| Wed 15 Jun 2005, 14:36 | | FINANCIAL STATEMENTS FOR THE 2005 YEAR |
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Moneyweb - Preliminary Audited Group Annual Financial Statements For The Year
Ended 31 March 2005
MONEYWEB HOLDINGS LIMITED
(Registration No: 1998/025067/06)
Share code:MNY ISIN:ZAE000025409
(`Moneyweb` or `Company`)
PRELIMINARY AUDITED GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED
31 MARCH 2005
* Losses in line with projections in year of refocus
* Monthly operating profit achieved by yearend
* Repurchase of 8,85 million shares
* New radio platforms secured
* Growth by acquisition strategy abandoned
Consolidated Income Statements
Audited Audited
31 March 2005 31 March 2004 % Change
R`000 R`000
REVENUE 16,829 20,128 -16%
EBITDA -2,283 3,047 -175%
Depreciation -424 -444 5%
Amortisation of development costs -418 -511 18%
LOSS / PROFIT FROM OPERATIONS -3,125 2,092 -249%
Net investment income 374 477 -22%
Net income from associates
(net of taxation) 286 577 -50%
Profit / (Loss) on disposal of
Investments 21 -
Fair Value adj of investments -326 -
LOSS / PROFIT BEFORE GOODWILL
AMORTISATION -2,770 3,146 -188%
Goodwill amortisation* -14,318 -15,081 5%
NET LOSS BEFORE TAXATION -17,088 -11,935 -43%
Income tax expense 592 -604 198%
NET LOSS FOR THE YEAR -16,496 -12,539 -32%
BASIC LOSS PER SHARE (cents) -21,2 -15,7 -35%
FULLY DILUTED LOSS PER SHARE (CENTS) -21.2 -15,7 -35%
HEADLINE LOSS / EARNINGS PER SHARE
(cents) -2,4 3,2 -188%
FULLY DILUTED HEADLINE LOSS EARNINGS
PER SHARE (cents) -2,4 3,2 -188%
Reconciliation of headline earnings:
Net loss for the year -16,496 -12,539
Goodwill amortisation* 14,318 15,081
Profit on disposal of investment -21 -
Fair value adjustment of investments 326
HEADLINE EARNINGS -1,873 2,542 -173%
*This is a non-operating item. It relates to goodwill arising on acquisitions,
primarily at the time of the listing of the company. The goodwill is written
off over 5 years.
Number of shares (000`s) (Net of Treasury shares)
- issued closing 69 206 78 032
weighted average 78 752 79 653
- fully diluted weighted average 77 897 80 094
Moneyweb Holdings Limited
Consolidated Balance Sheets
Audited as at Audited as at
31 March 2005 31 March 2004
R`000 R`000
ASSETS
Non-current assets
Tangible assets 1,513 909
Intangible assets 347 14,315
Investment in associates - 6,587
Other investment 3,016 12
Deferred taxation 889 12
5,765 21,835
Current assets
Trade and other receivables 2,153 4,382
Income tax prepaid - 28
Cash and cash equivalents 2,538 7,858
4,691 12,268
Total assets 10,456 34,103
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 6,257 10,543
Accumulated profit 1,028 17,524
7,285 28,067
Non-current liabilities
Shareholders` loan 438 438
Current liabilities
Trade and other payables 2,067 3,575
Provisions 147 117
Deferred revenue 509 1,444
Income tax payable 8 460
Shareholders for dividend 2 2
2,733 5,598
Total equity and liabilities 10,456 34,103
Net asset value per share (cps) 10,5 36,0
Net tangible asset value per share (cps) 10,0 17,6
Moneyweb Holdings Limited
Statements of changes in shareholders` equity
Balance as at beginning of period 28,067 42,442
Net loss for the year -16,496 -12,539
Treasury shares purchased -3,038 -1,990
Disposal of share incentive trust shares - 154
Capital Distribution -1,248
7,285 28,067
Moneyweb Holdings Limited
Consolidated Cash Flow Statements
Audited Audited
31 March 2005 31 March 2004
R`000 R`000
Cash flows from operating activities
Cash generated by operations -3,220 3,894
(Increase)/decrease in working capital 751 -65
Cash generated by operating activities -2,469 3,829
Net investment income 374 477
Dividends Received 589 -
Capital distribution paid -1,248 -
Normal taxation paid -710 -576
Net cash inflows from operating
activities -3,464 3,730
Cash flows from investing activities
