| Tue 13 Feb 2007, 10:00 | | KGM - Kagiso Media Limited - Interim results and d |
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KGM
KGM
KGM - Kagiso Media Limited - Interim results and dividend declaration
for the six months ended 31 December 2006
Kagiso Media Limited
(Registration number 1957/000036/06)
("Kagiso Media", "the group" or "the company")
Share code: KGM & ISIN: ZAE000014007
Interim results and dividend declaration for the six months ended 31
December 2006
- Revenue up 33.4%- Operating profit up 26.7%- Headline earnings up
34.6%- Dividend of 31c per share
Consolidated balance sheet
Six months ended Twelve months
ended
30 June 2006
(Audited)
31 December 31 December
2006 2005
(Unaudited) (Unaudited
and restated)*
(R`000)
Assets
Non-current assets 496 375 449 363 445 294
- Property, plant and 19 542 17 079 19 948
equipment
- Goodwill 93 346 17 984 17 984
- Intangible assets 336 244 354 693 343 678
- Investment in 47 243 42 517 44 708
associates
- Loans and receivables - 17 090 18 976
Current assets 271 711 190 132 236 500
- Inventory 10 658 8 793 21 140
- Trade and other 189 917 156 990 129 885
receivables
- Loans and receivables - - 139
- Cash and cash 71 136 24 349 85 336
equivalents
Total assets 768 086 639 495 681 794
Equity and liabilities
Capital and reserves
- Ordinary shares 1 330 1 325 1 325
- Share premium 11 055 9 604 9 804
- Revaluation and other 86 887 86 559 87 135
reserves
- Retained earnings 207 222 174 122 173 382
Total shareholders` 306 494 271 610 271 646
equity
Minority interest 46 026 95 758 94 089
Total equity 352 520 367 368 365 735
Liabilities
Non-current liabilities 277 252 165 056 180 018
- Borrowings 199 208 82 500 100 640
- Deferred income tax 78 044 82 556 79 378
liabilities
Current liabilities 138 314 107 071 136 041
- Borrowings 555 - 651
- Trade and other 125 793 95 403 124 654
payables
- Current income tax 11 966 11 668 10 736
liabilities
Total equity and 768 086 639 495 681 794
liabilities
Consolidated income statement
Six months ended Twelve
months
ended
30
Change June2006
% (Audited)
31 December
31 December 2005
2006 (Unaudited
(Unaudited) & restated)*
(R`000)
Revenue 369 651 276 998 33.4 604 795
Other income 12 101 6 797 16 733
Raw materials and (69 344) (35 570) (121 709)
consumables
Commissions and levies (61 560) (50 050) (92 687)
Employee costs (41 365) (25 587) (78 639)
Depreciation (3 489) (2 948) (6 853)
Amortisation (9 507) (12 012) (23 974)
Other expenses (56 233) (46 891) (91 382)
Operating profit 140 254 110 737 26.7 206 284
Finance income 4 266 2 963 5 570
Finance expense (9 963) (3 074) (6 865)
Share of results of 6 465 3 799 6 865
associates
Profit before income tax 141 022 114 425 211 854
Income tax expense (55 506) (45 233) (82 058)
Profit for the period 85 516 69 192 23.6 129 796
Attributable to:
- Equity holders of the 77 715 57 753 34.6 110 027
company
- Minority interest 7 801 11 439 19 769
85 516 69 192 129 796
Reconciliation of
headline earnings
Profit for the period 77 715 57 753 110 027
Loss on sale of property, - - 162
plant and equipment
Headline earnings 77 715 57 753 110 189
Earnings per share
- basic (cents) 58.5 43.8 33.6 83.2
- diluted (cents) 58.4 43.4 34.6 82.8
Number of shares in issue 132 952 132 462 132 540
(`000s)
Weighted average number 132 746 131 891 132 297
of shares in issue
(`000s)
Weighted average number 133 185 133 067 132 937
of shares in issue for
diluted earnings per
share (`000s)
Consolidated cash flow statement
Six months ended Twelve
months
ended
30 June 2006
(R`000) (Audited)
31 December
31 December 2005
2006 (Unaudited
(Unaudited) & restated)*
Cash flows from
operating activities
Cash generated from 104 739 81 146 236 843
operations
Finance expenses paid (10 058) (3 077) (6 413)
