interest, tax, depreciation and
amortisation (`EBITDA`) margin. The results for the six months under review also
reflect the accretive impact of the acquisition of an additional 17,5% in
Jacaranda 94.2 with effect from 1 August 2004. Revenue at LexisNexis
Butterworths increased 23% and Auto Africa, the group`s biennial exhibition, was
staged in the period under review.
The high quality of the group`s earnings and cash generative nature of all the
group`s operations contributed to a healthy cash balance of R108m at 31 December
2004. The Board considered the forecast for the next six months and, after
allowing for the payment of the preference dividend on 31 March 2005 and for the
accumulation of cash in the sinking fund (as explained under `Financial
position` below), resolved to declare a dividend totaling some R55,2m.
Comments on results
General
The results for the six months to 31 December 2004 are not comparable on a line-
by-line basis with that of the comparative six months due to the acquisition of
a further 15,8% of RadMark on 1 April 2004 and 17,5% of Jacaranda 94.2 with
effect from 1 August 2004. Since these acquisitions the results of RadMark have
been proportionally consolidated and those of Jacaranda consolidated, whereas
these results were equity accounted in the comparative six month period.
The performance of each operation in respect of revenue and the EBITDA margin is
discussed in more detail under `Review of operations`.
EBITDA
EBITDA margin
The overall EBITDA margin improved from 39,1% in the comparative period, to
42,4% in the six months under review, mainly as a result of the consolidation of
the high-margin earnings from Jacaranda since 1 August 2004, and the improvement
in margins at East Coast Radio and RadMark.
See-through EBITDA
See-through EBITDA, representing the group`s effective share of the EBITDA in
subsidiaries, joint ventures and associates, increased by 23,6% to R98,5m in the
six months under review.
SEE-THROUGH EBITDA
Six Twelve
months ended months ended
31 December 2004 31 December 2003* 30 June 2004
(R`000) (Unaudited) (Unaudited) (Audited)
See-through EBITDA 94 391 57 692 104 649
in subsidiaries and
joint ventures
See-through EBITDA 4 073 21 942 38 248
in Broadcasting
Associates(1):
- Jacaranda 94.2 2 456 16 347 29 576
- OFM 1 617 1 437 2 695
- RadMark - 4 158 5 977
Total see-through 98 464 79 634 142 897
EBITDA
(1) The results of Jacaranda have been consolidated with effect from 1 August
2004, and the results of RadMark proportionally consolidated from 1 April 2004.
* Restated
Net finance income
The persistently low interest rates caused interest received to decrease by
12,6% against the comparative period, notwithstanding the consolidation of the
interest earned by Jacaranda 94.2 from 1 August 2004.
Preference dividend
The preference dividend pertains to the preference shares issued in the six
months under review (refer `Financial position` below). The dividend has been
accrued, but not declared, as it is payable only on 31 March 2005.
Associates
In the period under review, the share of results of associates before tax
comprised the group`s 42,5% of the results of Jacaranda 94.2 for July 2004 and
24,9% of the result of OFM. In the comparative six months the group owned 31,64%
of RadMark and 42,5% of Jacaranda 94.2 for the full six month period.
Tax
The effective tax rate increased from 34,0% in the comparative period to 36,7%
in the six months to 31 December 2004, due to the relatively high Secondary Tax
on Companies (`STC`) charge in the current period. The comparative period
included a dividend of only 20 cents per share, against the 42 cents in the
period under review. For the full year the effective tax rate should again
approach the marginal rate of 30%, plus STC on the relatively high percentage of
the Company`s profit distributed as a dividend to shareholders.
Minority interest
The substantial increase in the minority shareholders` share of net profit is as
a result of the acquisition of control in Jacaranda 94.2 in the period under
review. Minorities own a collective 40% of the station.
Review of operations
During the period under review, and in the comparative period, revenue, EBITDA
and headline earnings were contributed by the group`s business segments as
follows:
SEGMENTAL ANALYSIS FOR THE SIX MONTHS ENDED 31 DECEMBER
Revenue EBITDA Headline earnings
(R`000) 2004 2003 2004 2003* 2004 2003*
Head-office - - (3 825) (1 922) (11 430) (3 875)
Broadcasting 165 667 72 856 90 495 36 968 55 687 41 059
Specialist 54 404 44 211 18 502 15 870 11 862 10 436
publishing
Exhibitions 45 435 28 522 7 320 5 140 5 350 4 092
Strategic 758 2 566 359 1 815 376 1 867
marketing
Total 266 264 148 155 112 851 57 871 61 845 53 579
* Restated
Head-office
The group`s share of STC in all the subsidiaries, joint ventures and associates,
as well as any deferred tax movement in respect of STC credits and the
preference dividend, are allocated to the head-office segment.