Acquisition of tangible assets -1,041 -355
Acquisition of treasury shares -3,038 -1,990
Repayment of loans from associates 312 -
Loan advanced to associate -105 -207
Proceeds on disposal of Classic FM 2,000 -
Proceeds on disposal of Vestact 2 -
Disposal of share trust shares 154
Proceeds on disposal of tangible assets 14 3
Net cash outflows from investing
activities -1,856 -2,395
Net movement in cash and cash
equivalents for the year 5,320 1,335
Cash and cash equivalents at
beginning of the year 7,858 6,523
Cash and cash equivalents at
end of the year 2,538 7,858
Moneyweb Holdings Limited
Notes to the Cash Flow Statement
Audited Audited
31 March 2005 31 March 2004
R`000 R`000
Cash generated by operations
Operating profit from operations
before depreciation and
amortisation -2,283 3,047
Adjustments:
Fair value adjustment of investment
included in net investment income - -2
Profit on disposal of fixed assets -2 -
Movement in deferred revenue -935 849
-3,220 3,894
(Increase)/decrease in working capital
Increase in trade and other
receivables 2,229 -1,284
Increase in trade and other
payables -1,478 1,219
751 -65
Taxation paid
Amounts owing at the beginning
of the year -421 -224
Amounts charged per the income
statement -288 -784
Amounts owing at the end of the year -8 432
Amounts paid -710 -576
Accounting Policies
The financial information has been prepared on the historical cost basis in
accordance with South African Statements of Generally Accepted Accounting
Practice, except for the fair value adjustments of financial instruments. The
accounting principles used in preparing the financial information are consistent
with those adopted in the previous financial year.
Auditors report
The unqualified auditors report issued by Grant Thornton is available for
inspection at the registered office of the Company.
CEO`s letter to shareholders from annual report
It`s tempting to say the past financial year was one when change was forced upon
your company. Equally, one might start from the argument that had certain
actions not been taken, the potential so obvious in the new positioning of
Moneyweb Holdings would have been missed.
Those statements are true. Still, they cannot disguise what has been a tough
year where exceedingly difficult decisions were required. Hindsight shows us the
right choices were not always made and as a result of some of these, weaknesses
endemic in any developing business were harshly exposed. Most disappointing of
all, the company posted its first ever full year loss since being established in
1997.
Fortunately, the business was nimble enough and possessed sufficient resources
to absorb the knocks and rapidly reposition itself. Moneyweb today has
streamlined, is focused and profitable. The two-year quest for bulk, the acquire
for-growth strategy has been supplanted by a model, which relies on organic
expansion.
Along with this refocusing came some significant personnel changes. Edwin Jay,
brought on as CEO specifically to drive the acquisition strategy, has returned
to lawyering, handing me back the day to day leadership of the business.
Moneyweb`s first chairman, Dr Andrew Smith, has returned to the chair, with
Edwin staying on as a non-executive director.
We also said farewell to financial manager Estelene Venter and IT executive
Donovan Roberts, both of whom had served the company well over many years. Their
seniority demanded the kind of challenges which the refocused Moneyweb was
unable to offer in the short-term.
Another significant departure was that of Timothy Wood whose contribution,
especially the early days of Moneyweb, was enormous. Tim`s grasp of the
relevance and opportunity presented by the Internet made him a kindred spirit at
a time when most in the media sector saw the web as a passing fashion.