Finance income received 4 266 2 963 5 570
Income tax paid (54 095) (56 013) (95 729)
Dividends received from 2 659 - -
associates
Dividends paid to (43 874) (58 283) (111 299)
shareholders
Dividends paid to (7 000) (12 000) (22 000)
minorities
Net cash generated (used (3 363) (45 264) 6 972
in)
/from operating
activities
Cash flows from
investing activities
Acquisition of (124 102) - -
subsidiary, net of cash
acquired
Purchases of property, (3 083) (3 906) (10 842)
plant and equipment
("PPE")
Purchases of intangible (2 073) (1 712) (2 659)
assets
Loans to associates (282) - (471)
Net cash used in (129 540) (5 618) (13 972)
investing activities
Cash flows from
financing activities
Proceeds from issue of 1 255 2 494 2 696
ordinary shares
Redemption of preference (100 000) - -
shares
Proceeds from issue of 199 208 - -
preference shares
Movement in loans and 18 240 (8 686) 8 218
receivables
Net cash generated 118 703 (6 192) 10 914
from/(used in) financing
activities
Net (decrease)/increase (14 200) (57 073) 3 914
in cash and cash
equivalents
Cash and cash 85 336 81 422 81 422
equivalents at the
beginning of period
Cash and cash 71 136 24 349 85 336
equivalents at the end
of period
* Results were restated, refer to note 8, comparative information
Consolidated statement of changes in shareholders` equity
Six months ended Twelve
monthsended
30 June
2006
(Audited)
(R`000)
31 December
31 December 2005
2006 (Unaudited
(Unaudited) & restated)*
Equity at the beginning of 271 646 270 273 270 273
the period
Ordinary shares issued in 1 255 2 494 2 696
terms of the Share Option
Scheme
Profit for the period 77 715 57 753 110 027
Employee costs: Share (248) (627) (51)
Option
Dividend paid (43 874) (58 283) (111 299)
Shareholders` interest at 306 494 271 610 271 646
the end of the period
1. Comments on results
GeneralKagiso Media is pleased to announce an increase in profit for the
period and headline earnings of 34.6% for the six months to 31 December
2006, above that recorded in the comparative period. The company posted
earnings per share of 58.5 cents compared to 43.8 cents for the same period
last year.
RevenueRevenue for the period under review increased by 33.4%. The revenue
in broadcasting increased by 17.0%, LexisNexis Butterworths ("LexisNexis")
17.2% and Exhibitions and Events` revenue was R49.1m higher, reaching a
total of R69.8m.
Operating profit marginOperating profit margins improved at all business
units. Broadcasting increased by 6.0%, LexisNexis by 2.9% and Exhibitions
and Events by 161.4% off a negative base. Excluding the two biennial shows,
the operating profit margin for the group remained consistent at 40.0%.
Finance incomeThe finance income received for the period increased by
R1.3m.
Finance expenseThe finance expense pertains mainly to the dividend payable
on preference shares. This funding increased during the period and was
utilised to purchase the additional 20% stake in Jacaranda FM (Proprietary)
Limited and interest of R3.5m was paid to the seller. This amount is also
included in the appropriate expense line.
AssociatesThe results recorded from the associates include 24.9% in Ofm,
33.3% economic interest in Heart 104.9, 33.3% economic interest in iGagasi
99.5 and 25.1% economic interest in Kaya FM. This composition did not
change from the previous reporting periods. The acquisition of an effective
economic interest of 33.3% in Shanike Investments No 42 (Proprietary)
Limited and the disposal of the `B` ordinary and preference shares in Thebe
Convergent Technologies (Proprietary) Limited ("Shanike transaction") was
not concluded. The consequence of this is that Kagiso Media`s interest in
Kaya FM (Proprietary) Limited will remain an indirect, effective interest
of 25.1%.
