| Mon 27 Feb 2006, 10:00 | | Primedia Limited - Unaudited results for the 6 mon |
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PMA PMN
PMA
Primedia Limited - Unaudited results for the 6 months ended 31 December 2005
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" or "the company" or "Primedia Group")
UNAUDITED results for the 6 months ended 31 December 2005
HIGHLIGHTS
Revenue up 27% to R1 297,8 million
EBITDA UP 29% to R276,0 MILLION
PBIT UP 33% to R243,0 MILLION
HEADLINE EARNINGS PER SHARE BEFORE IFRS 2 COSTS UP 45% TO 65 CENTS*
SHAREHOLDER DISTRIBUTIONS PER SHARE UP 82% TO 40 CENTS
*IFRS 2 costs relate to the group"s BEE transaction (49 cents) and share options
(2 cents)
ABRIDGED CONSOLIDATED INCOME STATEMENT
Restated Restated
6 months 6 months 12 months
31 Dec 2005 31 Dec 2004 % 30 June 2005
R"000 R"000 change R"000
Revenue 1 297 776 1 025 052 27 2 011 592
Operating profit
before
depreciation
("EBITDA") 276 013 214 495 29 417 027
Depreciation and
amortisation of
software (32 990) (31 341) (66 589)
Operating profit
before unrealised
foreign
exchange items,
share based
expenses and
exceptional items
("PBIT") 243 023 183 154 33 350 438
Unrealised foreign
exchange
(losses)/gains (7 734) (3 905) 117
Amortisation of
trademarks (891) (7) (13)
Share based expenses (4 353) (1 404) (3 906)
Exceptional items (96 674) 5 062 14 948
Operating profit 133 371 182 900 (27) 361 584
Investment income 6 222 4 221 7 808
Net finance costs (30 204) (34 160) (55 073)
Share of associated
companies" profits - 457 457
Profit before tax 109 389 153 418 (29) 314 776
Taxation (59 617) (46 962) (86 604)
Net profit 49 772 106 456 (53) 228 172
Attributable to:
- Primedia Limited"s
- shareholders 36 211 98 825 (63) 210 832
- Minority interests 13 561 7 631 78 17 340
Determination of
headline earnings
Net profit
attributable
to Primedia
Limited"s
shareholders 36 211 98 825 210 832
Net profit on
disposal
of assets (304) (767) (206)
Exceptional items: (3 940) (33) (1 832)
- Net (profit)/loss
on disposal of
assets (4 483) 167 (2 090)
- Other 543 (200) 258
Tax effect of
non-headline
earnings items 36 222 95
Headline earnings 32 003 98 247 (67) 208 889
Number of shares
("000)
- Issued 229 539 225 226 221 747
- Weighted average 223 316 222 595 223 032
- Diluted weighted
average 227 533 229 590 228 494
Earnings per share
(cents)
- Adjusted
headline earnings * 65 45 45 95
- Headline 14 44 (68) 94
- Basic 16 44 (64) 95
- Diluted headline 14 43 (67) 91
- Diluted basic 16 43 (63) 92
Exceptional items
Headline reconciling
items above 3 940 33 1 832
IFRS 2 expense
relating
to BEE ownership
transaction (108 398) - -
Reversal of loan
impairments 5 513 8 550 14 910
Revaluation of
listed investment 2 615 - 1 165
Other exceptional
items (344) (3 521) (2 959)
Exceptional items (96 674) 5 062 14 948
* Excluding IFRS 2 share related costs
ABRIDGED CONSOLIDATED BALANCE SHEET
Restated Restated
31 Dec 2005 31 Dec 2004 30 June 2005
R"000 R"000 R"000
Assets
Non-current assets 1 019 821 877 082 924 843
Property, plant and equipment 312 317 276 350 299 070
Goodwill and intangible assets 556 172 426 837 465 592
Investments and loans 24 196 19 861 23 543
Deferred tax assets 127 136 154 034 136 638
Current assets 715 688 548 356 463 924
Inventories 83 394 40 399 51 767
Trade and other receivables 587 474 446 216 407 789
Bank balances and cash 44 820 61 741 4 368
Total assets 1 735 509 1 425 438 1 388 767
Equity and liabilities
Total shareholders" funds 502 117 424 490 448 427
Non-current liabilities 277 492 371 044 353 490
Long-term borrowings 182 526 283 141 264 276
Long-term provisions 25 995 25 355 22 699
Deferred tax liabilities 68 971 62 548 66 515
Current liabilities 955 900 629 904 586 850
Short-term borrowings 445 257 110 108 113 225
Other current liabilities 510 643 519 796 473 625