Moneyweb retained its links with Timothy after he emigrated to the US and from
this new base, he played a major role in helping develop the company`s resources
website Mineweb.com into a global player.
When strategic reasons required that an approach for Mineweb.com from an
American buyer was once more turned down, Tim decided his future lay elsewhere.
It remains a source of great pride that Moneyweb has played a part in helping
him become established as a serious voice in US mining circles.
Business school academics say losing many of those who participate in the start-
up years is natural in the development of a young business. Unfortunately,
Moneyweb has not been an exception to that rule. On the other hand, its
continued strong growth and uncompromising independence makes the company a
magnet for ambitious media professionals. This ongoing process of attracting
better quality staff enables us to approach the future with great confidence.
The year in review
Undoubtedly the most significant event of the past year was the break with
Classic FM, the regional radio station in which Moneyweb owned 19,6%. Although
the matter was touched on in last year`s annual report, because of its
significance and subsequent developments, further detail is necessary here.
In early 2004, Moneyweb was approached for assistance by the managers of Radio
Today, a Johannesburg-based community radio station which broadcasts on AM, an
inferior band (as opposed to FM). Much like the position Classic FM was in
before Moneyweb became involved in 2000, Radio Today was on the brink of closure
with substantial debts and significant monthly losses.
Moneyweb was offered a management contract by Radio Today`s management in return
for injecting the financial and human resources required to return the station
to health. After considerable deliberation, it was decided to pursue the
opportunity. Radio Today`s licence conditions - serving over 50s - was ideally
suited to introducing the `golden oldies` music format which is successful
globally on the AM band.
To complement this easy listening format, a well resourced three hour morning
breakfast show focusing on news, sport, business, music and entertainment was
planned, using Moneyweb presenters and producers. The intention was to run the
Radio Today programming in parallel with the flagship business-focused programme
being aired on Classic FM. Radio Today offered your company an excellent
learning ground for future broadcasting initiatives.
At no time was the Radio Today opportunity considered by us to be threatening to
the relationship with Classic FM. From the outset, the chairman of Classic FM
was informed of progress in discussions, with the clear intention that this
station would be able to work together with Moneyweb in addressing Radio Today`s
problems.
With hindsight, it is apparent that mistakes were made in this approach.
First, it was assumed that in the absence of a response from the Regulator, the
draft management contract was acceptable on the basis that without Moneyweb`s
support Radio Today would close. This is not as naive as it would appear - Radio
Today was bankrupt, logic would suggest the Regulator would welcome our efforts
to keep the failing station alive.
At no time in discussions with the Regulator was any objection raised to the
process being followed. Unfortunately, when the Regulator did eventually
respond, it was negatively, with a directive that it could not sanction the
management contract which had been offered to Moneyweb.
Second, it was assumed that the Radio Today management team enjoyed the full
support of the community which the station served. This, too, was not so. A
small but vociferous group of mainly aged (70 plus) listeners were opposed to
changes introduced to the programming. Not surprisingly, Moneyweb`s media
competitors provided the platform for this body to express its unhappiness.
Most importantly, instead of becoming involved in the process of helping the
community station, Classic FM interpreted the Moneyweb/Radio Today partnership
as a threat. Much to the surprise of your company`s management, Classic FM
issued an ultimatum that should Moneyweb programming be carried on any other
radio station in its broadcast area, our relationship on the flagship business
show would be terminated forthwith.
This ultimatum had to be interpreted within the context of your company`s long-
term strategy of expanding its radio interests. At the time, Moneyweb was in the
final stages of extended negotiations aimed at introducing an hour long business
programme to Radio Sonder Grense (RSG), the Afrikaans-language radio arm of the
SA Broadcasting Corporation.
RSG offered a massive new opportunity (ten times Classic FM`s audience), a
countrywide FM footprint, and, potentially, the base from which to launch an
Afrikaans-language version of Moneyweb.co.za. In addition, a partnership with
RSG provided the opportunity to prove Moneyweb`s value to the national
broadcaster, opening the door to potential relationships with other radio
stations.
