| Mon 12 Sep 2005, 15:04 | | Kagiso Media Limited - Audited results for the yea |
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Kagiso Media Limited - Audited results for the year ended 30 June 2005
KAGISO MEDIA LIMITED(Registration number 1957/000036/06)(`Kagiso Media` or `the
Company`)Share code: KGM
ISIN: ZAE000014007
Audited results for the year ended 30 June 2005
Including final dividend declarationHighlights
- Headline earnings increase by 14,6%
- Normalised* headline earnings increase by 20,2%
- Normalised* headline earnings per share increase by 18,7%
- Radio revenue growth outpace industry average
- EBITDA margin at 38,6%
- Strong cash flow
- Final dividend of 44 cents per share
*refer note 1.2Condensed consolidated income statement for the year ended
30 June 2005 30 June 2004
(Audited) (Audited) Change
(R`000) (R`000) %
Revenue 527 031 297 503 77,2
Profit before interest, taxation, 203 616 103 251 97,2
depreciation and amortisation
(`EBITDA`)
Depreciation and amortization (18 529) (5 709) (224,6)
Profit from operations 185 087 97 542 89,8
Net finance income 2 537 5 723 (55,7)
- Interest earned 6 936 5 723 21,2
- Preference dividend (4 399) - -
Share of results of associates 6 058 37 399 (83,8)
before tax
Profit before tax 193 682 140 664 37,7
Tax (76 501) (51 556) (48,4)
Profit from ordinary activities 117 181 89 108 31,5
Minority interest (13 891) 18 -
Net profit for the year 103 290 89 126 15,9
RECONCILIATION OF HEADLINE
EARNINGS
Net profit 103 290 89 126 15,9
Amortisation of goodwill - 1 106 -
Profit on sale of property, plant (195) (251) (22,3)
and equipment
Headline earnings 103 095 89 981 14,6
Amortisation of intangible assets 5 052 - -
per AC140, net of tax and
minorities` share*
Normalised headline earnings* 108 147 89 981 20,2
*Refer note 1.2
EARNINGS PER SHARE
Headline earnings per share 78,7 69,5 13,3
(cents)
Earnings per share (cents) 78,8 68,8 14,6
Fully diluted earnings per share 78,0 67,7 15,1
(cents)
Normalised headline earnings per 82,5 69,5 18,7
share (cents)*
Normalised earnings per share 82,7 68,8 20,2
(cents)*
Fully diluted normalised earnings 81,8 67,7 20,9
per share (cents)*
Number of shares in issue (`000s) 131 321 130 244 0,8
Weighted average number of shares 131 021 129 556 1,1
in issue (`000s)
Weighted average number of shares 132 503 131 573 0,7
in issue for diluted earnings per
share (`000s)
*Refer note 1.2
DIVIDEND PER SHARE
Final dividend in respect of the 44,0 42,0
year under review (cents)
Interim dividend (cents) 42,0 38,0
Total dividend paid (cents) 86,0 80,0 7,5
As a percentage of Headline 109,2 115,1
earnings per share (%)
Condensed consolidated balance sheet as at
30 June 2005 30 June 2004
(Audited) (Audited)
(R`000) (R`000)
ASSETS
Non current assets 391 886 64 892
- Property, plant and equipment 15 501 13 509
- Intangible assets 336 962 17 186
- Investment in associates 39 423 15 272
- Deferred tax - 18 925
Current assets 212 926 207 149
- Inventory 10 160 8 782
- Trade and other receivables 103 636 100 973
- Current tax asset 2 103 524
- Deferred expenses 7 202 8 558
- Sinking fund 8 403 -
- Cash and cash equivalents 81 422 88 312
Total Assets 604 812 272 041
EQUITY AND LIABILITIES
Shareholders` equity 232 003 146 118
Minority interest 96 842 38
Total equity 328 845 146 156
Non current liabilities 157 041 -
- Preference shares 82 500 -
- Deferred tax 74 541 -
Current liabilities 118 926 125 885
- Trade and other payables 73 252 73 546
- Current tax liability 24 731 15 686
- Deferred revenue 20 943 36 653
Total Equity and Liabilities 604 812 272 041
Net asset value per share (cents) 176,7 112,2
Segmental analysis for the year ended 30 June
Revenue Profit Headline
Before tax earnings
