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KGM
KGM
Kagiso Media - Audited results for the year ended 30 June 2006
and dividend declaration
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 2006
Financial highlights
- Revenue up 15%
- Operating profit up 19%
- Profit up 16%
- Cash flows from operating activities up 24%
Consolidated income statements for the year ended
(R"000) 30 June 2006 30 June 2005 Change
(Audited) (Audited) %
Revenue 604,795 527,081 15
Other income 16,733 11,661 43
Raw material and consumables (121,709) (101,132) 20
Commission and levies (92,687) (94,810) (2)
Employee costs (78,639) (74,800) 5
Depreciation (6,853) (5,368) 28
Amortisation (23,974) (22,646) 6
Other expenses (91,382) (66,331) 38
Operating profit 206,284 173,655 19
Finance income 5,570 7,114 (22)
Finance expenses (6,865) (4,736) 45
Share of results of associates 6,865 5,920 16
Profit before income tax 211,854 181,953 16
Income tax expense (82,058) (71,520) 15
Profit for the year 129,796 110,433 18
Attributable to:
- Equity holders of the 110,027 95,214 16
company
- Minority interest 19,769 15,219 30
129,796 110,433 18
Reconciliation of headline
earnings
Profit for the year 110,027 95,214 16
attributable to equity holders
Loss/(profit) on sale of 162 (195)
property, plant and equipment
Headline earnings 110,189 95 019 16
Earnings per share
Earnings per share 83.2 72.7 14.4
Diluted earnings per share 82.8 71.9 15.2
Number of shares in issue 132,540 131,320 0.9
(`000s)
Weighted average number of 132,297 131,021 1.0
shares in issue (`000s)
Weighted average number of 132,937 132,503 0.3
shares in issue for diluted
earnings per share (`000s)
Dividend per share (cents)
Final dividend in respect of 33 44
the year under review
Interim dividends 40 42
Total dividend 73 86 (15)
Consolidated balance sheets for the year ended
(R"000) 30 June 2006 30 June 2005
(Audited) (Audited)
Assets
Non-current assets 463,287 458,364
Property, plant and equipment 19,948 16,121
Goodwill 17,984 17,984
Intangible assets 343,678 364,993
Investment in associates 44,708 39,248
Deferred income tax assets 17,993 11,615
Loans and receivables 18,976 8,403
Current assets 236,500 205,759
Inventories 21,140 16,236
Trade and other receivables 129,885 105,998
Loans and receivables 139 -
Current income tax asset - 2,103
Cash and cash equivalents 85,336 81,422
Total assets 699,787 664,123
Equity
Capital and reserves
Ordinary shares 1,325 1,313
Share premium 9,804 7,120
Revaluation and other reserves 87,135 87,186
Retained earnings 173,382 174,654
Total shareholders" equity 271,646 270,273
Minority interest 94,089 96,320
Total equity 365,735 366,593
Liabilities
Non-current liabilities 198,011 179,085
Borrowings 100,640 82,500
Deferred income tax liabilities 97,371 96,585
Current liabilities 136,041 118,445
Trade and other payables 124,654 95,780
Borrowings 651 -
Current income tax liabilities 10,736 22,665
Total liabilities 334,052 297,530
Total equity and liabilities 699,787 664,123
Consolidated cash flow statements
(R"000) 30 June 2006 30 June 2005
(Audited) (Audited)
Cash flows from operating activities
Cash generated from operations 236,843 190,340
Finance expenses paid (366) (178)
Income tax paid (95,729) (63,919)
Finance income received 5,570 6,955
Dividends received from ass.
Dividends paid to shareholders (111,299) (110,277)
Dividends paid to minority (22,000) (20,000)
Dividends paid to preference (6,047) (2,874)
shareholders
Net cash generated from operating 6,972 47
activities
Cash flows from investing activities
Acquisition of subsidiary, net of cash - (44,709)
acquired
Acquisition of investment in associate - (17,735)
Purchases of property, plant and (10,842) (5,732)
equipment ("PPE")
Proceeds from sale of PPE - 537
Purchases of intangible assets (2,659) (383)
Loans to associates (471) (15,291)
Net cash used in investing activities (13,972) (86,313)
Cash flows from financing activities
Proceeds from issue of ordinary shares 2,696 2,278
Proceeds from borrowings 18,791 82,500
Movement on preference share sinking (10,573) (8,403)
fund
Net cash generated from financing 10,914 76,375
activities
Net increase/(decrease) in cash and 3,914 (6,891)
cash equivalents
Cash and cash equivalents at the 81,422 88,313
beginning of year
Cash and cash equivalents at the end of 85,336 81,422
year
Condensed consolidated statement of changes in equity for year ended
30 June 2006 30 June 2005
(R"000) (Audited) (Audited)
Equity at the beginning of the year 270,273 196,082
Ordinary shares issued in terms of the 2,696 2,278
Share Option Scheme
Asset revaluation surplus - 86,559
Profit for the year 110 027 95,214
Employee costs: Share Option Scheme (51) 417
Dividend paid (111,299) (110,277)
271 646 270,273
Segment analysis for the year ended 30 June
Revenue Operating profit/ (loss)
(R"000) 2006 2005 2006 2005
Central services* 2,216 37 (12,868) (10,325)
Broadcasting 353,859 318,010 173,941 143,872
Information 135,527 110,831 39,030 28,278
services and
solutions
Exhibitions and 113,193 98,203 6,181 11,830
events
Total 604,795 527,081 206,284 173,655
1. Comments on results
1.1 Introduction
Kagiso Media achieved an increase in revenue of 15% and successfully
managed the operating costs to produce a growth in operating profit of
19%. After increased funding costs, the profit for the year,
attributable to the company"s equity owners, increased by 16%.