TaxationThe effective tax rate remained marginally the same, being 39.5% in
the comparative period and 39.4% in the six months to 31 December 2006. As
the company continues to maintain a high dividend policy, the effective tax
rate will remain above 35%.
Minorities` share of profitsAs at 31 December 2006, minorities owned 20% of
Jacaranda and 49% of Eyethu Exhibitions (Proprietary) Limited. The decrease
in profits attributable to the minority shareholders resulted from the
purchase of the 20% stake in Jacaranda, offset partially by the improved
performance of the station for the period under review. The profit
attributable to the minorities in Eyethu Exhibitions (Proprietary) Limited
was R53 000.
Significant acquisitionsIn July 2006 Kagiso Media acquired an effective
additional 20% interest in Jacaranda for a cash consideration of R124.1m.
The consolidated income statement includes 80% of Jacaranda 94.2`s results
from 1 August 2006 onwards; this being the date the transaction became
unconditional. The interest and preference share dividends on the
additional borrowings, had an impact of a 3.9 cents on the earnings per
share. The goodwill increased by R75.4m as a result of this transaction.
This acquisition is both earnings and cash flow per share enhancing. The
only impact on the cash flow of the group and therefore the dividend to
ordinary shareholders, is the required payment of regular deposits to
ensure the redemption of the preference shares in five years from date of
issue.
2. Review of operations
During the period under review and in the comparative period, revenue,
operating profit and net profit contribution per business segment were as
follows:
Segmental analysis for the six months ended 31 December
Revenue Operating profit Net profit
(R`000) 2006 2005 2006 2005 2006 2005
Group costs 1 857 1 752 (8 889) (4 816) (28 596) (15 623)
Broadcasting 219 445 187 533 118 958 95 879 84 147 61 022
Information 78 551 67 036 26 416 21 906 18 981 14 433
services and
solutions
Exhibitions and 69 798 20 677 3 769 (2 232) 3 183 (2 079)
events
Total 369 651 276 998 140 254 110 737 77 715 57 753
Group costsDuring the reporting period, the professional and legal fees
incurred in the Shanike transaction, which were deferred in the previous
financial periods in anticipation of completion and capitalisation thereof,
were expensed. All of the preference dividends and interest incurred in
the procurement of investments are accounted for under the group costs. The
group`s share of Secondary Tax on Companies ("STC") in all the
subsidiaries, joint ventures and associates, as well as any deferred tax
movement in respect of STC credits, are allocated to this segment.
BroadcastingGeneralRevenue for the broadcasting segment increased by 17.0%
and operating profit increased by 24.1% to R118.9m in the period under
review. This performance is mainly attributed to the continued aggressive
marketing efforts and renewed focus on sales strategies and initiatives.
East Coast RadioEast Coast Radio`s revenue increased by 18.2% above the
comparative six months, with most of the growth attributable to the
performance of the local sales team who strengthened their positioning
throughout the region. Costs were contained and the station`s operating
profit margin was maintained at above 57%. East Coast Radio was involved in
the biggest radio promotion in its history, namely "East Coast Radio`s
Get-a-Life 2", with a prize worth R2.5m. This came to an end during
December and the station received excellent coverage on DSTV`s home
channel. East Coast Radio is now 10 years old and the station continues to
be one of the most dynamic businesses in the Kagiso Media stable and profit
contributor to the group.
Jacaranda 94.2
Revenue for the six months increased by 15.7% and the operating profit
margin of 46.7% was a 2.3 percentage point improvement on the previous
period. This improvement was clearly attributable to the focused change in
the sales strategy, where the lessons learnt from the other stations were
used to improve sales opportunities and deliver an enhancement on an
already high base for the previous year.
In the recently released Rams results, Jacaranda 94.2 increased its core
LSM 6-10, 25-49 listeners in Gauteng year-on-year by 18%.
Alan Khan joined Jacaranda on 1 January 2007 as chief executive officer. He
was the deputy managing director at East Coast Radio for the past two
years.
