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Provisional Audited Summarised Consolidated Group Financial Statements For The 12 Months Ended 30 June 2013
TIMES MEDIA GROUP LIMITED
Incorporated in the Republic of South Africa
Registration number: 2008/009392/06
Share code: TMG
ISIN code: ZAE000169272
("Times Media Group" or "TMG" or "the Company" or "the Group")
PROVISIONAL AUDITED SUMMARISED CONSOLIDATED GROUP FINANCIAL RESULTS
for the 12 months ended 30 June 2013
- R452 million of acquisition finance repaid
- Remaining 50% shareholding in BDFM acquired
- Profit from continuing operations before exceptional items
20% up on prior year
- 45% increase in net cash flows from operating activities
Summarised consolidated statement of profit or loss
and other comprehensive income
Audited Reviewed
12 months 12 months
ended ended
30 June 2013 30 June 2012
Rm Rm
CONTINUING OPERATIONS
Revenue 3 899 3 949
Cost of sales (2 756) (2 809)
Gross profit 1 143 1 140
Operating expenses (918) (953)
Operating costs (802) (829)
Depreciation (82) (78)
Amortisation (34) (40)
Share-based payments - (6)
Profit from operations before exceptional items 225 187
Exceptional items (219) (15)
Profit from operations 6 172
Net finance costs (70) (16)
Finance income 20 22
Finance costs including interest paid on cash flow hedges (90) (38)
Share of losses of associates (net of income tax) (26) (1)
(Loss) profit before taxation (90) 155
Taxation credit (expense) 17 (67)
Income tax credit (expense) 17 (56)
Secondary tax on companies expense - (11)
(Loss) profit from continuing operations (73) 88
DISCONTINUED OPERATIONS
Profit from discontinued operations 83 81
Profit after taxation before profit on disposals 36 81
Profit on disposals (net of capital gains tax) 47 -
Profit for the twelve months 10 169
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Change in fair value of cash flow hedges (net of income tax) 7 -
Exchange differences on translation of foreign operations - 4
Other comprehensive income for the twelve months
(net of income tax) 7 4
Total comprehensive income for the twelve months 17 173
Profit attributable to:
Owners of the Company 3 158
(Loss) profit from continuing operations (76) 86
Profit from discontinued operations 79 72
Non-controlling interest 7 11
Profit from continuing operations 3 2
Profit from discontinued operations 4 9
Profit for the twelve months 10 169
Total comprehensive income attributable to:
Owners of the Company 10 162
(Loss) profit from continuing operations (67) 88
Profit from discontinued operations 77 74
Non-controlling interest 7 11
Profit from continuing operations 3 2
Profit from discontinued operations 4 9
Total comprehensive income for the twelve months 17 173
(Loss) earnings per ordinary share from continuing operations (cents)
Basic (67) 5
Diluted (67) 5
Earnings per ordinary share from discontinued operations (cents)
Basic 56 39
Diluted 56 39
(Loss) earnings per ordinary share from continuing and
discontinued operations (cents)
Basic (11) 44
Diluted (11) 44
Summarised consolidated segmental statement
Audited Reviewed
12 months 12 months
ended ended
30 June 2013 30 June 2012
Rm Rm
Segmental revenue from external customers
CONTINUING OPERATIONS
Media 1 804 1 780
BDFM 173 188
Retail Solutions 1 274 1 281
Entertainment 648 700
3 899 3 949
Segmental profit (loss) from operations before exceptional items
CONTINUING OPERATIONS
Media 171 108
BDFM (7) (8)
Retail Solutions 132 159
Entertainment (31) (35)
265 224
Corporate (40) (31)
225 193
Share-based payments - (6)
225 187
Segmental exceptional items
CONTINUING OPERATIONS
Media (53) 14
BDFM 14 -
Retail Solutions (45) 3
Entertainment (96) (6)
Corporate (53) (26)
Share-based payments 14 -
(219) (15)
Summarised consolidated statement of financial position
Audited Reviewed
as at as at
30 June 2013 30 June 2012
Rm Rm
ASSETS
Non-current assets 1 431 1 801
Property, plant and equipment 392 593
Intangible assets 831 964
Interests in associates 22 85
Investments 13 -
Cash flow hedges 10 -
Deferred taxation assets 163 159
Current assets 1 292 2 138
Inventories, receivables and other current assets 1 189 1 745
Bank balances, deposits and cash 103 393