(R`000) 2005 2004 2005 2004 2005 2004
Central services - - (12 466) (6 539) (26 873) (21 415)
(1)
Broadcasting 318 047 134 311 159 308 104 877 97 890 79 590
Specialist 110 831 93 031 31 770 28 313 20 975 20 773
Publishing
Exhibitions 98 153 65 029 15 070 10 527 11 103 7 517
Strategic - 5 132 - 3 486 - 3 516
marketing (2)
Total 527 031 297 503 193 682 140 664 103 095 89 981
(1) The Central services segment absorbs the preference dividend and all
Secondary Tax on Companies in the Group
(2) The Strategic Marketing segment was discontinued as a discreet segment
during the year and its activities integrated into that of the Broadcasting
segmentNotes to the segmental analysis for the year ended 30 June
Headline loss contributed by Central Services 2005 2004
segment (R`000) (R`000)
Staff cost (6 185) (4 950)
Other operating cost (3 756) (3 277)
Interest received 1 875 1 674
Preference dividend (4 399) -
Tax (7 731) (9 215)
STC on ordinary dividend absorbed on behalf of (8 665) (5 647)
other segments
STC on preference dividend (550) -
Attributable to minorities 2 538 -
(26 873) (21 415)
Condensed consolidated statement of changes in equity for the year ended
30 June 2005 30 June 2004
(Audited) (Audited)
(R`000) (R`000)
Equity at the beginning of the year 146 118 130 258
- As previously reported 131 975
- Change in accounting interpretation (1 717)
Ordinary shares issued in terms of Share 2 277 2 075
Scheme
Revaluation of intangible assets acquired 90 595 -
in subsidiary
Net profit for the year 103 290 89 126
Dividend paid (110 277) (75 341)
Equity at the end of the year 232 003 146 118
Condensed consolidated cash flow statement for the year ended
30 June 2005 30 June 2004
(Audited) (Audited)
(R`000) (R`000
Cash flow from operating activities
Cash from operations 203 517 103 002
Working capital changes (9 491) 11
Cash generated from operations 194 026 103 013
Net finance income 2 537 5 723
Tax paid (63 920) (33 679)
Dividend received from associates - 26 283
Dividends paid to group and minority (130 277) (75 429)
shareholders
Net cash from operating activities 2 366 25 911
Net cash utilised by investing activities (85 631) (13 317)
Additions to property, plant and equipment (5 732) (4 749)
Additions to intangible assets (2 673) (5 291)
Investment in subsidiary, net of cash (44 709) -
Investment in joint venture, net of cash - (2 247)
Investment in associates (33 025) -
Other 508 (1 030)
Net cash from financing activities 76 375 2 074
Proceeds from issue of new ordinary shares 2 278 2 074
Proceeds from issue of new preference 82 500 -
shares
Movement in respect of sinking fund (8 403) -
Net increase/(decrease) in cash and cash (6 890) 14 668
equivalents
Cash and cash equivalents at beginning of 88 312 73 644
year
Cash and cash equivalents at end of year 81 422 88 312
Notes
1. COMMENTS ON RESULTS
1.1 Introduction
Kagiso Media achieved an increase in normalised headline earnings of 20,2% and
in normalised headline earnings per share (`HEPS`) of 18,7%, for the year to 30
June 2005, on the basis that the amortisation of the intangible assets, as
explained in 1.2 below, is excluded from these results. The increase for the
year to 30 June 2005 brings to 20% the annually compounded growth rate in HEPS
over the past five years, a clear indicator of the Group`s consistent
performance and growth.
The Company has financed its acquisitions through debt and was able to maintain
a strong flow of dividends to shareholders. In line with the board`s philosophy
that surplus cash should be returned to shareholders in the absence of
acquisition opportunities, a final dividend of 44 cents (2002: 42 cents) has
been declared, bringing to 86 cents the dividend for the year (2004: 80 cents).