AssociatesOfm, Heart 104.9 and iGagasi 99.5 have performed well and
exceeded expectations, from both a listeners` growth as well as a revenue
improvement perspective. Revenue at Ofm improved by 18.7%, Heart 104.9
managed an increase of 64.9% and iGagasi 99.5 delivered 148.9%.
iGagasi 99.5`s core listeners (LSM 5-8, Age 16-34, black) improved by 108%,
year-on-year, while Heart 104.9`s total listenership increased by 15%
year-on-year. It is evident that the turnaround strategies implemented by
these stations less than a year ago are yielding benefits for all
stakeholders.
RadMarkRadMark`s performance was above expectations and revenue increased
by 18.6% off an already high base compared to the previous six months. The
operating margin improved from 44.0% in the previous period to 49.1% in the
current period and the entity remains the benchmark in the radio sales
arena.
Information services and solutionsLexisNexis Butterworths increased revenue
by 17.2% (18.0% in 2005) and contributes 24% to the group`s profit. Strong
performance across all its product ranges, especially print subscriptions,
new print sales, on-line products, risk management services and compliance
divisions contributed to this outstanding performance. Printed products
remain the highest contributor currently at 58.1% (2005 - 59.7%) of
revenue. Business from the rest of the continent contributed 4.1% (2005 -
5%) to total revenue. The operating profit margin increased from 32.7% in
the comparative six months to 33.6% in the period to 31 December 2006.
Exhibitions and EventsFour main shows were staged in the six months under
review, i.e. Saitex and Auto Africa in Johannesburg, the House and Garden
show in Durban and the Aerospace and Defence show in Cape Town. The Auto
Africa and Aerospace and Defence shows, both biennial exhibitions, made a
considerable contribution towards the revenue and profits of this entity.
Kagiso Exhibitions and Events purchased the remaining 49% in Eyethu
Exhibitions (Proprietary) Limited, enabling the company to streamline all
divisions and to design, project manage and offer front-of-desk services
across the company. The effective date of this investment was 1 July 2006.
3. Financial position
Working capitalThe group had available cash of R71.1m at 31 December 2006,
down from the R85.3m at 30 June 2006. The decrease in cash is mainly
attributable to the dividend payment of R43.9m made in October 2006, the
increase in the preference shares dividend and the interest paid due to the
investment in Jacaranda 94.2. The increase in trade and other receivables
is a function of the increased revenue at the stations over this seasonal
peak period as well as the winding down of the activities at the Auto
Africa Show.
The cash flow from operating activities for the six months increased by
R23.6m to R104.7m; a direct result from the increase in revenue and
operating profits.
Preference sharesThe group effectively increased its preference share
capital by R99.9m to R199.9m in order to fund the purchase of the
additional 20% stake in Jacaranda FM.
At 31 December 2006 the gearing stood at 65.0% (2005: 37.0%) expressed as a
percentage of shareholders` interest.
4. Regulatory matters
In the period under review the digital migration report, that caters for
both TV and radio, was finalised and sent to the Minister of Communications
who will now have to formulate these recommendations into a policy.
ICASA`s main priority remains the implementation of the new ECA legislation
and will continue the process of transferring all licences in terms of the
new legislation. All policies (completed, near finalisation and/or started)
before the new legislation will remain in place but will require some
amendment to ensure compliance with the new legislation. This includes the
long awaited ownership policies.
ICASA also issued a policy that allows for the use of channels 65 and 66 in
the UHF TV bands. This does not directly affect TV or radio as they can
only use the frequencies in areas where sharing is possible, however it
might have a knock-on effect on the implementation of the digital frequency
plan as frequency shortage could become a problem.
The dti published the final Codes for BBBEE. The group will embark on the
process to align all reporting against these new codes.
The dti also published the regulations on the needletime levy and it
appears that record companies are setting up collection agencies. The exact
quantum of the levy is subject to commercial negotiation and it is expected
that collection agencies will start negotiating with media owners once the
dti has approved their establishment.