Non-current assets classified as held for sale 893 -
Total assets 3 616 3 939
EQUITY AND LIABILITIES
Total equity 1 208 2 207
Equity attributable to owners of the Company 1 162 2 128
Non-controlling interest 46 79
Non-current liabilities 1 019 664
Long-term borrowings 690 285
Post-retirement benefits liabilities 264 233
Operating leases equalisation liabilities 18 38
Deferred taxation liabilities 47 108
Current liabilities 972 1 068
Payables and other current liabilities 829 969
Short-term borrowings 56 60
Bank overdrafts 87 39
Liabilities directly associated with non-current assets
classified as held for sale 417 -
Total equity and liabilities 3 616 3 939
Summarised consolidated statement of changes in equity
Stated Other Accumulated Owners' Non-controlling Total
capital reserves profits interest interest equity
Rm Rm Rm Rm Rm Rm
Balance at 30 June 2011 1 571 (11) 515 2 075 120 2 195
Profit attributable to owners of the Company - - 158 158 11 169
Exchange differences on translation of foreign operations - 4 - 4 - 4
Effect of reverse acquisition accounting (867) 867 - - - -
Effect of acquisitions and disposals of non-controlling interests - (21) - (21) (6) (27)
Equity-settled share incentive plans - (4) - (4) - (4)
Disposal of call options over Avusa shares - 21 - 21 - 21
Dividends paid by subsidiaries to non-controlling interests - - - - (46) (46)
Dividend paid - - (105) (105) - (105)
Balance at 30 June 2012 (reviewed) 704 856 568 2 128 79 2 207
Profit attributable to owners of the Company - - 3 3 7 10
Change in fair value of cash flow hedges (net of income tax) - 7 - 7 - 7
Shares issued 1 020 - - 1 020 - 1 020
Effect of reverse acquisition accounting - (1 978) - (1 978) - (1 978)
Effect of acquisitions and disposals of non-controlling interests - (2) - (2) (22) (24)
Equity-settled share incentive plans - (16) - (16) - (16)
Dividends paid by subsidiaries to non-controlling interests - - - - (18) (18)
Balance at 30 June 2013 (audited) 1 724 (1 133) 571 1 162 46 1 208
Summarised consolidated statement of cash flows
Audited Reviewed
12 months 12 months
ended ended
30 June 2013 30 June 2012
Rm Rm
Net cash flows from operations before working capital changes 340 428
Working capital changes 174 (36)
Net cash flows from operations 514 392
Net finance costs including interest paid on cash flow hedges (69) (10)
Taxation paid (69) (123)
Net cash flows from operating activities 376 259
Net cash flows from investing activities (116) (179)
Net cash flows from financing activities (552) (140)
Net decrease in cash and cash equivalents (292) (60)
Cash and cash equivalents at beginning of the year 354 417
Foreign operations translation adjustment (3) (3)
Cash and cash equivalents at end of the year 59 354
Notes
1. Basis of preparation
On 25 September 2012, TMG acquired the entire issued ordinary share capital of Avusa via a scheme of
arrangement. The application of International Financial Reporting Standards (IFRS), in particular IFRS 3
Business Combinations, results in Avusa (the legal acquiree) being recognised as the acquirer for accounting
purposes, and in the transaction being accounted for as a reverse acquisition. Accordingly, these summarised
consolidated Group annual financial statements for the twelve months ended 30 June 2013, prepared following
the reverse acquisition, are issued in the name of TMG (the legal parent and accounting acquiree), but are
prepared as a continuation of the financial statements of Avusa (the legal subsidiary and accounting acquirer),
with one adjustment, which is the retroactive adjustment of Avusa's legal capital to reflect TMG's legal capital.
The comparative financial information presented in these summarised consolidated Group annual financial
statements has also been retroactively adjusted to reflect TMG's legal capital. The calculation of earnings per
share is described in note 4 hereunder.
Consequent upon the acquisition, TMG expanded its adopted accounting policies to incorporate those accounting
policies of Avusa that were not accounting policies of TMG. Accordingly, TMG's accounting policies now match
Avusa's accounting policies as set out in Avusa's 2012 integrated annual report.