The high quality of the group"s earnings and cash generation of the
group"s operations contributed to the healthy cash balance of R85.3m as
at 30 June 2006. 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 2006 and 31
March 2007, resolved to declare a final dividend of 33 cents per share.
1.2 Revenue
Revenue grew by 15% over the comparative period. Broadcasting increased
by 11%, driven by revenue growth from both East Coast Radio and
Jacaranda FM of 14% and 13% respectively. Revenue from LexisNexis
Butterworths ("LexisNexis") improved by 22% while Kagiso Exhibitions
and Events increased its revenue by 15%.
1.3 Operating profit
The operating profit margin for the broadcasting division increased
from 45% to 49%, which is deemed to be highly competitive for stations
with a similar footprint and functioning in comparable market sectors.
The move from print to electronic and online products, as well as the
change in focus from being a publishing unit to a service provider of
total solutions in related specialised fields, ensured a growth in the
operating profit margin from 26% to 29% at LexisNexis for the financial
year under review. The Auto Africa and Aerospace and Defence shows,
being biennial exhibitions, will only be held in the 2007 financial
year, thus the main reason for the decrease in the operating profit at
Kagiso Exhibitions and Events compared to the previous year.
1.4 Finance income and expenses
Interest is earned on the surplus cash resources as well as the funds
deposited into the sinking fund. This fund is merely an accumulation of
cash, according to a structured arrangement, to enable the company to
redeem the preference shares. Lower average cash balances at the
operations, as well as marginally lower interest rates on surplus funds
were the only reasons for the decrease in the interest income.
The first R65.5m and R17.0m preference shares were issued in October
and December 2004 respectively, hence 2006 was the first financial year
when the full effect of the finance expense on these shares was evident
in the trading results. An additional R17.5m preference shares were
issued in March 2006, which was used to refinance the acquisition of
the 33.3% economic interest in Radio Heart 104.9 and Radio iGagasi
99.5. These two factors led to the 45% increase in the finance costs.
1.5 Income tax expense
The income tax charge remains constant at 39% of profit before tax,
including a Secondary Tax on Company ("STC") charge of R17.5m (2005:
R14.3m) on the relatively high proportion of earnings distributed to
shareholders. The 22.4% increase in the STC was a function of the
increase in preference dividends compared to the previous year, as
discussed above.
1.6 Minorities" share of profits
Minorities collectively, since 1 August 2004, own 40% of Jacaranda FM.
The increase in minorities reflects 2006 being the first full year for
Jacaranda FM"s results to be consolidated into the group"s performance,
as well as the operational improvements year-on-year at the station.
2. Balance sheet
The group commenced the year with cash resources of R81.4m. During the
year the operations generated R140.3m after tax, while the group raised
R17.5m in debt funding. Of these available cash resources, R13.5m was
applied to capital expenditure, R10.6m towards the sinking fund and
R133.3m distributed to the group and minority shareholders by way of
dividends. As at 30 June 2006, the cash reserves stood at R85.3m. 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.
Working capital increased, mainly due to the work-in-progress relating
to the biennial shows to be held in 2007 as well as changes reflected
in the billing process at LexisNexis, where a "fixed service plan"
contract is entered into with larger customers, affecting payment for
updates to services in equal instalments throughout the year.
The contingent liabilities, being the guarantee of the banking
facilities of Systems Publishers (Proprietary) Limited, decreased from
R4.0m to R3.0m. Regular monthly instalments are being paid and it is
unlikely that Kagiso Media would be required to effect payment under
this arrangement. The preference shareholders have a put option against
Kagiso Media Limited should the wholly owned subsidiary, Kagiso Media
Investments (Proprietary) Limited, which is the holder of the
preference shares default on any of the conditions relating to these
shares. This is a contingent liability for Kagiso Media Limited.
3. Review of operations
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 is 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 R34.6m (2005:R27.3m) of group earnings. R3.2m of the increase
in costs was due to the increase in the STC charge as discussed above
and R2.0m due to increase in the preference dividend payment.
3.2 Broadcasting
According to AC Nielsen"s advertising revenue measurement tool, AdEx,
East Coast Radio and Jacaranda 94.2 FM remain in the top three radio
stations in South Africa in terms of revenue share. Overall advertising
expenditure from January 2005 has grown almost 20% year-on-year and
many advertising clients used the increase in the profitability of
their business to invest their marketing spend in television, which
appears to be the biggest beneficiary of the current boom.
East Coast Radio, "Durban"s Number One" dominates the media landscape
in KwaZulu-Natal being the largest regional station in the province,
recording a weekly listenership of over 1.9 million people. The
stability of the management team, constant innovation, an acute
commercial focus and sound strategic processes have been key
ingredients in the sustained success of East Coast Radio.
Jacaranda 94.2 FM succeeded in entrenching itself as Gauteng"s AC gold
station, focusing on music from the 80s and 90s. Since the
repositioning in early 2005, the station has seen steady growth in its
core audiences and has increased it share of this audience in Gauteng.
Further evidence of the station"s successful repositioning is evidenced
in the brand featuring in the TOP 10 radio stations in South Africa, in
the Sunday Times Markinor Big Brand"s survey. Both Kagiso Media"s
controlled radio stations (East Cost Radio and Jacaranda) finished in
the TOP 10 and were the only privately owned radio stations in the
country to do so.