This represents a growth of 7,5% in the dividend for the year over that of 2004.
1.2 Normalisation of earningsThe acquisition of Jacaranda 94.2 was accounted for
in terms of AC140 `Business combinations`, which requires that an independent
valuation be performed of the intangible assets in the company. The provisional
valuation identified additional intangible assets in Jacaranda 94.2 to the value
of approximately R300m. These assets have been brought to account in the
Balance Sheet as at 30 June 2005, and are amortised over an estimated useful
life of 20 years, with the exception of the broadcast licence (valued at
approximately R63m), which is not amortised as it is assumed that it has an
indefinite useful life. The purchase price for the additional 17,5% the Company
acquired in Jacaranda 94.2 was R59,9m and was settled in cash.
The treatment of this acquisition under AC140 impacted as follows on the results
for the year ending 30 June 2005, and financial position at that date, if
compared to the purchase method previously applied to account for acquisitions:
EFFECT OF APPLYING AC140 `BUSINESS COMBINATIONS`
30 June 2005
(Audited)
(R`000)
RESULTS FOR THE YEAR
Additional amortisation (11 859)
Tax effect 3 439
Attributable to minorities 3 368
(5 052)
FINANCIAL POSITION
Assets
Increase in intangible assets 251 070
251 070
Equity and liabilities
Decrease in retained income (5 052)
Increase in revaluation reserve 90 595
Increase in minorities` interest 81 899
Non-current liabilities
Increase in deferred tax liability 83 628
251 070
1.3 General
The results for the year to 30 June 2005 are not comparable on a line-by-line
basis with that of the comparative period, due mainly 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 previously equity accounted. The acquisition of control of
Jacaranda 94.2 contributed revenue of R161,7m and EBITDA of R75,2m to the
results for the year.
The results for the year to 30 June 2005 also include, with effect from 1
December 2004, the equity accounted result of the investment in Thebe Convergent
Technologies (Pty) Limited (`TCT`), which represents an effective economic
interest of 25% in Kaya FM (Pty) Limited, a private regional radio station
broadcasting in Gauteng, and the cost of preference shares issued to fund this
acquisition.
The Company also concluded an investment equating to an effective economic
interest of 33,3% in P4 Radio Cape Town (Pty) Limited and P4 Radio Durban (Pty)
Limited, two regional licencees in the second and third most important
geographical markets in South Africa. The P4 investment was acquired on 1 June
2005 and its contribution to the Group`s results for the period under review,
albeit positive, was immaterial.
1.4 Revenue
Revenue grew by 21,5% over the comparative period if the effect of the
acquisition of control of Jacaranda 94.2, with effect from 1 August 2004, and
the acquisition of joint control of RadMark, with effect from 1 April 2004, are
excluded from the result for the period under review. This performance was
driven by revenue growth of 13% at East Coast Radio, 19% at LexisNexis
Butterworths and 51% at Kagiso Exhibitions.
1.5 EBITDA
The overall EBITDA margin increased from 34,7% in 2004 to 38,6% in the year
under review, mainly due to the consolidation, with effect from 1 August 2004,
of the relatively high-margin income of Jacaranda 94.2.
1.6 Net finance income
Net finance income decreased from R5,7m in 2004 to R2,5m as a result of R4,4m in
preference dividends incurred on the preference shares issued during the year.
These preference shares were issued to fund the acquisitions of the interest in
TCT and the additional interests in RadMark and Jacaranda 94.2 (refer 2.4
below).
1.7 Share of Associates` income
The share of results of associates before tax includes the equity accounted
results of Jacaranda 94.2 for one month (2004:12 months), OFM, and the
investment in TCT for seven months and in the P4`s, for one month.
1.8 Tax
The effective tax rate in the year under review was high at 38,9% (2004: 36,7%),
reflecting the R14,3m (2004: R9,4m) in Secondary Tax on Companies (`STC`) on the
relatively high proportion of earnings distributed as ordinary dividends and on
the preference dividend.