This summarised consolidated Group financial information has been prepared and presented in accordance
with the framework concepts and the measurement and recognition requirements of International Financial
Reporting Standards, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and
Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the JSE Limited's
Listings Requirements, the requirements of the South African Companies Act (as amended) and the information
required by IAS 34: Interim Financial Reporting. The accounting policies are compliant with IFRS and their
application is consistent, in all material respects, with those detailed in Avusa's 2012 integrated annual report,
including the adoption from 1 April 2012 up to the reporting date of those new and amended IFRS statements and
interpretations with effective dates for the Company of 1 April 2012 up to the reporting date, and including those
amendments included in the International Accounting Standards Board's annual improvements project where
such amendments were effective for the Company from 1 April 2012 up to the reporting date. The adoption of the
new and amended IFRS statements and interpretations, and improvements project amendments, has not had a
material effect on the Company's financial results.
The preparation of these audited summarised consolidated Group annual financial statements was supervised by
TMG's financial director, Mr W Marshall-Smith CA(SA).
The comparative financial information, having not previously been presented, has been reviewed by our auditors,
Deloitte & Touche, as required by the JSE Limited. Their review was conducted in accordance with International
Standards on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent
Auditor. The auditor's unmodified review opinion is available for inspection at the Company's registered office.
Audited Reviewed
12 months 12 months
ended ended
30 June 2013 30 June 2012
Rm Rm
2. Exceptional items
Media (53) 14
- Revaluation of investment 2 -
- Post-retirement medical aid provisioning (14) -
- Retrenchment costs (8) (8)
- Goodwill impairment (33) (4)
- Pension fund surplus - 25
- Profit on disposal of property - 1
BDFM 14 -
- Gain on acquisition of BDFM Group 24 -
- Retrenchment costs (10) -
Retail Solutions (45) 3
- Impairment of intangible assets (27) -
- Impairment of Uniprint plant (10) -
- Retrenchment costs (8) -
- Profit on disposal of business - 3
Entertainment (96) (6)
- Profit on disposal of property 2 -
- Impairment of customised SAP system (16) -
- Impairment of gaming stock (14) -
- Losses on non-renewal of licence (21) -
- Increased stock provisioning (12) -
- Retrenchment costs (19) (5)
- Write-off of development costs of new business channels (9) -
- Legacy legal matters (7) -
- Goodwill impairment - (1)
Corporate (53) (26)
- Retirement fund surplus 9 4
- Scheme of arrangement transaction costs (62) -
- Costs related to Capitau expression of interest - (5)
- Former CEO settlement - (25)
Credit arising on cancellation of Avusa share incentive plans 14 -
(219) (15)
Retrenchment costs incurred by support services, including human
resources, marketing, secretarial, IT and facilities, are reallocated to the
divisions and are included in the retrenchment costs as set out above.
3. Reconciliation between earnings and headline earnings
CONTINUING OPERATIONS
(Loss) earnings (76) 86
Loss (profit) on disposal of property, plant and equipment 3 (1)
Loss on disposal of intangible assets 2 -
Impairment of plant and equipment 10 -
Impairment of intangible assets 75 5
Impairment of loan 25 -
Revaluation of investment (3) -
Gain on acquisition of BDFM Group (24) -
Profit on disposal of business - (3)
Tax effect (16) -
Attributable to non-controlling interest - -
Headline (loss) earnings (4) 87
Headline (loss) earnings per ordinary share from continuing
operations (cents)
Basic (16) 5
Diluted (16) 5
DISCONTINUED OPERATIONS
Earnings 79 72
Profit on disposal of interests in MapIT, Suncoast Cinema
and Monte Cinemas (52) -
Loss (profit) on disposal of property, plant and equipment 1 (24)
Impairment of plant and equipment 6 -
Impairment of intangible assets 15 1
Tax effect (2) 2
Attributable to non-controlling interest - -
Headline earnings 47 51
Headline earnings per ordinary share from discontinued
operations (cents)
Basic 33 28
Diluted 33 28
Headline earnings per ordinary share from continuing and
discontinued operations (cents)
Basic 17 33
Diluted 17 33
4. Earnings per ordinary share
The earnings and headline earnings for the period in which the reverse acquisition occurred include a
comparative interest charge of R19 million from the beginning of the period to the acquisition date in respect of
the R1,15 billion term loans raised. The weighted average number of ordinary shares in issue during the period
in which the reverse acquisition occurred has been calculated on the basis of the number of ordinary shares in
issue from the beginning of the period to the acquisition date being the weighted average number of ordinary
shares of Avusa (the accounting acquirer) in issue during that period, multiplied by the share exchange ratio in
terms of the acquisition, and the weighted average number of ordinary shares in issue from the acquisition date
to the end of the period being the weighted average number of ordinary shares of TMG (the legal acquirer)
in issue during that period.