5. Seasonality
The first six months of the financial year normally represent the peak
trading period for radio broadcasting, the group`s major business segment.
The earnings from this segment over the two six month trading periods in
the 2007 financial year should therefore reflect a similar seasonality to
that experienced over the past two to three years.
6. Interim dividend declaration
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. Notice is hereby given that a dividend of 31 cents (2005: 40 cents)
per share has been declared in respect of the six months ended 31 December
2006 and is payable to holders of ordinary shares recorded in the register
of the company on Friday, 16 March 2007.
The following salient dates apply to this dividend:
Last date to trade cum-dividend Friday, 9 March 2007
Shares commence trading ex-dividend Monday, 12 March 2007
Record date Friday, 16 March 2007
Payment of the dividend Monday, 19 March 2007
Share certificates may not be dematerialised or rematerialised between
Monday, 12 March 2007 and Friday, 16 March 2007, 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.
7. Prospects
With a stable local economic outlook and consumer confidence, the
positioning of the group`s assets as leaders in their respective markets,
will contribute to a positive performance for the full year but not at the
rate as achieved in the first six months.
8. Basis of preparation
The group has prepared condensed consolidated interim financial statements
for the six months ended 31 December 2006 in accordance with IAS 34
"Interim Financial Reporting" and in compliance with the listing
requirements of JSE Limited.
Comparative informationThe comparative information for the period ending
December 2005 was restated. This was due to the IFRS adjustments recorded
at the beginning of the period (1 July 2005), which was not accounted for
at the time of the finalisation of the unaudited interim results. The
restated opening balance, as per the audited financial statements, as at 1
July 2005 was applied and the effect on the income statement reflected a
favourable variance of R2.8m attributable to Kagiso Media`s shareholders,
or an additional 2.1 cents per share.
Accounting policies
The accounting policies adopted are consistent with those applied in the
previous period.
The following new standards, amendments to standards and interpretations
are mandatory for the financial year ending 30 June 2007.
- Amendments to IAS 19, IAS 21, IAS 39 and IFRS 6, IFRIC 5, IFRIC 6. These
standards, amendments to standards and interpretations are not relevant to
the group.
- IFRIC 4 - `Determining whether an arrangement contains a lease`. The
group has reviewed its contracts; this statement does not have any
significant impact on the group`s results.
The following new standards, amendments to standards and interpretations
have been issued but are not effective for 2006 and have not been early
adopted:
- IFRS 7 and IFRIC 8.
9. Capital expenditure
(R`000) Tangible assets Intangible
assets
Six months ended 31 December 2006
Opening net carrying amount 19 948 343 678
Additions 3 083 2 073
Depreciation, amortisation and (3 489) (9 507)
other movements
Closing net carrying amount 19 542 336 244
Six months ended 31 December 2005
Opening net carrying amount 16 121 364 993
Additions 3 906 1 712
Depreciation, amortisation and (2 948) (12 012)
other movements
Closing net carrying amount 17 079 354 693
10. SHARE CAPITAL
Number Ordinary Share
of shares shares premium Total
(`000s) (R`000) (R`000) (R`000)
Opening balance 1 July 132 540 1 325 9 804 11 129
2006
Proceeds from shares 412 5 1 255 1 260
issued - employee share
option scheme
Share issue expenses - - (4) (4)
Closing balance 31 132 952 1 330 11 055 12 385
December 2006
Opening balance 1 July 131 321 1 313 7 120 8 433
2005
Proceeds from shares 1 141 12 2 493 2 505
issued - employee share
option scheme
Share issue expenses - - (9) (9)
Closing balance 31 132 462 1 325 9 604 10 929
December 2005
11. Borrowings
Twelve months
Six months ended ended
(R`000) 30 June
31 December 31 December
Preference shares 2006 2005 2006
Opening balance 99 542 82 500 82 500
Preference shares issued 199 666 - 99 542
during the period, net of
share issue expenses
Redeemed during the (100 000) - (82 500)
period
Closing balance 199 208 82 500 99 542
12. Income taxes
Income tax expense is recognised based on management`s best estimate of the
weighted average annual income tax rate expected for the full financial
year. The estimated average annual tax rate used for 2006 is 39.4% (the
estimated tax rate for the first half of 2005 was 39.5%).