1.9 Minorities` share of profits
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, net of minorities` share of the amortisation of the intangible asset
acquired as a result of the acquisition of control of Jacaranda. Minorities own
a collective 40% of the station since 1 August 2004.
2. BALANCE SHEET
2.1 Intangible assets
The acquisition of control of Jacaranda 94.2 on 1 August 2004 has been accounted
for in terms of AC140 `Business Combinations`. The provisional valuation
performed on Jacaranda 94.2 identified additional intangible assets in the
Company to the value of approximately R300m. These assets were brought to
account in the Balance Sheet at 30 June 2005.
2.2 Working capital
The Group commenced the year with cash resources of R88,3m. During the year the
operations generated approximately R133m after tax, while the Group raised
R82,5m in debt funding. Of these available cash resources R86m was applied to
acquisitions and capital expenditure, R8,4m toward the debt (refer 2.3) and
R130,5m distributed to Group and minority shareholders by way of dividends. At
30 June 2005 the cash reserves stood at R81,4m.
The net working capital position, being net current assets excluding cash
balances, increased from a net liability of R7,0m at 30 June 2004 to a net asset
of R12,5m at 30 June 2005, mainly due to the working capital contributed by the
acquisition of control of Jacaranda 94.2 during the year. Cash flow remains
strong, which gives the Group the ability to raise further debt to fund
acquisition opportunities that may arise, while maintaining a regular dividend
payment to shareholders.
2.3 Sinking fund
The Company is obliged to deposit 10% of the issue price of the preference
shares (refer 2.4) on 31 March and 30 September of every year in a dedicated
savings account from which the first tranche of 60% of the preference shares
will be redeemed three years from the issue date. These funds earn interest to
the credit of the Group, but cannot be otherwise utilised by the Group.
2.4 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 accumulates the required
amount of cash in a dedicated savings account (the sinking fund - refer 2.3).
Thereafter, the balance of the preference shares will be redeemed in equal
biannual 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,17,5% of Jacaranda 94.2 and the 25% effective economic interest in Kaya
FM.
At 30 June 2005 the outstanding debt equated to 0,36 times EBITDA and gearing
stood at 32%, expressed as a percentage of shareholders` interest.
3. REVIEW OF OPERATIONS
The contribution of each business segment to revenue, profit before tax and
headline earnings is set out in the Segmental Analysis.
3.1 Central services
The cost of the preference shares, and 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, are allocated to the Central services
segment so as not to distort the performance of individual business segments.
The Central services segment contributed a loss of R26,9m (2004: R21,4m) to
Group earnings. The operating and staff cost at the centre increased by R1,8m,
or 20%, to R10m during the year under review, while the preference dividend of
R4,4m paid in the year to 30 June 2005 was also allocated to this segment. More
details on the composition of the loss in this segment are provided in the note
to the segmental analysis.
3.2 Broadcasting
General
Despite strong trading conditions during the reporting period, radio as a medium
only managed to grow revenue by 11,5% over the comparative period, against the
estimated growth in television advertising revenues of more than 20%. This is
due in part to aggressive discounting by television, which has made the medium
more affordable to many advertisers. Similarly, more advertisers, and in
particular retailers experiencing very strong trading conditions, are at this
stage able to afford advertising on television, often at the expense of radio.
We believe that this trend will reverse, as the current strategy of aggressive
discounting by television is not sustainable, especially since the medium is
already oversold is certain time channels. Revenue growth at Kagiso Media`s
stations again outstripped their peers, with Jacaranda 94.2 recording an
increase of double the industry average.
Jacaranda 94.2
The changes effected by Kagiso Media since it took control of the station in
August 2004 have started to bear fruit, with Jacaranda offering more innovative
solutions for advertisers, allowing the station to post revenue growth of 21,8
in the period under review. This is a remarkable achievement in light of the
11,5% increase in national radio revenues over the same period, especially
considering that this was achieved without any significant growth in audience
numbers.
The extensive audience and music research that was undertaken, on-air line-up
changes, re-branding and marketing campaign to launch the new positioning of the
station have, however, come at a cost, with the EBITDA margin decreasing from
47,7% in the comparative period, to 46,7% in the period under review. The
repositioning is now complete, and the EBITDA margin is expected to recover
towards 48% over the next year.