The earnings and headline earnings for the comparative period include a comparative interest charge of
R77 million in respect of the R1,15 billion term loans raised. The earnings and headline earnings per ordinary
share for the comparative period have been calculated by dividing Avusa's profit or loss attributable to ordinary
shareholders (inclusive of the abovementioned comparative interest charge) by Avusa's historical weighted
average number of ordinary shares in issue, multiplied by the share exchange ratio in terms of the acquisition.
Accordingly, the calculation of basic earnings and headline earnings per ordinary share is based on a loss of
R16 million (2012: R81 million earnings) and headline earnings of R24 million (2012: R61 million) respectively,
and on a weighted average of 141 230 227 (2012: 182 931 508) ordinary shares in issue.
Similarly, the calculation of diluted earnings and headline earnings per ordinary share is based on a loss of
R16 million (2012: R81 million earnings) and headline earnings of R24 million (2012: R61 million) respectively,
and on a weighted average of 141 230 227 (2012: 182 961 392) diluted ordinary shares in issue. The additional
diluted ordinary shares arise as a result of equity-settled share incentives that were in issue.
5. Discontinued operations
At the time of the release of its interim results in March of this year, the Company advised regarding the sale
of non-core assets. The following assets have been accounted for as discontinued operations in these year-end
financial results:
Media
- I-Net Bridge
- East London and Port Elizabeth properties
Books
- Exclusive Books and Van Schaik Bookstore
- New Holland Publishing
- MapIT (sold 31 May 2013)
Entertainment
- Nu Metro Cinemas
- 50% stake in Suncoast Cinema that was previously equity-accounted (sold 31 May 2013)
- Monte Cinemas (sold 28 June 2013)
- 40% interest in Warner Music Gallo Africa (sold 31 July 2013)
Audited Reviewed
12 months 12 months
ended ended
30 June 2013 30 June 2012
Rm Rm
Revenue 2 114 2 022
Cost of sales (1 157) (1 073)
Gross profit 957 949
Operating expenses (861) (868)
Operating costs (802) (802)
Depreciation (49) (49)
Amortisation (10) (17)
Profit from operations before exceptional items 96 81
Exceptional items (45) 21
Profit from operations 51 102
Net finance costs - 5
Finance income 4 8
Finance costs (4) (3)
Share of profits of associates (net of income tax) 2 3
Profit before taxation 53 110
Taxation (17) (29)
Income tax expense (17) (24)
Secondary tax on companies expense - (5)
Profit after taxation before profit on disposals 36 81
Profit on disposals (net of capital gains tax) 47 -
Profit on disposal of 51% share in MapIT 32 -
Profit on disposal of 50% interest in Three Groups Cinemas
(Suncoast Cinema) 9 -
Profit on disposal of 51% share in Monte Cinemas 11 -
Capital gains tax (5) -
Profit from discontinued operations 83 81
Segmental revenue from external customers
Media 116 108
Books 1 584 1 516
Entertainment 414 398
2 114 2 022
Segmental profit (loss) from operations before exceptional items
Media 7 8
Books 92 80
Entertainment (3) (7)
96 81
Segmental exceptional items
Books (31) 21
- Impairment of Exclusives.co.za (15) -
- Increased provisioning of certain stock and debtors (13) -
- Retrenchment costs (3) (5)
- Profit on sale of properties - 27
- Goodwill impairment - (1)
Entertainment (14) -
- Impairment of property, plant and equipment (6) -
- Onerous leases (7) -
- Retrenchment costs (1) -
(45) 21
Assets and liabilities of discontinued operations
classified as held for sale
Non-current assets 259
Current assets 634
Non-current liabilities 32
Current liabilities 385
Cash flow information
Net cash flows from operations 156
Net finance costs -
Taxation paid (5)
Net cash flows from operating activities 151
Net cash flows from investing activities 7
Net cash flows from financing activities (13)
Foreign operations translation adjustment (3)
Cash flows from discontinued operations 142
6. Audited results
The auditors, Deloitte & Touche, have issued an unmodified audit opinion on the Group's annual financial
statements for the year ended 30 June 2013. The audit was conducted in accordance with International
Standards on Auditing. Deloitte & Touche have issued an unmodified opinion. A copy of their audit report is
available for inspection at the Company's registered office.