Broadcasting
General
The contribution to headline earnings by the Broadcasting segment increased by
36% to R55,7m in the period under review, due to the strong performance of the
broadcasting assets, and the addition of a further 15,8% of RadMark on 1 April
2004 and 17,5% of Jacaranda 94.2 with effect from 1 August 2004.
East Coast Radio
Although East Coast Radio only increased revenue 10% over the comparative six
months, the EBITDA margin at the station increased from 50,7% (restated) to
53,3% in the period under review. The margin improvement is due to tight cost
control. Furthermore, marketing expenses that are normally incurred at this time
of the year have been phased to the second six month period when the station
will launch its new brand.
Jacaranda 94.2
In the six months to 31 December 2004 Jacaranda 94.2 increased its EBITDA margin
from 49,7% to 50,8%. The EBITDA margin for the first time exceeded 50% in a six
month period, reflecting not only the 16% revenue growth at the station, but
also the full impact of the savings after the cancellation, in September 2003,
of an onerous consulting agreement.
Since Kagiso Media took control of the station in August 2004 extensive audience
research has been conducted, the on-air line-up bolstered with new talent, the
music mix and jingles refreshed, the morning show tightened and the station`s
positioning refined to `The Feel Good Jacaranda 94.2`, with the payoff line of
`Playing Life`s Greatest Hits`.
OFM
In the six months to 31 December 2004 OFM increased its revenue by 13% over the
comparative period, while the EBITDA margin remained stable at 29%. The station
was successful in its application to ICASA for a transmitter in Sasolburg, an
area which it previously did not reach. The Vaal Triangle industrial base
presents an attractive new audience to OFM, which it should start converting to
revenue in the new financial year.
RadMark
RadMark`s clients enjoyed above-average revenue growth for the six months under
review, which is reflected in a 12% increase in revenue at the radio airtime
sales house. The EBITDA margin jumped from 44,6% in the comparative period to
50,5% in the six months under review, due to operational leverage and the
phasing of marketing costs into the second six month trading period.
Specialist publishing
LexisNexis Butterworths increased revenue 23% and its contribution to headline
earnings 14% over the comparative period, due to the strong performance by all
its product ranges and the completion of a range of publishing assignments in
East and West Africa. The EBITDA margin slipped from 36% in the comparative six
months to 34% in the period to 31 December 2004, as the revenue from Africa
comes at a lower than average margin, in addition to which dollar weakness
eroded the margin on the African business. In future, business from the rest of
the continent should contribute about 5% of total revenue.
Exhibitions
Kagiso Exhibitions staged Auto Africa, a biennial exhibition, in the six months
under review. This exhibition contributed to revenue being up 59% on the
comparative period. The EBITDA margin is down from 17,7% to 16,1%. In the next
six months the company will be staging the annual Rand Show, and will render
services in respect of a tender it secured for South Africa`s official
participation and exhibition at the AICHI 2005 World Expo in Japan.
Strategic marketing
The performance of this segment against the comparative period reflects the loss
of the IMC tender, which came to an end on 30 June 2004. The group is retaining
its presence and is pursuing new opportunities in this area. This segment should
show a small profit for the full year.
Financial position
Working capital
The group had cash of R107,6m at 31 December 2004, up from the R88,3m at 30 June
2004. The net working capital position, excluding cash balances, increased from
a net liability of R3,1m at 30 June 2004 to an asset of R28,2m at 31 December
2004. Although this is typical at this point in the financial year due to the
seasonality inherent in the sales cycle of the radio operations and LexisNexis
Butterworths, the acquisition of control of Jacaranda 94.2 and joint control of
RadMark have raised the overall level of working capital in the group.
Preference shares
A subsidiary of the company raised R82,5m in funding through the issue of
redeemable, cumulative, variable rate preference shares to a commercial bank.
The preference shares have a coupon of 70% of the prime overdraft rate and the
preference dividend is payable on 31 March and 30 September of every year. The
preference shares are redeemable over five years from the date of issue, with
the first redemption of 60% of the subscription price taking place after three
years. In order to allow for this redemption, the group will accumulate the
required amount of cash in a dedicated savings account (`the sinking fund`).
Thereafter, the balance of the preference shares will be redeemed in equal bi-
annual instalments over two years.
The funds raised through the issue of these preference shares were applied to
fund the acquisition of a further 15,8% of RadMark and 17,5% of Jacaranda 94.2.
At 31 December 2004 the outstanding debt equated to 0,5 times the see-through
EBITDA over the past 12 months, and gearing stood at 52%, expressed as a
percentage of shareholders` interest. Shareholders are reminded that the
shareholders` interest has been reduced by the R366m in intangible assets
written off against share premium in the 2000 financial year. If the intangible
assets in the group - notably trademarks - were reflected at a reasonable
valuation, gearing would be a more realistic 15%.
Regulatory matters
The Independent Communications Authority of South Africa (`ICASA`) has submitted
its proposed amendments to the laws governing the ownership and control of
commercial radio broadcasting licences to the Department of Communications.