Ofm, central South Africa"s number one radio station, took advantage of
its strong market position in 2005 and launched into 2006 with a whole
new look, sound and feel, in short, a total brand overhaul. The
refreshing of Ofm"s brand has more than succeeded in continuing with
the momentum built up over the past few years. Strategically successful
sport sponsorships saw Ofm leveraging its brand across a number of
areas, attaining a greater level of national and international
television and print coverage than ever before.
Kagiso Media has a 25.1% economic interest in Kaya FM, a Gauteng based
radio station. This strategic stake positions the group in the most
lucrative advertising market in the country and provides it with
exposure to the rapidly expanding black middle class.
P4 Cape Town was re-launched as Radio Heart 104.9 during February 2006.
The immediate objective that the station set for itself was to grow the
market share of the target audience from 27% to 35% of the available
audience. By May 2006 the station had captured 34% market share of its
core audience, overwhelmingly the leading station in the Cape Town
metropole. While Heart 104.9 is only expected to make an impact on the
national advertising market in 2007, local advertisers have been taking
note of the new product and the station continues to gain significant
support in Cape Town.
A new chief executive officer and management team was appointed at
Radio iGagasi 99.5 (formerly P4 Durban). The station"s name was
changed, a new brand was launched, new presenters were appointed and
the sound was fine-tuned to be more responsive to the needs of the
target market, being English and isiZulu speakers. The station is not
yet profitable, but is strategically positioned and is posed to become,
with the continued efforts and enthusiasm of the team, an important
local advertising medium.
RadMark is the national sales representative for Kagiso Media" stations
as well as for Classic FM. RadMark"s share of the radio advertising
market is 25.5%. The sales house remains the largest private radio
sales house in the country. The appointment of a new managing director
in November 2005 yielded an improvement in revenue generation. The
sales for January 2006 were the best in 10 years.
3.3 Information services and solutions
The company increased revenue by 18.1% and improved the operating
profit margin from 26% to 29%. Delivery and handling charges have been
included in revenue in 2006 due to the nature of the receipt. The
impact of this was an increase in revenue for 2006 of 4.2% to 22.3% as
reported. The business is experiencing an accelerated migration by
customers from print to online information solutions, driven by the
reduction in price and availability of broad-band internet solutions.
Revenue from online information solutions jumped 80% on last year and
combined with the CD offering now accounts for 13% of total revenue.
Printed publications from a South African source continue to be the
cornerstone for the business at 61% of total revenue.
3.4. Exhibitions and events
With effect from 1 September 2005, Kagiso Exhibitions and Events
(Proprietary) Limited acquired a 51% controlling interest in a newly
formed entity, namely Kusasa Commodities 386 (Proprietary) Limited
("Eyethu") for a nominal amount. Eyethu provides infrastructure to a
number of different exhibitions and events, including Design for
Living, Soweto Marathon, International Franchise Expo, etc. This
business unit had a marginal loss for the year under review, but did
contribute R11.1m to the revenue for the group. Kagiso Exhibitions and
Events continued to tender and secure various contracts including the
South African Tourism exhibitions account, which has been renewed for a
further three years and the management of the prestigious International
Science, Innovation & Technology Expo (INSITE) by the Department of
Science & Technology. The company successfully implemented the National
Craft Exhibition Imbizo Exhibition for the Department of Arts and
Culture, and also provided the infrastructure, logistics and management
services for the Local Government Elections National Command Centre for
the Independent Electoral Commission ("IEC"). Kagiso Exhibitions and
Events will stage its two biennial shows, namely the Auto Africa and
the Aerospace and Defence shows in the first half of the new financial
year.
4. Accounting policies
The consolidated annual financial statements of the group are presented
in accordance with, and comply with, International Financial Reporting
Standards ("IFRS") and International Financial Reporting
Interpretations Committee ("IFRIC") interpretations issued and
effective as at the 30 June 2006. As these are the group"s first annual
financial statements prepared under IFRS, IFRS 1 "First-time Adoption
of IFRS" was applied.
The policies have been consistently applied for all the years presented
except those relating to the classification and measurement of
financial instruments. The group has made use of the exemptions
available under IFRS 1 to only apply IAS 32 "Financial Instruments:
Disclosure and Presentation" and IAS 39 "Financial Instruments:
Presentation and Measurement" for 1 July 2005.
Kagiso Media"s consolidated financial statements were previously
prepared under South African Statements of Generally Accepted
Accounting Practice ("SA GAAP"). SA GAAP differs in some areas from
IFRS. In preparing Kagiso Media"s 2006 consolidated financial
statements, management has amended certain accounting, valuation and
consolidation methods applied in the GAAP financial statements to
comply with IFRS. The comparative figures in respect of 2004 were
restated to reflect these adjustments, except as described in the
accounting policies.
Reconciliations and descriptions of the effect of the transition from
GAAP to IFRS on the group"s equity are provided in note 10.
5. 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.
6. Annual financial statements
The annual financial statements for the year to 30 June 2006, including
a notice to the annual general meeting, will be posted to shareholders
by no later than 3 November 2006.
7. 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 73 cents per share was distributed
to shareholders by way of dividends. This amounts to 88% of the
earnings per share for the year.
Notice is hereby given that a dividend of 33 cents (2005: 44 cents) per
share has been declared in respect of the year ended 30 June 2006 and
is payable to holders of ordinary shares recorded in the register of
the company on Friday, 20 October 2006.