These summarised Group annual financial statements have been derived from the Group annual financial
statements and are consistent, in all material respects, with the Group annual financial statements. These
summarised Group annual financial statements have been audited in compliance with any applicable
requirements of the Companies Act of South Africa (as amended) by the Company's auditors who have issued
an unmodified opinion. The auditor's report does not necessarily report on all of the information contained
in this announcement. Any reference to future financial performance included in this announcement has not
been reviewed or reported on by the Company's auditors. Shareholders are advised that in order to obtain a
full understanding of the nature of the auditor's engagement, they should obtain a copy of their report with the
accompanying financial information from the Company's registered office.
Commentary
INTRODUCTION
It has been an eventful financial year for TMG. The year has been marked by a corporate restructuring transaction,
changes in senior management (including editors of our various publications), changes in the board of directors, as
well as a significant cost reduction initiative. It is our view that these changes were necessary to take the business back
to basics, and place more focus on those companies and divisions where we can best realise decent returns on capital
invested.
As a new management team, we are very focused on maximising investment returns by following a decentralised
business model and making sure the underlying operations have the correct cost structure. We are well on our way to
achieving these objectives, already witnessing early benefits from the initiatives undertaken in TMG. Clear evidence of
this is noted in the additional free cash flow we have generated, allowing us to repay R452 million of acquisition finance
over a nine month period. Importantly, this repayment of debt has been made from available cash flow, and not from
the proceeds of asset disposals. Most of the asset disposals hadn't been settled by year-end.
During the past financial year, we succeeded in reducing the cost-base across the Group, by identifying synergies
between the various divisions that can deliver greater efficiencies. Our objective with the cost reduction exercise was
to reduce the excess non-essential expenses, without harming the core operations. We have significantly reduced the
costs of Group services and Head Office expenditure and have created a structure for centralised cash management.
More than R10 million will be spent in the newsrooms of our various publications, strengthening editorial skills and
enhancing the quality of content we deliver. A single Group culture is being created, while still retaining individual
company and brand identities.
The financial performance of the Group over the past year was a mixed bag. TMG's total EBITDA for the year ended
30 June 2013 amounted to R496 million. Across the Group we have reduced the cost-base by approximately R100 million.
TMG has made significant progress in disposing of its non-core assets. A number of transactions have already been
concluded, whilst others are nearing completion. While there were many highlights during this review period, the
stand-out achievement remains the acquisition of the remaining 50% shareholding in BDFM a transaction we
concluded at the end of June 2013.
The detailed commentary that follows has been provided to give shareholders as much colour as possible on the
business and the different elements that make up TMG.
DISPOSAL OF NON-CORE ASSETS
As noted at the interim stage, I-Net Bridge, TMG's Books division and Entertainment's cinemas business have been
identified as non-core given their business prospects, growth potentials, profit margins, EBIT contributions and cash
generation capacities.
With I-Net Bridge's future prospects being dependent on being able to compete in a small proprietary market with
major international players, and with I-Net requiring investment to retain a competitive offering and sustainable
growth, TMG is of the view that the purchaser, McGregor BFA, is better placed to position I-Net Bridge for the future.
In addition, the sale of our East London and Port Elizabeth properties is underway.
The Books division comprises good publishing, retail and distribution businesses (including Exclusive Books and
Van Schaik Bookstore) and, by year-end, negotiations were well advanced to dispose of these businesses to appropriate
new owners while maximising TMG shareholder value.
Similarly, the Entertainment division's Nu Metro Cinemas business lacks the required synergies and returns on
investment in a media-focused group such as TMG. TMG is currently negotiating the sale of the Nu Metro Cinemas
business.
The Books division sold its 51% interest in MapIT at the end of May 2013 for R37,5 million, and its Struik Christian
Media publishing business for R10 million at the end of July 2013. TMG's 50% stakes in each of Three Groups Cinemas
(Suncoast Cinema) and Monte Cinemas were sold at the end of May and June 2013, respectively, for a total consideration
of R38 million, inclusive of a R5 million dividend received from Suncoast Casinos.
In addition, TMG's 40% share of the Warner Music Gallo Africa joint venture was disposed of in July 2013 for
R12 million, while retaining Needletime rights from the joint venture.