Total equity and liabilities 1 735 509 1 425 438 1 388 767
Net asset value per share
(cents) 219 188 202
ABRIDGED STATEMENT OF CHANGES IN SHAREHOLDERS" EQUITY
Restated Restated
6 months 6 months 12 months
31 Dec 2005 31 Dec 2004 30 June 2005
R"000 R"000 R"000
Total shareholders" funds
- Primedia Limited"s
shareholders 407 199 317 159 317 159
- Minority interests 80 927 16 238 16 238
Opening balance previously
stated 488 126 333 397 333 397
IFRS adjustments
- Transfer to loans from
- outside shareholders (50 147) (16 198) (16 198)
- Depreciation 13 448 14 282 14 282
SA GAAP adjustment
- Deferred tax (3 000) (3 000) (3 000)
Restated opening balance 448 427 328 481 328 481
Distribution to shareholders (75 387) (54 996) (103 289)
Shares issued 2 29 133 29 133
Net profit for the year 49 772 106 456 228 172
BEE ownership transaction 108 398 - -
Costs related to BEE
ownership transaction (4 485) - (73)
Share option expense 4 353 1 404 3 906
Movement in treasury shares (31 831) 6 152 (29 106)
Write-back of amounts
previously written-off against
share premium 555 21 059 (1 766)
Minority interests acquired 3 957 (13 315) (8 563)
Other movements (1 644) 116 1 532
Total shareholders" funds 502 117 424 490 448 427
Attributable to:
- Primedia Limited"s
shareholders 448 413 408 189 417 647
- Minority interests 53 704 16 301 30 780
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Restated Restated
6 months 6 months 12 months
31 Dec 2005 31 Dec 2004 30 June 2005
R"000 R"000 R"000
OPERATING ACTIVITIES
Operating profit
before depreciation 276 013 214 495 417 027
Exceptional cash items
and non-cash movements 5 558 (5 446) (12 000)
Increase in receivables (188 524) (94 632) (48 452)
Increase in inventory (32 072) (696) (14 697)
Increase in payables 61 120 74 228 54 432
Decrease in provisions (26 176) (27 821) (6 460)
Cash generated from operations 95 919 160 128 389 850
Net interest paid (23 074) (12 861) (30 845)
Tax paid (47 640) (9 184) (69 365)
Net cash inflow from
operating activities 25 205 138 083 289 640
INVESTING ACTIVITIES
Net acquisition of
subsidiaries, minorities
and investments (116 317) (360 607) (395 638)
Net acquisition of
fixed assets and software (36 717) (26 921) (86 604)
Other investing activities 2 869 1 049 (2 543)
Net cash outflow from
investing activities (150 165) (386 479) (484 785)
FINANCING ACTIVITIES
Distribution to shareholders (75 387) (54 996) (103 289)
(Acquisition)/disposal
of shares by The Primedia
Share Trust (31 650) 5 933 (29 106)
Net borrowings raised 22 024 263 817 225 008
Proceeds from share
issues net of costs (4 485) - 29 060
Other financing activities (5 092) (300) -
Net cash (outflow)/inflow
from financing activities (94 590) 214 454 121 673
Net decrease in cash
and cash equivalents (219 550) (33 942) (73 472)
Foreign currency
translation (2 075) 433 1 064
Cash and cash equivalents
at beginning of period (6 411) 65 997 65 997
Cash and cash equivalents
at end of period (228 036) 32 488 (6 411)
NOTES TO THE FINANCIAL STATEMENTS
Restated Restated
6 months 6 months 12 months
31 Dec 2005 31 Dec 2004 % 30 June 2005
R"000 R"000 change R"000
SEGMENTAL ANALYSIS
REVENUE
Advertising 586 818 467 879 25 950 288
Content 645 846 521 782 24 965 111
New media sectors 34 777 4 828 620 33 467
One to one marketing 30 062 30 358 (1) 62 726
Other 273 205 33 -
1 297 776 1 025 052 27 2 011 592
EBITDA
Advertising 224 891 164 116 37 331 444
Content 61 036 60 507 1 93 789
New media sectors 3 145 521 504 3 587
One to one marketing 1 409 989 42 3 576
Other (14 468) (11 638) (24) (15 369)
276 013 214 495 29 417 027
PBIT
Advertising 207 797 147 863 41 298 059
Content 47 738 47 051 1 64 497
New media sectors 1 997 405 393 2 782
One to one marketing 703 215 227 2 095
Other (15 212) (12 380) (23) (16 995)
243 023 183 154 33 350 438
CAPITAL EXPENDITURE,
COMMITMENTS