The following salient dates apply to this dividend:
Last date to trade cum-dividend Friday, 13 October 2006
Shares commence trading ex-dividend Monday, 16 October 2006
Record date Friday, 20 October 2006
Payment of the dividend Monday, 23 October 2006
Share certificates may not be dematerialised or rematerialised between
Monday, 16 October 2006 and Friday, 20 October 2006, 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.
8. Change to the board
Shareholders are reminded of the impending changes to the board of
directors of the company, announced on SENS on 4 September 2006. With
effect from 1 November 2006, Mr M M Morobe will join the board as chief
executive officer, while Mr W R Jardine will be appointed as the non-
executive chairman of the group, following the passing away of Mr E
Molobi.
9. Prospects
Kagiso Media"s core operations in radio are consistently in the top
three revenue earners in the industry. This position is further
enhanced by Jacaranda FM"s progressive market share growth in the key
Gauteng market. Our radio businesses also continue to explore
opportunities to engage listeners and customers via multiple platforms,
to ensure effective communication to advertisers.
Additionally, Kagiso Media is well-positioned to benefit from an upward
trend in interest rates. With the prospect of interest rate hikes,
retail spending may slow down. Kagiso Media has not benefited from the
retail advertising boom as print and television are the main
beneficiaries. Our stations, with their high LSM listener profile, are,
therefore, in a much stronger position to absorb a changed interest
rate environment should this become inevitable. The group remains
confident that the stations in its portfolio will continue to deliver
competitive results in the radio market.
LexisNexis has delivered 12 consecutive years of double-digit growth
and is at present investigating a range of opportunities. The strategic
change from being a research based organisation to one that provides a
"total solution" to its customers will ensure continued strong
sustainable growth into the future.
Kagiso Exhibitions and Events will stage its biennial shows in the
first half of the new financial year, and is well positioned for growth
going forward with the enhanced exhibitions services division now
having the capacity to deliver on the larger event and exhibition
infrastructure projects across the country. The Group will continue
delivering good growth.
10. Transition to international financial reporting standards
Restatement of financial information as at, and for the year ended 30
June 2005 under "IFRS".
10.1 Basis for consolidation
For the year ended 30 June 2006, the group prepared its financial
statements under SA GAAP as effective at that date. In accordance with
the JSE Limited ("JSE") listings requirements, the group is required to
prepare its annual consolidated financial statements in accordance with
IFRS for the year ended 30 June 2006.
The date for transition to IFRS is 1 July 2004, which represents the
beginning of the earliest period of comparative information to be
presented as required in terms of the requirements of the JSE.
In order to describe how the group"s reported results of operations and
financial position are impacted by IFRS, the group has restated
information previously published under SA GAAP to the equivalent basis
under IFRS. This restatement follows the guidelines set out in IFRS 1.
The group has applied the following exceptions from retrospective
application in accordance with IFRS 1.
(a) Derecognition of financial assets and liabilities
The application of the exemption from restating comparatives for IAS 32
"Financial Instruments: Disclosure and Presentation" ("IAS32") and IAS
39 "Financial Instruments: Recognition and Measurement" ("IAS39") means
that the group"s effective date for these standards was 1 July 2005.
Financial assets and liabilities derecognised before 1 July 2005 have
not been re-recognised under IFRS.
(b) Hedge accounting
On adoption of IFRS the group is not allowed to designate a transaction
as a hedge, if such transaction was not designated as a hedge and it
qualified for hedge accounting in terms of AC 133 under SA GAAP.
(c) Estimates
Estimates under IFRS at 1 July 2004 are consistent with the estimates
made at the same date under SA GAAP. Kagiso Media therefore did not
adjust any estimates it had made under SA GAAP for information it
received subsequent to the date of transition to IFRS.
(d) Assets held for sale and discontinued operations
The group has applied IFRS 5 "Non-current Assets Held for Sale and
Discontinued Operations" ("IFRS 5") prospectively from 1 July 2005 to
all non-current assets held for sale and/ or discontinued operations.
The group made the following adjustments to its SA GAAP financial
statements in order to restate the information in terms of IFRS:
i) IFRS 2: Share-based payments
The group grants share options to its employees under a number of
equity compensation plans. In terms of SA GAAP, these equity
compensation plans did not result in any expense being recorded by the
group, other than costs incurred in administering the schemes and a
dilution in earnings per share when the shares were delivered to the
employee.
In accordance with IFRS 2, the group has recognised a compensation
expense in the income statement, representing the fair value of share
options granted to the group"s employees. The corresponding credit went
to equity, as the group"s plan is equity-settled. This plan is more
fully described in the remuneration report (refer note XXX).
ii) IAS 38: Recognition of intangible assets
The group wrote off in the 2000 financial year, all intangible assets
and goodwill purchased and acquired in business combinations against
shareholders" equity. In terms of the requirements of IFRS 1, IAS 38
should be applied retrospectively. Therefore the group is required to
recognise all intangible assets that have previously been recognised in
the group"s financial statements and that meet the recognition and
measurements criteria of IAS 38. On transition to IFRS the group has
therefore re-instated all intangible assets previously accounted for
against shareholders" equity under SA GAAP that meet the recognition
and measurement requirements of IAS 38. The intangible assets referred
to include various trademarks and copyrights.