FINANCIAL REVIEW
The year under review included a number of complexities, including accounting for a reverse acquisition, the impact
of the change in year-end from March to June, and accounting for discontinued operations.
Financial highlights include our Media division's sterling performance, with operating profit before exceptional items
lifted 58% from R108 million to R171 million on the back of stronger adspend, reduced printing costs in Gauteng,
and from aggressive overhead cuts.
TMG has also achieved great success in reducing its R1,15 billion term debt (raised in September 2012 to fund the
scheme of arrangement) by R452 million to R698 million as at the 30 June 2013 reporting date. R514 million net cash
was generated from operations (2012: R392 million) on the back of tight management of working capital.
Operating costs from continuing operations decreased by 3% to R802 million from R829 million in the prior year,
indicating the benefits of the Group's focus on costs during the year.
Profit from continuing operations before exceptional items, at R225 million, is 20% ahead of the prior year's R187 million.
The exceptional items are detailed in note 2 of the consolidated financial results. Annual impairment testing indicated
goodwill impairments of R33 million, R13 million for Airport Media and R20 million in respect of Interactive Junction
Holdings.
The finance costs reflect the impact of the Group's term debt and associated cash flow hedges.
Consequent upon the transfer of TMG's Gauteng printing from TNPC to CTP Caxton, a R25 million impairment of the
loan extended to TNPC has been recognised in the share of losses of associates.
TMG recorded headline earnings of 17 cents per ordinary share, a reduction from 33 cents earned last year, largely as
a result of the exceptional charges.
Continuing operations
Our Media division put in an excellent performance for the year, improving its operating profit before exceptional items
by 58% from R108 million to R171 million. Media's profitability benefited from improved adspend, reduced printing
costs as a result of the transfer of our Gauteng printing from TNPC to CTP Caxton, and from our aggressive targeting
of overhead costs. Further commentary is provided below in our detailed review of the Media business.
The JSE's relaxation of its reporting requirements for companies listed on the exchange contributed to BDFM posting
an operating loss of R7 million.
The Retail Solutions division's performance was impacted by pressures on margins due to the deteriorating Rand
exchange rate, with the resultant cost increases not being able to be fully recovered. In addition, costs associated
with the consolidation of the point of sales businesses of Uniprint and Hirt and Carter into a combined point of sales
business, and facility relocation costs in Cape Town and Gauteng resulted in once-off costs totalling R7 million.
Uniprint's 1 January 2013 loss of the Trudon contract (to print South Africa's white and yellow telephone directories)
resulted in a poor performance by Uniprint's Web division for the second half of the year, and the closure of the web
printing division at the end of August 2013. Uniprint realised R59 million in August from the sale of Web's plant and
machinery, with an additional R10 million to R15 million expected to be realised from the sale of the division's spares,
stocks and consumables.
The integration of the Retail Solutions division's back-end processes (including finance and administration, human
resources and IT) is well underway and will achieve overhead rationalisations and savings.
The Entertainment division's results from continuing operations exclude those of the cinema business which are
reported on under discontinued operations.
The Entertainment division's poor performance recorded operating losses before exceptional items of R34 million.
A number of changes have been implemented to reverse the division's performance going forward. Management has been
rationalised, with a full layer having been removed, and strengthened. In addition, staffing has been slimmed down.
The structures of certain of Home Entertainment's studio deals have been improved so as to be better from a TMG
perspective. Overheads have been reviewed and consequently cut, with new disciplines and procedures implemented.
Discontinued operations
The following operations are reported on as discontinued operations:
Media: I-Net Bridge and the East London and Port Elizabeth properties;
Books: the whole division, including Exclusive Books, Van Schaik Bookstore, New Holland Publishing and MapIT; and
Entertainment: the cinemas business (including Suncoast Cinema and Monte Cinemas) and the Warner Music Gallo Africa
joint venture.
The discontinued operations have been identified as non-core given their business prospects, strategic position within
the Group, growth potentials, profit margins, EBIT contributions and cash-generating capacities.
The discontinued operations generated a R96-million profit from operations before exceptional items, including
R71 million from Van Schaik Bookstore, R12 million from MapIT, R6 million from I-Net Bridge and R2 million from
Exclusive Books.
Profit (after capital gains tax) on the disposals of TMG's stakes in MapIT, Suncoast Cinema and Monte Cinemas totalled
R47 million.