East Coast Radio (ECR)
The station increased revenue 13,2% over the comparative period, which resulted
in an increase in the EBITDA margin from 51,8% to 52,1%. ECR has been
repositioned as `Durban`s No. 1` and the breakfast show has been revamped. Its
strong regional positioning is reflected by the station`s strong local sales
division.
OFM
The results of OFM for the year to 30 June 2005 have disappointed. Revenue at
the station showed very little growth, which resulted in the EBITDA margin
deteriorating from 29% to 26% in the period under review. Consequently the
station`s contribution to headline earnings decreased by 13% to R1,7m. It is
encouraging, though, that the station is the only station in South Africa to
have grown its audience significantly (more than 25%) over the past year. It is
anticipated that this new audience should impact positively on revenue and that
the station should recover most of the lost ground in the coming financial year.
RadMark
Although revenue at RadMark increased by only 8% after the loss of KFM as a
client on 31 December 2004, the company managed to improve its EBITDA margin
from 37,7% in 2004 to 45% in the period under review. This was achieved through
innovative risk-sharing arrangements with its clients, which rewarded RadMark
handsomely when clients` sales budgets were exceeded. RadMark currently has an
estimated 21% (2004: 26%) share of the South African radio advertising market.
3.3 Specialist publishing
The past year marks the eleventh consecutive year of double digit growth for
LexisNexis Butterworths. The company increased revenue by 19%, EBITDA by 17% and
its contribution to Group headline earnings by 11,4% to R20,9m. The EBITDA
margin decreased slightly from 31,5% to 30,9% over the same period, mainly due
to new products and services being introduced at lower margins.
The company has invested aggressively over the past few years in new revenue
opportunities across the business, a number of which will be market-ready in the
near future. As a result LexisNexis Butterworths again expects a strong showing
in the 2006 financial year.
3.4 Exhibitions
In the year under review, Kagiso Exhibitions staged Auto Africa, a biennial
exhibition, and rendered once-off services in respect of a tender it secured for
South Africa`s official participation and exhibition at the AICHI 2005 World
Expo in Japan. These events, coupled with strong organic growth at the annual
Rand Show, contributed to revenue being up 51% on the comparative period and
this segment`s contribution to total headline earnings increasing from 8% to 10%
in the year to 30 June 2005. The EBITDA margin is slightly down from 16% in 2004
to 15,7% in the period under review.
If the biennial exhibition and once-off events were to be excluded from the
results for the year, revenue at the company would have been up a very
satisfactory 13% over the comparable base in 2004.
3.5 Strategic marketing
The three-year project management role to the International Marketing Council`s
prestigious `Brand SA` project came to an end on 30 June 2004. Consequently, the
residual activities of this division, namely research and advisory services to
the Group`s broadcasting assets, were integrated into the Broadcasting segment.
These activities realised a small profit for the year under review.
4. ACCOUNTING POLICIES
The summarised audited results for the year to 30 June 2005 have been prepared
using accounting policies which are in accordance with the historical cost basis
(as modified by any revaluation of financial assets and liabilities), in
conformity with Generally Accepted Accounting Practice in South Africa and
consistent with those adopted in the prior year, except as more fully set out in
note 5 below.
5. CHANGE IN ACCOUNTING INTERPRETATION
During the year, the Company changed its interpretation of AC105 `Accounting for
Operating Leases`. In order to comply with AC105, lease payments under an
operating lease are recognised as an expense on a straight-line basis over the
lease term. Previously lease payments were expensed as and when incurred. The
effect of this change is as follows:
Gross Tax Net
R`000 R`000 R`000
Decrease in net profit due to change in
accounting interpretation
- 2005 (658) 197 (461)
- 2004 (1 398) 419 (979)
Restatement of opening retained
earnings in respect of prior year
adjustments
- 2005 (3 851) 1 155 (2 696)
- 2004 (2 453) 736 (1 717)
The audited results for the year ended 30 June 2004 have been restated to
reflect the changes in accounting interpretation adopted in the year under
review.