AND CONTINGENCIES
Future capital
commitments 49 291 38 099 96 870
Financial commitments 35 540 10 402 42 468
Operating
lease commitments 311 293 290 241 347 009
- Due within one year 90 390 43 908 93 249
- Thereafter 220 903 246 333 253 760
Unindemnified
contingent liabilities 22 463 42 212 24 702
- Contingent
liabilities 162 595 184 358 180 696
- Indemnities
received (140 132) (142 146) (155 994)
BASIS OF PREPARATION
The condensed unaudited interim results have been prepared in accordance with
International Financial Reporting Standards and IAS 34 - Interim financial
reporting. The group is reporting under IFRS for the first time for the six
months ended 31 December 2005 and accordingly comparatives have been restated.
The accounting policies used in preparation of the statements are compliant
with IFRS and are consistent with those applied in the annual financial
statements for the year ended 30 June 2005, except as disclosed below.
Property, plant and equipment
In terms of the transitional election made under IFRS 1 - First-time Adoption
of International Financial Reporting Standards, certain items of property,
plant and equipment were recognised at deemed cost, being fair value as at 1
July 2004. In subsequent periods, these items have been measured at deemed
cost less accumulated depreciation and impairment losses. In line with the
changes to IAS 16 - Property, plant and equipment, residual values and useful
lives of the assets, for which the election in terms of IFRS 1 was not made,
were re-assessed and where applicable, restated as required by IAS 16.
Share-based payments
The group has elected not to apply IFRS 2 - Share-based payments
retrospectively to equity instruments granted on or before 7 November 2002. In
accordance with the provisions of IFRS 2 - Share-based payments, the group now
recognises an expense in the income statement in respect of options granted
after 7 November 2002, which had not vested as at 1 January 2005, with a
corresponding credit to equity representing the fair value of employee share
options granted.
Following the issue of international interpretation IFRIC 8 - Scope of IFRS 2,
the group is extending the scope of IFRS 2 to include the group"s black
economic empowerment initiative. Consequently, the fair value of the shares
issued at par to Mineworkers Investment Company (Pty) Limited ("MIC") pursuant
to the group"s BEE initiative has been expensed in the income statement.
COMMENTARY
1. Overview
Primedia continues to deliver above-average shareholder returns. Although
supported by favourable market conditions, the group"s results bear testimony
to the soundness of its strategies, which have been developed and executed by
a talented and broad-based team.
The group"s stature as a well diversified yet cohesively aligned media group
was underscored in the six months, by the very positive results achieved
notwithstanding a major division, Ster-Kinekor Theatres, being hampered by
product supply problems.
In November 2005, MIC significantly increased its economic stake in Primedia,
and as a consequence, Primedia"s status as the leading transformed media
company in South Africa is assured. Primedia"s facilitation of this landmark
BEE transaction resulted in a once-off HEPS charge of R108,4 million (49
cents).
The distribution to shareholders has increased by 82% to 40 cents in light of
the robustness of the group"s growth as well as its ability to generate good
free cash-flow.
2. Strategic Review
The group"s six-pronged growth strategy of organic and innovative growth,
Africa expansion, bolt-on acquisitions, entry into new media sectors and
convergence, continues to fuel its momentum, which is borne out in these
results. Highlights are as follows:
Organic. Organic growth in revenue and PBIT was 22% and 26% respectively.