Agreeing to Classic FM`s ultimatum would have required an about-turn on hard won
progress in discussions with the SABC, forcing Moneyweb to abandon all future
expansion in radio. The trade-off was to walk away from a substantial,
guaranteed revenue stream and simultaneously allowing a direct competitor easy
access into a market where it was previously absent.
Adding to the dilemma was the predictable negative impact on profitability. It
was not an easy decision. But given the long-term nature of the media business,
there was no alternative. Not for the first time in your company`s history, a
decision had to be taken in the belief that superior content would enable us to
overcome the unfair advantage of regulated monopolies created by current radio
licensing legislation.
The developing relationship with Radio Today helped cushion the impact by
providing an immediate alternative platform for the Moneyweb Power Hour
programme. But this brought new financial with Moneyweb having to financially
support a leaky ship without being able to manage the operation. These costs,
written off in the year under review, contributed significantly to the loss
posted.
The Afrikaans programme - RSG se Geldsake met Moneyweb - was launched on
September 1. By the financial year-end it had started to make a positive
contribution. More importantly, it opened the way to other partnerships with the
national broadcaster. Critically, from May the Moneyweb Power Hour moved to
Radio 2000 and its nationally broadcast FM signal, the ultimate broadcast
vehicle in South African radio. In effect, the Radio 2000 deal meant your had
company traded Classic FM`s regional footprint and small audience for national
reach and at least double the listeners.
Another casualty of the new partnership was Moneyweb`s relationship with
independent television company eTV, a direct competitor of the SABC. The
contract was terminated six months early by mutual agreement. The final
broadcast was at the end of September. Unfortunately, the revenue projections
were not achieved.
While all this action was happening on the broadcasting front, Moneyweb`s stated
strategy of seeking acquisitions was continuing apace. In two years, we had
kissed a lot of frogs but for reasons of price or prospects, none of the
possible partners turned into a prince. The most serious of these was the
potential full-blown merger with the Mail & Guardian, a weekly newspaper
published in Johannesburg.
The proposed merger would have provided great potential for cost savings through
combining administrative and other back-office functions. It would also have
introduced the bulk necessary to move aggressively into other parts of the
continent. The content fit was good with both editorial teams driven by
independence and excellence. Chemistry with the M&G top management was excellent
and the deal would in a single transaction have provided Moneyweb with Black
Economic Empowerment credentials.
Although terms had been agreed with M&G`s biggest shareholder, triggering
expensive formal processes that accompany such transactions, price became an
issue with the largest minority shareholder. A substantial gap existed between
what Moneyweb`s board regarded as acceptable and the price required by the other
side. As a result, discussions were called off in December. Unfortunately,
considerable expenses had to be met through professional fees incurred in the
process.
While these discussions were being held, the company received another offer for
Mineweb.com from the US, this time to acquire 100% ownership of the property and
develop it globally. The sale would have precluded your company from producing
any content on the resources sector. As this area accounts for 40% of the market
capitalisation of the JSE, having the capacity to cover SA resources stocks is
part of Moneyweb`s core business. After protracted discussions aimed at trying
to overcome the impasse, the proposal was finally rejected, resulting in the
aforementioned resignation of Timothy Wood.
With all of this going on, it is not surprising that management`s attention was
distracted from the financial reverse being suffered in the underlying business.
Termination of the proposed M&G transaction provided the catalyst for action. A
turnaround plan was adopted focused on returning the company to profitability
through cutting costs by 20%. This was achieved by February with the company
returning to profit in March.
Apart from addressing costs, the opportunity was also taken to streamline the
company`s investments. The bulk of the Classic FM stake was sold to a Black
Empowerment consortium. A value of R5-million was agreed upon for Moneyweb`s
stake, with R2-million in cash received during the year. The balance will be
paid on the Regulator`s approval of the change in shareholding.