Once the parliamentary process is concluded, the new legislation should allow
media owners to increase the number of radio stations they control from two to
five, i.e. 35% of available licences.
Accounting policies
The summarised unaudited results for the six months ended 31 December 2004 have
been prepared using accounting policies which are in accordance with Generally
Accepted Accounting Practice and Schedule 4 of the Companies Act, and are
consistent with those adopted in the annual financial statements for the year
ended 30 June 2004. The summarised unaudited results for the six months ended
31 December 2003 have been restated to reflect the impact of the changes in
accounting policy and interpretation adopted during the year to 30 June 2004, as
discussed in more detail below.
New accounting dispensation
Change in Accounting Policy
During the financial year to 30 June 2004 the Company implemented AC501
`Accounting for Secondary Tax on Companies`. Previously no deferred tax was
recognised on STC credits, but in order to comply with AC501, deferred tax is
now recognised on STC credits where it is probable that a dividend will be
declared against which STC credits will be utilised.
Change in Accounting Interpretation
During the previous financial year, accounting interpretations with respect to
the consolidation of special entities were expanded and now include all share
incentive trusts, namely the Kagiso Media Limited Share Trust, East Coast Radio
Share Trust and RadMark Share Trust. This change in accounting interpretation
was applied retrospectively and comparative amounts have been appropriately
restated.
The impact of these changes in accounting policy and interpretation on opening
retained income was explained in detail in the Group Annual Financial Statements
in respect of the 2004 financial year. The comparative results for the six
months to 31 December 2003 were affected as follows by these changes:
Gross Tax Minorities Net
R`000 R`000 R`000 R`000
Net profit for the six 81 892 (26 223) (272) 55 397
months to 31 December
2003, as previously
reported
Effects of the change in
accounting policy:
- increase in tax charge - (1 140) - (1 140)
Effects of the change in
accounting interpretation:
- decrease in profit at (1 442) - - (1 442)
East Coast Radio
- reduction in Minorities` - - 280 280
share of profit
Restated amounts 80 450 (27 363) 8 53 095
Accounting for Business Combinations
The acquisition of control of Jacaranda 94.2 is accounted for in terms of AC140
`Business Combinations`. This standard requires a fair value assessment to be
performed on the net assets acquired in the company. This process is currently
underway, and once finalised, may result in that portion of the purchase price
currently allocated to goodwill being reassigned to other assets. Due to the
different amortisation practices applicable to goodwill and other non-current
assets under the new accounting regime, the implementation of AC140 may have an
impact on headline earnings for the full financial year.
Comparative figures
The unaudited results for the six months ended 31 December 2003 have been
restated to reflect the changes in accounting policy and interpretation adopted
in the year to 30 June 2004, as discussed above.
Seasonality
The first six months of the financial year normally represents the peak trading
period for radio broadcasting, the group`s major business segment. The earnings
from this segment over the two six month trading periods in the 2005 financial
year should therefore reflect a similar seasonality to what has been experienced
over the past two to three years.
Interim dividend declaration
Notice is hereby given that a dividend of 42 cents (2003 - 38 cents) per share
has been declared in respect of the six months ended 31 December 2004 and is
payable to holders of ordinary shares recorded in the register of the company on
Friday, 18 March 2005.
The following salient dates apply to this dividend:
Last date to trade cum-dividend Friday, 11 March 2005Shares
commence trading ex-dividend Monday, 14 March 2005Record date
Friday, 18 March 2005Payment of the dividend Tuesday,
22 March 2005
Share certificates may not be dematerialised or rematerialised between Monday,
14 March 2005 and Friday, 18 March 2005, both days inclusive.
In terms of the Companies Act, the directors confirm that, after the payment of
the above dividend, the Company will be able to meet its commitments and settle
its liabilities as these fall due in the ordinary course of business, and that
its consolidated assets, fairly valued, exceed its consolidated liabilities.
Prospects
With a stable local economic outlook, strong consumer confidence and spending,
and the positioning of the group`s assets as leaders in their respective
markets, the outlook for the remainder of the financial year remains positive.
In addition, the directors are confident that, in the absence of acquisition
opportunities and subject to the repayment of the group`s debt, a relatively
high percentage of the group`s profits can continue to be distributed to
shareholders.
On behalf of the BoardE Molobi W
R JardineChairman Chief Executive
21 February 2005Registered Office: 1st Floor Kagiso House, 16 Fricker Road,
Illovo, 2196.
Transfer Secretaries: Ultra Registrars (Pty) Limited, 5th Floor, 11 Diagonal
Street, Johannesburg, 2001, (PO Box 4844, Johannesburg, 2000)
Directorate: E Molobi (Chairman), MJN Njeke, WR Jardine* (Chief Executive), PHP
Jacobs*, OC Essack*, HI Appelbaum, RL Hiemstra#,
YI Mahomed, SN Pragjee, AH Singh. *Executive #Independent