6. AUDITORS` REPORT
PricewaterhouseCoopers Inc. has audited the Group annual financial statements.
Their unqualified audit report is available for inspection at the Company`s
registered office.
7. ANNUAL FINANCIAL STATEMENTS
The annual financial statements for the year to 30 June 2005, including a notice
to the annual general meeting, will be posted to shareholders by no later than
31 October 2005.
8. AMENDMENTS TO THE COMPANY`S SHARE INCENTIVE SCHEME
It is the intention of the directors to propose amendments to the Company`s
share incentive scheme for adoption by shareholders at the annual general
meeting of the Company. Full details of the proposed amendments will be included
in the notice to the annual general meeting.
9. DIVIDEND
It is the Group`s policy to return surplus cash to shareholders in the absence
of investment opportunities, and to fund acquisitions firstly from debt. In the
year under review 86 cents per share were distributed to shareholders by way of
dividends.
The Board considered the forecast for the next year and, after allowing for the
payment of the preference dividend and accumulation of cash in the sinking fund
on 30 September 2005 and 31 March 2006 (as explained in 2.3 and 2.4 above),
resolved to declare a dividend totalling some R58,5m.
Notice is hereby given that a dividend of 44 cents (2004: 42 cents) per share
has been declared in respect of the year ended 30 June 2005 and is payable to
holders of ordinary shares recorded in the register of the Company on Friday, 7
October 2005.
The following salient dates apply to this dividend:
Last date to trade cum dividend Friday, 30 September 2005
Shares commence trading ex dividend Monday, 3 October 2005
Record date Friday, 7 October 2005
Payment of the dividend Monday, 10 October 2005
Share certificates may not be dematerialised or rematerialised between Monday, 3
October 2005 and Friday, 7 October 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.
10. CHANGES TO THE BOARD
Shareholders are reminded of the impending changes to the board of directors of
the Company, announced on SENS on 5 August 2005. Mr PHP Jacobs, the Financial
Director and Company Secretary of the Company for the past seven years, has
resigned with effect from 31 October 2005 to pursue private business interests.
Ms Sandra Pienaar will join the board of the Company as Financial Director and
will become the new Company Secretary with effect from 1 October 2005. Ms Maud
Motanyane also becomes an independent non-executive director with effect from 1
September 2005.
11. PROSPECTS
The Group`s radio stations are not as exposed as many others in the industry to
the impact of the current shift of advertising spend from radio to television.
East Coast Radio is a must-buy in its market because of its penetration and
audience loyalty, while the positive changes at Jacaranda 94.2 should translate
to further revenue growth over the next year. The Group is thus confident that
the broadcasting assets will again outperform their peers.
LexisNexis Butterworths is looking forward to another year of good growth from
existing and new products, while Kagiso Exhibitions, which now earns sustainable
levels of profitability from existing business, will further pursue ad hoc
mandates in its core exhibitions and related markets.
Overall Kagiso Media is thus poised for another strong showing in the 2006
financial year. The Group generates strong cash flow and will be able to service
its debt commitments comfortably, while sustaining a healthy dividend to
shareholders.
On behalf of the Board
E Molobi W R Jardine
Chairman Chief Executive
12 September 2005
Registered Office: 1st Floor Kagiso House, 16 Fricker Road, Illovo, 2196, PO Box
724, Northlands, 2116
Transfer Secretaries: Ultra Registrars (Pty) Limited 5th Floor, 11 Diagonal
Street Johannesburg, 2001, (PO Box 4844, Marshalltown, 2107)
Directors: E Molobi (Chairman), MJN Njeke, WR Jardine* (Chief Executive), PHP
Jacobs*, OC Essack*, HI Appelbaum, RL Hiemstra#, YI Mahomed,
M Motanyane#, SN Pragjee, AH Singh
* Executive
# Independent
Company Secretary: PHP Jacobs
Sponsors: Investec Bank Limited
www.kagisomedia.co.za
Date: 12/09/2005 02:46:20 PM