Although the sale of the Classic FM stake reflects a book loss, the actual
position is more favourable. It should be remembered that the bulk of the
purchase price was the sale of 5-million Moneyweb shares to Liberty Group (which
in return expunged its R5-million loan to Classic FM) at a price of 100c each.
Subsequent to the Classic FM disposal, these shares were bought back from
Liberty at 32c each.
The company also bought back another 4-million shares through the market at 32c
each from former non-executive director Pierre Desmidt. Over the past couple of
years Pierre has played a valuable role at board level, but feels that with the
acquisition strategy having been abandoned, he can no longer add value to
deliberations. After resigning from the board, he offered his shares in the
market.
These repurchases brought to 15-million the number of shares which have been
bought back, reducing the issued number of shares from 85-million to 70-million,
having the effect of expanding each shareholder`s stake in the company by 22%.
The share buyback is part of a conscious decision by the company to manage its
cash more efficiently. Although sufficient cash will always be maintained to
meet operational requirements, with the structure of South African interest
rates having changed, there is a high disincentive to holding excess cash.
Shareholders will be asked at the AGM to agree to a continuation of the share
buy-back programme.
Also as part of the streamlining of the business, the 20% shareholding in niche
stockbroking service Vestact was sold, also at a profit. The Moneyweb Digest was
closed shortly after year-end because of the repatriation of the Oce digital
press to Germany. Subsequent to year-end, the company also disposed of the List
Broking business acquired with the Prescon acquisition in 2000. This operation,
a brokerage of names for direct mail campaigns, has long sat uncomfortably
within the Moneyweb fold where community members` confidentiality is respected.
Operationally, the business made good progress during the year under review. The
core online operations continued to expand their readership bases and posted
healthy improvements in advertising revenue. Growth is illustrated by the fact
that it took the company five years (from 1997 to end 2002) to expand from zero
to 35 000 unique users - yet just two years later that figure trebled to 115
000.
The partnership with The Citizen newspaper continues to benefit both parties.
The year ahead
While the 2004/5 financial year was one of meeting unexpected challenges,
refocusing and repositioning, 2005/6 promises to be a period of consolidation
and development off the strong platforms the company now possesses. Many
opportunities exist, but the strategic objective is now to seek organic rather
than transactional growth.
The core Internet properties are poised for another good year. Internet
advertising is by far the fastest growing part of the global advertising pie and
is enjoying excellent acceptance among South African advertisers. Industry
researcher ZenithOptimedia estimates that in calendar 2005 the Internet will
account for 3,8% of total advertising, up from 3,6% last year and 3,2% in 2003.
The researchers project Internet`s slice at 4,4% by 2007.
The value of online properties is recognised by the investment market. Earlier
this year, Marketwatch.com was acquired by the Dow Jones company for a net
US$463-million in cash. The company, like Moneyweb established in 1997, runs two
websites which serve the investment community. Its sites boast 8-million unique
users.
On a direct comparison, that would value your company`s Moneyweb.co.za and
Mineweb.com sites at well north of $6-million. Although Moneyweb`s properties do
not enjoy an equivalent rating in the South African investment market, it does
give an indication of the kind of valuations global investors are prepared to
put onto investment-focused websites.
This is partly due to a realisation that traditional media, especially
newspapers, are continuing to lose ground to the Internet. Recent figures
published by the Washington Post show the US`s 814 biggest newspapers reported a
2% contraction in circulation last year, continuing a 20 year trend as people
turn increasingly to the web and cable TV for their news.
South Africa`s newspaper picture is distorted by the success of the bottom-end
Daily Sun, but in the area where Moneyweb competes, the move to the Internet is
distinct with contracting circulations among top end newspapers and magazines.
An appreciation of this fact among advertisers is likely to ensure solid growth
in the company`s online revenues in the financial year to March 2006.