In order to ensure consistency between the company and the group"s
equity, a corresponding entry was processed to reduce the investment in
subsidiaries and joint ventures. The company"s value of these
investments was reinstated to cost in terms of IFRS.
iii) IAS 38: Intangible assets - useful lives and residual values
The company has reviewed the useful lives of certain trademarks and
copyrights and reassessed the duration during which future economic
benefits will flow from the use of the assets. The decision to revise
the estimated useful lives of these copyright assets has resulted in an
adjustment to the respective intangible carrying values.
iv) IAS 16: Useful lives and residual values of PPE
IAS 16 "Property, plant and equipment" ("IAS 16") differs in certain
respects from the previous SA GAAP equivalent, AC 123 "Property, plant
and equipment" ("AC 123"), applied by the group until 30 June 2005. IAS
16 states that an entity is required to measure the residual value of
an item of property, plant and equipment as the amount the entity
estimates it would receive currently for the asset if the asset were
already of the age and in the condition expected at the end of its
useful life. The group has previously under SA GAAP accounted for
residual values based on the requirement of AC 123 that regards
residual value as the net amount that the entity expected to obtain for
the asset at the end of its useful life. The group has therefore
reviewed its residual values for individual items of property, plant
and equipment and adjusted the carrying value of some items at the date
of transition accordingly in terms of the requirements of IAS 16.
IAS 16 further requires that the useful lives of the individual
components of property, plant and equipment items be reviewed at least
annually, whereas the requirement under the previous SA GAAP
equivalent, AC 123, has been to review the useful lives of items of
property, plant and equipment on a non-mandatory periodic basis. The
group has reassessed the useful lives of all individual components of
property, plant and equipment and adjusted the carrying value of some
items at the date of transition accordingly.
The adjustments to the residual values and useful lives of certain
items of property, plant and equipment and the corresponding change in
their carrying values at 1 July 2004 has also impacted depreciation
charges subsequent to 1 July 2004.
IFRS 1 and IAS 16: Fair value as deemed cost
In terms of the requirements of IFRS 1 the group is required to apply
IAS 16 retrospectively. As explained in the transitional arrangements
section, the group has elected to apply the exemption under IFRS 1
whereby the fair value of certain assets at 1 July 2004 is used as its
deemed cost on the transition date. The group adjusted the carrying
values of the individual items of property, plant and equipment for
those items to which the exemption was applied.
v) IAS 39 and IAS 32: Trade receivables valued at fair value
These statements require that trade receivables are recognised at fair
value and subsequently measured at amortised cost using the effective
interest method, less provision for impairment. A provision for
impairment of trade receivables is established when there is objective
evidence that the group will not be able to collect all amounts due
according to the original terms of the receivables.
vi) IAS 17: Operating leases
The South African Institute of Chartered Accountants issued Circular
7/2005 during August 2005. The purpose of the circular was to clarify
the requirements of IAS 17 "Leases" ("IAS 17") in respect of operating
leases, which include fixed rental increases. IAS 17 and its SA GAAP
equivalent standard AC 105 "Leases" ("AC 105") require that lease
payments under an operating lease should be recognised as an expense on
a straight-line basis over the lease term unless another systematic
basis is more representative of the time pattern of the user"s benefit.
In South Africa most lessees, including Kagiso Media, have in the
application of AC 105 recognised rental expenses with fixed rental
increases on the basis of the cash flow in the lease agreements,
interpreting that such an approach represented "another systematic
basis" that was "more representative of the time pattern of the user"s
benefits". Circular 7/2005, however, clarified that the way many South
African entities, including Kagiso Media, applied the "other systematic
basis" in terms of AC 105 is not consistent with the requirements of
IAS 17 and AC 105 as applied internationally. IAS 17 only permits a
treatment other than straight-line recognition when another basis is
more representative of the time pattern of the user"s benefit, which is
unaffected by the timing of payments.
The group applied the principles of IAS 17, as clarified by Circular
7/2005, to all its lease agreements with fixed rental increases on
adoption of IFRS. The requirements of IAS 17 were applied
retrospectively and an adjustment to retained earnings at the
transition date was accounted for. The net profit for the year ended 31
March 2005 and the six months ended 30 September 2004 was adjusted
accordingly.
vii) IAS 37: Discounting provisions
A constructive obligation with regards to the language development was
recognised under SA GAAP. The group has applied the principles of IAS
37 retrospectively and an adjustment to retained earnings at the
transition date was accounted for. The provision for the language
development fund was discounted as at 31 December 2004 and adjusted on
30 June 2005.
Reversal of indirect costs capitalised to work-in-progress
The group applied the principles of IAS 2 relating to recognition of
direct and indirect costs in work-in-progress balances. IAS 2
eliminates the reference to the matching principle, whereby costs are
matched to the period in which revenue is reported. IAS 2 states
specifically that labour and other costs relating to sales and general
administrative personnel are not included but are recognised as
expenses in the period in which they are incurred.
The requirements of IAS 2 were applied retrospectively and an
adjustment to retained earnings at the transition date was accounted
for. The net profit for the year ended 30 June 2005 and 30 June 2004
included adjustments for the reversal of indirect costs which had been
capitalised to inventory under SA GAAP.
Appendices below present the IFRS adjustments and reclassifications
that were made to the group"s income statements for the year ended 30
June 2005 and 30 June 2004 and the balance sheets and cash flow at 30
June 2005 and 30 June 2004, as described above.