Innovation. The group has many innovations either in progress or identified.
Their impact on Primedia in the short to medium term should be meaningful. Of
note has been Primedia Broadcasting"s ability to unlock the potential in its
unsold inventory.
Africa. Judicious expansion into Africa and plans to expand Primedia Outdoor
into several African countries have been approved. The recently-launched
outdoor operations in Mozambique continue to perform exceptionally well, as
has the Ster-Kinekor cinema operation in Lusaka. Further cinema opportunities
in Zambia, Tanzania and Nigeria are being evaluated.
Acquisitions (Bolt-on). Altmedia"s commuter media and outdoor advertising
businesses (acquired with effect from 1 September 2005) have been successfully
integrated into the Commuter Media division and Primedia Outdoor respectively.
Their performance to date has been exceptional. The purchase of the remaining
14,2% minority interest in Africa on Air from MIC, announced in November 2005,
is still pending subject to regulatory approval.
New media sectors. Both Primedia Unlimited Advertising and Primedia
Unlimited Content were very active, concluding various acquisitions. All
businesses have been successfully integrated and are performing according to
plan.
Convergence. This strategy focuses on opportunities from digital technology,
particularly the cellular and internet media, and content, which is
increasingly being exploited over these digital channels. Progress to date has
been in line with expectations.
The group is also making good progress toward its key 2006 strategic
priorities, most of which are underpinned by the aforementioned growth
strategies:
Black consumer filmed entertainment.
Black consumer attendances at Ster-Kinekor Theatres continue to increase and
now represent 36% (2004: 17%) of total customer attendances . More notably, at
a number of Ster-Kinekor Junction ("Junction") sites specifically targeting
the black consumer and at which prices have been lowered for the last three
years, attendance uplifts are now averaging 200%*, which validates the long-
term impact of this strategy.
Due to the scarcity of viable locations, the decision has been taken to
dispose of the group"s five-store home entertainment chain in the townships.
Stimulating cinema frequency of the traditional consumer.
Ster-Kinekor Theatres now has 27 low price Junction cinemas and 18 normal
price Ster-Kinekor Classic ("Classic") cinemas, which are anticipated to
generate approximately 11 million and 8 million attendances respectively this
year. Since resolution of the product supply problems, attendances at the
Junction sites have increased 46%* year on year, which has more than compensated
for the price reduction. Attendances at the Classic sites have however declined
by 3%.*
*Based on results from November 2005 to 31 January 2006
Critical mass for Primedia Unlimited.
Good progress has been made in securing new high growth and scalable
acquisitions. The Letter Corporation and XProcure were acquired by Primedia
Unlimited Advertising, and Airgames and Book4Golf were acquired by Primedia
Unlimited Content.
Acquisitions made in the prior year are collectively performing well.
Primedia Unlimited Advertising remains on track to achieve annualised PBIT of
R20 million by 30 June 2006, with losses of approximately R7,0 million
anticipated to be incurred by Primedia Unlimited Content in the current
fiscal.
Unlocking the value of the group"s sport assets.
Megapro Marketing has made good inroads with all sponsors and suppliers that
will be involved in Soccer World Cup 2010. Meaningful activity by Megapro to
become the preferred media supplier to corporate South Africa for Soccer World
Cup 2010 will however only commence after Soccer World Cup 2006 is over.
Content.
The group"s longer-term objective is to generate 30% to 40% of its operating
income from this source which is less sensitive to movements in the economic
cycle. Currently, the Content division contributes 20% of the group"s
operating income, which it aims to increase through the growth of its existing
content businesses as well as growth in new content sectors. Strategic plans
to achieve this are well advanced.
3. Financial Results
The group increased revenue by 27% to R1 297,8 million (2004: R1 025,0
million).
Group EBITDA rose by 29% to R276,0 million (2004: R214,5 million).
Group PBIT was up 33% to R243,0 million (2004: R183,2 million). Acquisitions
accounted for R37,0 million of this increase, being mainly KFM which was only
included for three months in the comparable prior period. Operating margins
increased from 17,9% to 18,7%. The group"s near-term operating margin target
is 20%.