Biggest turnaround, though, is likely on the radio side where the Radio 2000
partnership and new relationship with another SABC station, Lotus FM, will give
fresh impetus to revenues. Opportunities are being sought in providing business
information to the SABC`s portfolio of African Language Stations where massive
audiences offer great potential. A second radio studio was commissioned at
Moneyweb`s Rosebank headquarters in anticipation of the expanded activities.
Concrete progress is now being made on the promised expansion into other parts
of the African continent with a partner identified in Nigeria. Various joint
venture opportunities have been identified after a fact finding trip by
Moneyweb`s head of editorial, Belinda Anderson. The first of these is likely to
be launched in the current financial year.
The key to Moneyweb`s future, however, lies in its people. In recognition, the
board has introduced an incentive programme where 20% of pretax profit is
distributed quarterly through a bonus pool to all except the sales staff (who
have direct incentives). Recipients are encouraged to use part of these bonuses
to acquire share options at a market related price.
The editorial team has come through a difficult year with flying colours
scooping numerous award for their journalistic efforts. Most notable of these
was Investigations Editor Barry Sergeant`s award of R100 000 by the Valley Trust
- the richest prize in journalism - in recognition of his efforts in exposing
malfeasance in the commercial arena.
Moneyweb also did well in the annual Sanlam and Citadel Award, with the Moneyweb
Power Hour winning the business radio category in both competitions for the
sixth successive year. In the Sanlam competition, Moneyweb also won the
category for best Companies and Industries reporting for Internet and daily
newspapers.
Felicity Duncan was awarded the `best newcomer` prize in the Sanlam competition,
following in the footsteps of her colleague and 2004 winner Erika van der Merwe.
In the Telkom Awards for ICT Journalism, Belinda Anderson scooped the Electronic
Category and came third overall.
Subsequent to year-end, the editorial team was bolstered through employment of
some experienced journalists and the retention of graduates of the successful
Internship programme.
For the first time, the editorial function is complemented by a highly
professional sales team, put together by experienced professional Gilda de
Araujo. In the year since joining Moneyweb, Gilda has used her knowledge and
skills to attract and train an extremely competent group that is maturing into
one of the most effective sales teams anywhere in the media sector. This
investment is sure to pay handsome dividends in the 2006 financial year.
It is a very different Moneyweb which approaches the future. The financial
reverse of 2004/5 had a disruptive impact throughout the company, as did the
consequent process of streamlining operations. With the picture having cleared,
morale is back at its usual high levels that Moneyweb has enjoyed since
inception. This has been helped by the securing of the partnership with the
national broadcaster, obviously the most powerful partner for any radio content
provider.
The change in radio platforms will require substantial marketing investment in
the 2006 financial year. Even so, the company is poised to post a strong return
to profits and expects to resume distributions to shareholders this year.
This has been a year when directors of your company have been asked to take some
tough decisions, to ignore the noise and act in the longer-term interest of your
company. I have been proud to be part of the decision making process and thank
every member of our board for the contribution they have made. Our best wishes
to Pierre Desmidt and thanks for the effort and enthusiasm he displayed while a
director of Moneyweb.
My personal thanks to each member of the Moneyweb team. They have cheerfully
parried a great deal of usually ill-founded criticism this past year - and even
put up with a flash flood in the office courtesy of a mix-up with the
Municipality`s Water Department. It is an enduring pleasure to share one`s
working hours with such an outrageously talented group of people.
Sincere appreciation also to our advertisers. It is their support which enables
us to report independently and really make a difference.
And, finally, thanks to the growing base of Moneyweb community members without
whom all of what we do would be irrelevant. We will keep striving to repay your
loyal support through raising the bar in everything we deliver.
Alec Hogg
CEO
DIVIDENDS
No dividend has been proposed or declared for the financial year
Rosebank, Johannesburg
10 June 2005
Sponsor
Grant Thornton Corporate Finance (Pty)Ltd
Moneyweb Holdings Limited
Date: 15/06/2005 02:33:32 PM
Produced by the JSE SENS Department