R"000 Note 2005 2004
Summary of equity (as originally 328,846 146,156
stated)
Total equity under SA GAAP
Share based payments (i) (948) -
Recognition of intangible assets (ii) (9,603) 33,027
Intangible assets valued at fair (iii) (3,450) 16,858
value
Useful lives and residual values of (iv) 140 375
PPE
Trade receivables valued at fair (v) 806 311
value
Straight lining of operating leases (vi) (103) (76)
Discounting provisions (vii) 528 -
Reversal of indirect costs 414 (532)
capitalised to work in progress (viii)
Net effect of change 316,630 196,119
Prior year to date change 49,963 -
Total equity under IFRS 366,593 196,119
Reconciliation of equity at 30 June 2004
Group
SA GAAP Adj i Adj ii Adj iii Adj iv
30 June
2004
R"000
Assets
Non-current assets 64,892 - 42,469 23,089 500
Property plant and 13,509 - - - 487
equipment
Goodwill 9,260 - - - -
Intangible assets 7,926 - 33,101 23,089 13
Interest in - - - - -
subsidiaries
Investment in joint - - - - -
ventures
Investment in 15,272 - 9,368 - -
associates
Loans and receivables - - - - -
Deferred income tax 18,925 - - - -
assets
Current assets 207,150 - - - -
Inventories 8,783 - - - -
Trade and other 109,531 - - - -
receivables
Loans and receivables - - - - -
Current income tax 524 - - - -
asset
Cash and cash 88,312 - - - -
equivalents
Total assets 272,042 - 42,469 23,089 500
Equity
Capital and reserves
Ordinary shares 1,302 - - - -
Share premium 4,853 - - - -
Revaluation and other - 210 - - -
reserves
Retained earnings 139,964 (210) 33,027 16,858 375
Total shareholders" 146,119 - 33,027 16,858 375
equity
Minority interest 37 - - - -
Total equity 146,156 - 33,027 16,858 375
Liabilities
Non-current - - 9,442 6,712 126
liabilities
Borrowings - - - - -
Deferred income tax - - 9,442 6,712 126
liabilities
Current liabilities 125,886 - - (481) (1)
Trade and other 110,199 - - - (1)
payables
Borrowings - - - - -
Current income tax 15,687 - - (481) -
liabilities
Total liabilities 125,886 - 9,442 6,231 125
Total equity and 272,042 - 42,469 23,089 500
liabilities
Reconciliation of equity at 30 June 2004 (Contd)
Group
Adj v Adj vi Adj vii Adj viii IFRS 30
June
2004
R"000
Assets
Non-current assets - (76) - - 130,874
Property plant and - - - - 13,996
equipment
Goodwill - - - - 9,260
Intangible assets - - - - 64,129
Interest in - - - - -
subsidiaries
Investment in joint - - - - -
ventures
Investment in - (76) - - 24,564
associates
Loans and receivables - - - - -
Deferred income tax - - - - 18,925
assets
Current assets 444 - - - 207,594
Inventories - - - - 8,783
Trade and other 444 - - - 109,975
receivables
Loans and receivables - - - - -
Current income tax - - - - 524
asset
Cash and cash - - - - 88,312
equivalents
Total assets 444 (76) - - 338,468
Equity
Capital and reserves
Ordinary shares - - - - 1,302
Share premium - - - - 4,853
Revaluation and other - - - - 210
reserves
Retained earnings 311 (76) - (532) 189,717
Total shareholders" 311 (76) - (532) 196,082
equity
Minority interest - - - - 37
Total equity 311 (76) - (532) 196,119
Liabilities
Non-current 133 - - (399) 16,014
liabilities
Borrowings - - - - -
Deferred income tax 133 - - (399) 16,014
liabilities
Current liabilities - - - 931 126,335
Trade and other - - - 1,330 111,528
payables
Borrowings - - - - -
Current income tax - - - (399) 14,807
liabilities
Total liabilities 133 - - 532 142,349
Total equity and 444 (76) - - 338,468
liabilities
Reconciliation of equity at 30 June 2005
Group
SA GAAP Adj i Adj ii Adj iii Adj iv
30 JUNE
2005
R"000
Assets
Non-current assets 400,289 - 28,732 17,250 653
Property plant and 15,501 - - - 620
equipment
Goodwill 18,748 - - (764) -
Intangible assets 318,214 - 19,364 27,382 33
Interest in - - - - -
subsidiaries
Investment in joint - - - - -
ventures
Investment in 39,423 - 9,368 (9,368) -
associates
Loans and receivables 8,403 - - - -
Deferred income tax - - - - -
assets
Current assets 204,524 - - - -
Inventories 16,445 - - - -
Trade and other 104,554 - - - -
receivables
Loans and receivables - - - - -
Current income tax 2,103 - - - -
asset
Cash and cash 81,422 - - - -
equivalents
Total assets 604,813 - 28,732 17,250 653
Equity
Capital and reserves
Ordinary shares 1,313 - - - -
Share premium 7,120 - - - -
Revaluation and other 90,595 627 - (4,036) -
reserves
Retained earnings 132,977 (1,575) 23,424 17,934 488
Total shareholders" 232,005 (948) 23,424 13,898 488
equity
Minority interest 96,841 - - (490) 27
Total equity 328,846 (948) 23,424 13,408 515
Liabilities
Non-current 157,041 (178) 5,308 5,020 138
liabilities
Borrowings 82,500 - - - -
Deferred income tax 74,541 (178) 5,308 5,020 138
liabilities
Current liabilities 118,926 1,126 - (1,178) -