In line with the group"s increased borrowings the net interest expense
(excluding the impact of the interest rate swap fair value adjustment)
increased from R21,4 million to R24,8 million. Notwithstanding this increase,
interest cover increased to a very healthy 9,8 times (2004: 8,6 times).
Profit before taxation dropped 29% to R109,4 million (2004: R153,4 million)
due mainly to the once-off impact in the six months of the R108,4 million (49
cents per share) IFRS 2 cost relating to the group"s recently concluded BEE
deal. Under IFRS 2, profits were also impacted by share option costs of R4,4
million (2004: R1,4 million).
Profit after tax declined by 53% to R49,8 million (2004: R106,5 million) due
to the aforementioned and the fact that the IFRS 2 costs are not tax-
deductible.
Group HEPS before IFRS 2 costs increased 45% from 45 cents to 65 cents. HEPS
before IFRS 2 costs as well as unrealised foreign exchange losses increased to
67 cents (2004: 46 cents). This result is the best indicator of underlying and
comparable performance.
Due to increased stock levels and the group"s record revenues in the last two
months of the half-year, seasonal borrowings were higher than the prior year
but have already reduced by R130 million since the reporting date.
As at 31 December 2005, net debt was R567,8 million (2004: R279,3 million).
R116,3 million was spent on acquisitions, distributions were paid to
shareholders of R75,4 million, and 3,1 million N shares were repurchased into
the share trust at a cost of R44,7 million. Net capital expenditure was
R36,7 million (2004: R26,9 million), of which R10,7 million (2004: R1,0
million) was spent on expansionary capital. The group"s interest cover and
EBITDA to debt coverage ratios remain very healthy.
4. Divisional Review
The group"s divisional reporting format has been enhanced to better reflect
its strategy, financial diversity and critical mass.
4.1 Advertising
Revenue was up 25% to R586,8 million (2004: R467,9 million) and operating
income increased 41% to R207,8 million from R147,9 million. Operating margins
also increased to 35,4% from 31,6%.
The group"s broadcasting business fared very well, with revenue increasing by
33% to R230,0 million (2004: R173,5 million) and PBIT increasing by 39% to
R132,3 million (2004: R95,4 million). The results for the six months include
the results for KFM (consolidated for the full period as opposed to only three
months in the prior comparable period) and 567 Cape Talk, consolidated only
with effect from 1 January 2005. Their combined contribution to the increase
in revenue and PBIT was R71,0 million and R35,3 million respectively.
Broadcasting"s operating margins were 57,5% (2004: 55,0%).
The group"s non-broadcasting, predominantly out of home media businesses also
fared exceptionally well with revenue increasing by 21% to R356,8 million
(2004: R294,4 million) and PBIT increasing 44% to R75,5 million (2004: R52,4
million). PBIT margins were a very creditable 21% (2004: 18%). Exceptional
performances were achieved by the Commuter Media division and Primedia
Outdoor. Both were also positively impacted by the Altmedia acquisition.
4.2 Content
Revenue increased by 24% to R645,8 million (2004: R521,8 million). This
increase was fuelled by the lower-margin electronic games division, which
experienced unprecedented demand for Sony Playstation products. Revenue for
Ster-Kinekor Games increased 82% to R290,7 million (2004: R159,5 million),
with PBIT increasing by 57% to R19,2 million (2004: R12,2 million). PBIT
margins at Ster-Kinekor Games decreased from 7,6% to 6,6%.
The balance of the content division"s results relate to the filmed
entertainment activities of Ster-Kinekor Theatres, Ster-Kinekor Distribution
and Ster-Kinekor Home Entertainment. These businesses experienced a 2% decline
in revenue to R355,2 million (2004: R362,3 million) and an 18% decline in PBIT
to R28,6 million (2004: R34,9 million), principally due to the depressed
results at Ster-Kinekor Theatres which resulted from the product supply
problems only resolved in November 2005. Since then, attendance at Junction
cinemas has increased by more than 46%*, also aided by good content, with
revenue increasing by approximately 30%*.