13. Contingent liabilities
Six months ended Twelve months
ended
(R`000) 30 June
Guarantees 2006
31 December 31 December
2006 2005
Amount outstanding under 2 845 3 524 3 015
bank facilities
Kagiso Media Limited guarantees the banking facilities of Systems
Publishers (Proprietary) Limited. The group holds, as collateral for this
guarantee, a pledge of all the shares in Systems Publishers (Proprietary)
Limited and cessions of a key-man life insurance policy and short term
insurance policy. This loan is being repaid on a monthly basis and it is
unlikely that Kagiso Media would be required to effect payment under this
arrangement. The company did not therefore provide for any liability in
the financial statements.
Kagiso Media Limited, Kagiso Broadcasting (Proprietary) Limited and Kagiso
Exhibitions and Events (Proprietary) Limited guarantees the commitments of
Kagiso Media Investments (Proprietary) Limited ("KMI"), a wholly-owned and
fellow subsidiary, in respect of the preference shares issued by KMI. This
is in place via a put option and guarantee agreement; should KMI default on
any of the terms and conditions of the preference shares, and is not able
to rectify this position within a reasonable specific time, the preference
shareholders could exercise this put option against any of the guarantors
for the full amount of the preference shares issued at the time. KMI will
be able to fulfill all of the conditions attributable to the preference
shares. See note 11, borrowings.
14. Related party transactions
Loans
repaid/
advanced
Opening during the Interest Closing
(R`000) balance period charged balance
Loans from/(to) related
parties
Seyalemoya Communications
(Proprietary) Limited
("Ofm")
- 31 December 2006 2 504 (2 541) 37 -
- 31 December 2005 2 375 - - 2 375
- 30 June 2006 - - - -
Thebe Convergent
Technologies (Proprietary)
Limited ("Thebe")
- 31 December 2006 1 129 2 259 - 3 388
- 31 December 2005 - - - -
- 30 June 2006 - 1 129 - 1 129
Makana Radio
Communications
(Proprietary) Limited
("Makana")
- 31 December 2006 (1 600) - - (1 600)
- 31 December 2005 - - - -
- 30 June 2006 - (1 600) - (1 600)
Loans from Ofm are
unsecured, carry interest
at 8% and have no fixed
terms of repayment. The
loan has been repaid. The
loans from Thebe and to
Makana are unsecured,
interest free and have no
fixed term of repayment.
Loans to directors
(unrestricted share
purchase scheme)
- 31 December 2006 3 492 4 297 192 7 981
- 31 December 2005 - 3 312 - 3 312
- 30 June 2006 - 3 336 156 3 492
Loans to directors are granted in terms of the "Unrestricted Share Purchase
Scheme". These loans are repayable within six years from date of grant and
carry interest at prime less two percentage points. These loans are deemed
current and risk-free albeit a possible fluctuation in the share price.
On behalf of the board
W R Jardine M MorobeChairman
Chief executive
13 February 2007
Registered Office: 1st Floor, Kagiso House, 16 Fricker Road, Illovo
Boulevard, Illovo, 2196
Directors: W R Jardine (Chairman), M J N Njeke (Deputy Chairman),
M Morobe* (Chief Executive), O C Essack*, S Pienaar*, H I Appelbaum,
R L Hiemstra#, Y I Mahomed, R M Motanyane, W C Ross
* Executive
# Independent
Transfer Secretaries: Link Market Services South Africa (Proprietary)
Limited, 5th Floor, 11 Diagonal Street, Johannesburg, 2001, PO Box 4844,
Marshalltown, 2107
Sponsor
Investec Bank Limited
Company Secretary
S Pienaar
www.kagisomedia.co.za
Date: 13/02/2007 10:00:01 Produced by the JSE SENS Department.