Trade and other 94,195 1,126 - (208) -
payables
Borrowings - - - - -
Current income tax 24,731 - - (970) -
liabilities
Total liabilities 275,967 948 5,308 3,842 138
Total equity and 604,813 - 28,732 17,250 653
liabilities
Reconciliation of equity at 30 June 2005 (Contd)
Group
Adj v Adj vi Adj vii Adj viii IFRS 30
June
2005
R"000
Assets
Non-current assets - (175) - - 446,749
Property plant and - - - - 16,121
equipment
Goodwill - - - - 17,984
Intangible assets - - - - 364,993
Interest in - - - - -
subsidiaries
Investment in joint - - - - -
ventures
Investment in - (175) - - 39,248
associates
Loans and receivables - - - - 8,403
Deferred income tax - - - - -
assets
Current assets 1,444 - - (209) 205,759
Inventories - - - (209) 16,236
Trade and other 1,444 - - - 105,998
receivables
Loans and receivables - - - - -
Current income tax - - - - 2,103
asset
Cash and cash - - - - 81,422
equivalents
Total assets 1,444 (175) - (209) 652,508
Equity
Capital and reserves
Ordinary shares - - - - 1,313
Share premium - - - - 7,120
Revaluation and other - - - - 87,186
reserves
Retained earnings 1,117 (179) 586 (118) 174,654
Total shareholders" 1,117 (179) 586 (118) 270,273
equity
Minority interest - - (58) - 96,320
Total equity 1,117 (179) 528 (118) 366,593
Liabilities
Non-current 327 (1) 88 (273) 167,470
liabilities
Borrowings - - - - 82,500
Deferred income tax 327 (1) 88 (273) 84,970
liabilities
Current liabilities - 5 (616) 182 118,445
Trade and other - 5 (241) 903 95,780
payables
Borrowings - - - - -
Current income tax - - (375) (721) 22,665
liabilities
Total liabilities 327 4 (528) (91) 285,915
Total equity and 1,444 (175) - (209) 652,508
liabilities
Reconciliation of net income of the year ending 30 June 2005
Group
SA GAAP Adj i Adj ii Adj iii Adj iv
30 JUNE
2005
R"000
Revenue 527,031 - - 50 -
Other income 11,661 - - - -
Raw material and (114,184) - - 60 -
consumables
Commission and (94,810) - - - -
levies
Employee costs (73,257) (1,543) - - -
Depreciation (5,530) - - - 162
Amortisation (13,094) - (13,737) 4,185 -
Other expenses (52,730) - - (201) -
Operating profit 185,087 (1,543) (13,737) 4,094 162
Finance income 7,114 - - - -
Finance expenses (4,577) - - (159) -
Share of results of 6,058 - - - -
associates
Profit before income 193,682 (1,543) (13,737) 3,935 162
tax
Income tax expense (76,501) 178 4,134 276 (35)
Profit for the year 117,181 (1,365) (9,603) 4,211 127
Attributable to:
- Equity holders of 103,290 (1,365) (9,603) 2,852 100
the company
- Minority interest 13,891 - - 1,359 27
117,181 (1,365) (9,603) 4,211 127
Reconciliation of net income of the year ending 30 June 2005 (Contd)
Group
Adj v Adj vi Adj vii Adj viii IFRS 30
June 2005
R"000
Revenue - - - - 527,081
Other income - - - - 11,661
Raw material and - - - 12,992 (101,132)
consumables
Commission and - - - - (94,810)
levies
Employee costs - - - - (74,800)
Depreciation - - - - (5,368)
Amortisation - - - - (22,646)
Other expenses (406) (5) (215) (12,774) (66,331)
Operating profit (406) (5) (215) 218 173,655
Finance income - - - - 7,114
Finance expenses - - - - (4,736)
Share of results of - (138) - - 5,920
associates
Profit before income (406) (143) (215) 218 181,953
tax
Income tax expense 122 40 70 196 (71,520)
Profit for the year (284) (103) (145) 414 110,433
Attributable to:
- Equity holders of (284) (103) (87) 414 95,214
the company
- Minority interest - - (58) - 15,219
(284) (103) (145) 414 110,433
Reconciliation of changes in equity for the year ending 30 June 2004
and 30 June 2005
SA GAAP Adj i Adj ii Adj iii Adj iv
R"000
Share capital
Balance at 1 July 1,302 - - - -
2004
Movement for the 11 - - - -
year
Balance at 30 June 1,313 - - - -
2005
Share premium
Balance at 1 July 4,853 - - - -
2004
Movement for the 2,267 - - - -
year
Balance at 30 June 7,120 - - - -
2005
Revaluation reserve
Balance at 1 July - 210 - - -
2004
Movement for the 90,595 417 - (4,036) -
year
Balance at 30 June 90,595 627 - (4,036) -
2005
Retained earnings
Balance at 1 July 139,964 (210) 33,027 16,858 375
2004
Share of net profit - - - (1,776) 13
of subsidiary at
acquisition
Profit for the year 103,290 (1,365) (9,603) 2,852 100
Dividend (110,277) - - - -
Realisation of - - - - -
intangible asset
Balance at 30 June 132,977 (1,575) 23,424 17,934 488
2005
Minority interest
Balance at 1 July 37 - - - -
2004
Share of net profit 17,647 - - (1,849) -
of subsidiary at
acquisition
Share of fair value 85,266 - - - -
adjustment of
intangible assets in
subsidiary
Share of net profit 13,891 - - 1,359 27
of subsidiary for
the year
Dividend (20,000) - - - -
Balance at 30 June 96,841 - - (490) 27
2005
Reconciliation of changes in equity for the year ending 30 June 2004