* Based on results from November 2005 to 31 January 2006
4.3 New media sectors
Primedia Unlimited Advertising lifted revenue from R4,1 million to R33,4
million. PBIT also increased from R1,4 million to R6,6 million. This was due
to the annualisation of acquisitions made last year, organic and innovative
growth, as well as from the acquisitions concluded in the six months.
Primedia Unlimited Content posted start-up losses of R3,5 million (2004: R0,9
million) on revenue of R1,4 million (2004: R0,7 million). R1,3 million of the
losses relates to the township-based home entertainment business which is in
the process of being disposed of. The balance of start-up losses related to
Book4Golf, whose operations are in the process of being rolled out.
The group has also incurred losses of R1,1 million relating to initiation of
its convergence strategy, which is in line with expectations.
4.4 One to one
Although not material, the one to one businesses experienced improved results
as a result of the vastly improved performance of the South African-based
Knowledge Factory.
4.5 Central costs
Central costs increased principally as a result of higher Corporate Social
Responsibility expenditure.
5. PERPETUAL PREFERENCE SHARES
The Board of Primedia has resolved to raise R150 million of perpetual
preference shares by way of a private placement. The Board is of the opinion
that this represents a cost effective opportunity to raise long-term capital
in support of the group"s ongoing acquisition programme. The issue, which also
has the support of the group"s major shareholders, has been underwritten by
Rand Merchant Bank and Nedbank Capital. Details of the offer will be published
in due course.
6. DISTRIBUTIONS OUT OF SHARE PREMIUM
The group"s distribution policy is based on a cover of 1,7 to 2,0 times
headline earnings excluding the impact of non-cash items relating to IFRS 2
and unrealised foreign exchange losses (adjusted HEPS). This policy is
influenced by the group"s expected future performance, anticipated
acquisitions and/or debt repayments. Adjusted HEPS for the six months amounted
to 67 cents.
The Board has, in terms of the specific authority granted to directors at the
annual general meeting held on 25 November 2005, resolved to pay a cash
distribution for the six months.
Accordingly, notice is hereby given that the company will distribute out of
share premium, in lieu of dividends, an amount of 40 cents per share (2005: 22
cents per share) for the six months ended 31 December 2005. This represents
an increase of 82% relative to the previous interim period and will be payable
to holders of ordinary and N shares recorded in the register of the company at
the close of business on Friday, 28 April 2006.
Last day to trade "cum" the distribution Thursday, 20 April 2006
Shares to commence trading "ex" the distribution Friday, 21 April 2006
Record date Friday, 28 April 2006
Payment will be made on Tuesday, 2 May 2006
Share certificates may not be rematerialised or dematerialised during the
period Friday, 21 April 2006 to Friday, 28 April 2006, both days inclusive.
In terms of the requirements of the Companies Act 1973, the directors confirm
that after the payment of the distribution, Primedia 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.
7. PROSPECTS
We are optimistic about the group"s ability to continue to perform well due to
its continued focus on its growth and strategic priorities and expected
continued favourable economic conditions.
Earnings in the second half are unlikely to grow as fast as in the first half
but should comfortably exceed the prior year comparable results.
Directorate: AP Nkuna (Chairman) W Kirsh* (CE) O Ighodaro* (CFO) MJ Bosman#
N Canca# FA Gazendam* HM Khoza# I Kirsh HM Madima P Maw K Motaung K Pillay* CS
Seabrooke# BJT Shongwe# SV Zilwa#
(*Executive directors #Independent non-executive directors)
AP NKUNA W KIRSH O IGHODARO
Chairman Chief Executive Chief Financial Officer
Sandton
27 February 2006
Alternate: Keshan Pillay (alternate to AP Nkuna)
Company secretary: SE Sather
Registered office Transfer secretaries
6th Floor, Primedia Place Computershare Investor
5 Gwen Lane Services 2004 (Pty) Limited
Sandown 2196 70 Marshall Street, Johannesburg 2001
Incorporated in the Republic of South Africa
Registration number 1993/003355/06
Share code PMA ISIN ZAE000035119
Share code PMN ISIN ZAE000035127
("Primedia" or "the company" or "Primedia Group")
www.primedia.co.za
Date: 27/02/2006 10:00:47 AM Produced by the JSE SENS Department
