KTH - Kagiso Tiso Holding

Kagiso Media revenue up 56% to R709m for six months to December 2012

28 February 2013

Kagiso Media Ltd (KML) records a pleasing performance for the six months to December 31, 2012. Group revenue rose 56% to R709,0 million (2011: R455,3 million). Core earnings per share moved 9% higher to R126,0 million (2011: R115,3 million) while the interim dividend also rose 10% to 45 cents (2011: 41 cents)

HIGHLIGHTS

• At 94,2 cents (2011: 86,2 cents), core earnings per share up 9%
• Core headline earnings rise 9% to R126,0 million (2011: R115,3 million)
• Dividend declared of 45 cents a share, a 10% rise
• Interim earnings per share (EPS) down 2% to 80,6 cents
• Headline earnings per share (HEPS) also ease 2% lower
• 56% group revenue increase to R709,0 million (2011: R455,3 million)
• Operating profit down 6% to R140,2 million (2011: R148,7 million)
• Pre-tax profit rises 2% to R168,6 million (2011: R165,7 million)
• Good growth by broadcasting assets
• Juta acquisition beds down well
• Healthy cash balance of R416,9 million maintained

OVERVIEW

Chief Executive Murphy Morobe today announced a "pleasing trading performance" by Kagiso Media Limited (KML) for the six months to December 31, 2012.

He said 56% growth in Group revenue to R709,0 million (2011: R455,3 million) was significantly impacted by the first half-yearly revenue contribution of Juta, the specialist publisher acquired in May, 2012. The Group newcomer performed to expectation and was chiefly responsible for the bigger volumes achieved by Kagiso's Information and Other division.

Morobe said core assets in the broadcasting division achieved good growth, despite South Africa's continuing low growth cycle. He added: "Cash generated from operations increased by 15% to R167,5 million (2011: R145,7 million), largely driven by the Broadcasting division."

The Group maintains a healthy cash balance of R416,9 million.

On continuing operations, pre-tax profit rose 2% to R168,6 million (2011: R165,7 million) while after-tax profit eased 1% higher to R124,3 million (2011: R123,3). Operating profit fell 6% to R140,2 million (2011: R148,7 million).

Interim EPS was down 2% to 80,6 cents (2011: 82,3 cents). HEPS also eased 2% lower to 80,6 cents (2011: 82,3 cents). Both were impacted by once-off expenses. Net asset value per share rose 3% to 926 cents (2011: 900 cents).

Core earnings per share were 94,2 cents (2011: 86,2 cents), up 9%.

Associates

At R18,4 million (2011: R14,2 million), the after-tax share of results by Kagiso associates was 30% better than the prior period. Results at associated companies were boosted by the strong performance at Kaya FM - up 29% on the prior year.

Acquisitions

In September, Kagiso completed the acquisition of market research company Kaufman Levin Associates, said Morobe. Kagiso paid R26 million out of the Group's cash reserves for an economic interest of 90%.

In addition, the Group increased its shareholding in Gloo Digital Design and Knowledge Factory to 60% and 70% respectively.

However, negotiations were cancelled by mutual consent with investment company Remgro for the acquisition of equity in Trinergy Brand Connectors (Pty) Ltd, Experiential Marketing (Pty) Ltd and EXP Momentum Limited and an indirect interest in Bulls Rugby Holdings (Pty) Ltd. The cautionary announcement relating to the negotiation was withdrawn in November.

Morobe said Kagiso remained an acquisitive Group, but had embarked on a period of consolidation focused on the strategic growth of existing broadcasting assets.

Leadership

Murphy Morobe confirmed that - as previously announced - he steps down as Group CEO no later than the end of the current financial year.

DISTRIBUTIONS

In accordance with Kagiso policy of returning 50% of its annual headline earnings to shareholders, the board announced that the company would pay an interim dividend of 45 cents per share (2011: 41 cents).

PROSPECTS

Morobe said the Group expected a slowdown in South Africa's rate of economic growth in the coming months. However he anticipated group results showing some form of resilience, as most of the media company's businesses operate in relatively mature markets.

However, the Group was well positioned in view of the momentum built by its operations and the anticipated positive contributions of recent acquisitions.

He added: "The Group's profit delivery will benefit significantly from the inclusion of Juta's results for the remaining six months as revenue flows at this business are significantly weighted toward the second half of our financial year.

"Furthermore, we anticipate a consistent performance from the Broadcasting division, with consumer spend expected to hold firm."

The outlook at the New Media division is in line with expectations and remains positive, Morobe noted. Kagiso's partner at Microsoft has approved expansion plans in East and West Africa. The MSN Africa portals plan to go live in July, 2013.

At the Content division, Urban Brew Studios (in which Kagiso has a 50,1% interest) is working on developing a substantial pipeline of new commissions.

DIVISIONAL REVIEW

The Broadcasting division grew revenue by 14% off of 2011's high base to R346,9 million (2011: R305,2 million). Industry statistics for July-September indicated that Kagiso Media grew faster than their industry peers and increased their market share. Operating profit growth of 4% to R161,3 million (2011: R155,6 million) was below budget. Adverse factors included some once-off investment costs. Jacaranda 94.2 FM and East Coast Radio grew market share and volumes.

Within the Content division, UBS grew revenue by 41% on prior period to R132,2 million (2011: R94,0 million) while operating profits doubled to R10,6 million (2011: R5,1 million). Operating margin increased but remained below expectations. Revenue was assisted by a steady flow of new productions. The division made significant investment toward servicing UBS's management agreement with two Community TV stations. Going forward, short-term investment is envisaged to go toward the development of "owned content" to create new broadcast and licensing revenue streams. A new CEO was appointed late in the period.

New Media continued to enjoy exceptional revenue growth, up 43% to R54,5 million (2011: R38 million. Operating profit remained flat, impacted by on-going investment in people, systems and marketing to support the development of early start-up operations to the next level of growth. Central HR and finance functions were established.

Revenue delivery at the Information and Other division was in line with expectations, rising to R174,8 million (2011: R17 million) on the back of the Juta acquisition. Losses in the comparable period were reversed and a profit achieved. Seasonal changes in volumes have a material effect on the Juta business. Consequently, most of the profit delivery is forecasted for the second half of the 2013 financial period.