and 30 June 2005 (Contd)
Adj v Adj vi Adj vii Adj viii IFRS
R"000
Share capital
Balance at 1 July - - - - 1,302
2004
Movement for the - - - - 11
year
Balance at 30 June - - - - 1,313
2005
Share premium
Balance at 1 July - - - - 4,853
2004
Movement for the - - - - 2,267
year
Balance at 30 June - - - - 7,120
2005
Revaluation reserve
Balance at 1 July - - - - 210
2004
Movement for the - - - - 86,976
year
Balance at 30 June - - - - 87,186
2005
Retained earnings
Balance at 1 July 311 (76) - (532) 189,717
2004
Share of net profit 1,090 - 673 - -
of subsidiary at
acquisition
Profit for the year (284) (103) (87) 414 95,214
Dividend - - - - (110,277)
Realisation of - - - - -
intangible asset
Balance at 30 June 1,117 (179) 586 (118) 174,654
2005
Minority interest
Balance at 1 July - - - - 37
2004
Share of net profit - - - - 15,798
of subsidiary at
acquisition
Share of fair value - - - - 85,266
adjustment of
intangible assets in
subsidiary
Share of net profit - - (58) - 15,219
of subsidiary for
the year
Dividend - - - - (20,000)
Balance at 30 June - - (58) - 96,320
2005
Reconciliation of the cash flow statement
SA GAAP Adj i Adj ii Adj iii Adj iv
30 JUNE
2005
Cash flows from
operation activities
Cash generated from 192,500 - - (299) 1
operations
Interest paid (178) - - - -
Income tax paid (63,919) - - - -
Interest received 7,114 - - (159) -
Dividends received - - - - -
from associates
Dividends paid to (110,277) - - -
shareholders
Dividends paid to (20,000) - - - -
minority
Dividends paid to (2,874) - - - -
preference
shareholders
Net cash generated 2,366 - - (458) 1
from operating
activities
Cash flows from
investing activities
Acquisition of (44,709) - - (1,776) 13
subsidiary, net of
cash acquired
Acquisition of (17,735) - - - -
investment in
associate
Purchases of (5,732) - - - -
property, plant and
equipment ("PPE")
Proceeds from sale 508 - - - 29
of PPE
Purchases of (2,673) - - 2,234 (43)
intangible assets
Loans to associates (15,291) - - - -
Loans to - - - - -
subsidiaries
Net cash used in (85,632) - - 458 (1)
(generated
from)investing
activities
Cash flows from
financing activities
Proceeds from issue 2,278 - - - -
of ordinary shares
Proceeds from 82,500 - - - -
borrowings
Movement in loans (8,403) - - - -
and receivables
Net cash generated 76,375 - - - -
from financing
activities
Net increase/ (6,891) - - - -
(decrease) in cash
and bank overdrafts
Cash and bank 88,313 - - - -
overdrafts at the
beginning of year
Cash and bank 81,422 - - - -
overdrafts at the
end of year
Reconciliation of the cash flow statement (Contd)
Adj v Adj vi Adj vii Adj viii IFRS 30
June 2005
Cash flows from
operation activities
Cash generated from (1,406) - (456) - 190,340
operations
Interest paid - - - - (178)
Income tax paid - - - - (63,919)
Interest received - - - - 6,955
Dividends received - - - - -
from associates
Dividends paid to - - - - (110,277)
shareholders
Dividends paid to - - - - (20,000)
minority
Dividends paid to - - - - (2,874)
preference
shareholders
Net cash generated (1,406) - (456) - 47
from operating
activities
Cash flows from
investing activities
Acquisition of 1,090 - 673 - (44,709)
subsidiary, net of
cash acquired
Acquisition of - - - - (17,735)
investment in
associate
Purchases of - - - - (5,732)
property, plant and
equipment ("PPE")
Proceeds from sale - 537
of PPE
Purchases of 316 - (217) - (383)
intangible assets
Loans to associates - - - - (15,291)
Loans to - - - - -
subsidiaries
Net cash used in 1,406 - 458 - (83,313)
(generated
from)investing
activities
Cash flows from
financing activities
Proceeds from issue - - - - 2,278
of ordinary shares
Proceeds from - - - - 82,500
borrowings
Movement in loans - - - - (8,403)
and receivables
Net cash generated - - - - 76,375
from financing
activities
Net increase/ - - - - (6,891)
(decrease) in cash
and bank overdrafts
Cash and bank - - - - 88,313
overdrafts at the
beginning of year
Cash and bank - - - - 81,422
overdrafts at the
end of year
On behalf of the board
M J N Njeke W R Jardine
Deputy chairman Chief executive
27 September 2006
Registered office Transfer secretaries
1st Floor, Kagiso House Link Market Services South
16 Fricker Road Africa (Pty) Limited 5th Floor,
Illovo, 2196 11 Diagonal Street
(PO Box 724, Northlands, Johannesburg, 2001
2116) (PO Box 4844, Johannesburg,
2000)
Directors: M J N Njeke (Deputy chairman), W R Jardine* (Chief
executive), O C Essack*, S Pienaar*, H I Appelbaum, R L
Hiemstra#, Y I Mahomed, M Motanyane
* Executive # Independent
Also available at: www.kagisomedia.co.za
Date: 28/09/2006 10:32:32 AM Produced by the JSE SENS Department
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