BUSINESS REVIEW
MEDIA
The Media division includes TMG's interests in newspapers, magazines, out of home advertising, Interactive Junction
Holdings and Amorphous. Given its impending sale, I-Net Bridge is reported on as a discontinued operation.
The Media division (excluding I-Net Bridge) achieved a turnover of R1,8 billion, with an operating profit of R171 million
before exceptional items. Capital invested in the division (excluding I-Net Bridge) was R257 million.
Strategy
The South African media landscape is, and will for the foreseeable future be, dominated by television, print and radio
mediums.
TMG's media assets reside primarily in print. However, we do own a growing bouquet of television channels, and hold
an ambition to expand into radio broadcasting in South Africa and across the continent.
The vast majority of our media revenue is contributed by TMG's eight wholly-owned newspapers. In the new financial
year this will increase to include Business Day and Financial Mail, following the recent acquisition of Pearson's 50%
stake in BDFM.
Our newspaper strategy is premised on the belief that editorial excellence is essential for profitability, and that
profitability ultimately sustains editorial excellence. The following key principles govern our approach to the publishing
of our newspapers, and the integration of our digital news platforms.
1. We will continue to invest significantly in nurturing editorial staff and developing quality content for our
newspapers. To enable us to sustain this investment, as well as maintain our position of leadership in key markets,
we have in principle adopted a decision to charge for Times Media content, irrespective of the medium or device
on which it is consumed. Currently, our newspapers either already offer content behind paywalls, or will soon have
them erected.
2. Our target audience falls into the LSM 6-10 category.
3. We are committed to maintaining and growing the core circulation of our titles. We have linked our advertising
rates to core circulation, as evidence of our sincere commitment to deliver on this promise.
4. Our target audience demands value for money, and our pricing policies are therefore semi-elastic. Certain niche
titles such as Business Day can sustain regular price increases, but mass circulation titles like The Times and
Sowetan need to be competitively priced to ensure circulation stability. Our flagship product, the Sunday Times, has
adopted a dual pricing policy R16 for the full paper which includes all the lifestyle supplements, versus R9 for the
Express edition sold without the supplements.
5. Since there is currently little scope for cover-price increases, initiatives that are geared towards growing advertising
revenues are critical to the success of our business. We have set ourselves a goal of increasing our advertising
market share by gaining revenue at the expense of our competitors, and from television and radio.
6. At the same time, we have taken an aggressive approach to reduce the cost of sales. This means reducing overheads,
securing more cost-effective printing partners, shrinking the management layer, trimming our pre-print staff, while
still maintaining a balance that ensures optimal performance.
7. We recognise that digital income is contributed in cents, in smaller increments than the Rands we are accustomed
to receiving from print advertising. We have therefore scaled back dramatically on our investment in technology
and staff, deciding to focus on the aggregation of popular content already favoured by the users of our free Times
Media Live sites. These sites serve as an entry point to our paid-for online newspaper content which will provide
long-term sustainability. Some sites like BDLive allow readers a certain amount of free access before charging for
additional access to content. Others, like the Sunday Times, charge from the outset.
Pursuing the above principles has delivered extremely gratifying results in the year under review.
Audience
Our commitment to deliver quality editorial content has seen TMG's newspaper and digital audience grow to
an impressive 10 972 044 people in 2013 (prior year 10 424 880). Our audience mirrors the South African race
demographic with 78% black, 6% coloured; 5% Indian and 11% white readers.
Our audience represents an extremely attractive target market for advertisers: the average age is 36 years, with 61%
falling within LSM 7-10, and earning significantly higher personal and household incomes than the average population.
Our readers are also more educated than the average South African, with 42% having matric qualifications, and 22%
being graduates.
In terms of their consumption habits:
- 45% have accessed the internet in the past month, significantly higher than the South African norm at 25%;
- 44% have internet access at home;
- 32% have a motor vehicle;
- More than eight in 10 have a bank account;
- 92% have a cell phone; and
- More than half have DStv, compared to 29% of South Africa's total adult population.
Circulation
In the year under review, the core circulation of all our wholly-owned titles has either grown or remained stable.
As a result, our share of voice (percentage of total newspapers sold) grew from 22,6% in 2012 to 24,6% in the first
quarter of 2013. This continues a long-term growth trend. Five years ago, our share of voice was 21,5%.
In the latest ABC reporting period, The Times grew its core circulation from 140 632 copies (Jan - March 2013) to
142 275 copies (April June 2013) per day. The Sowetan increased its core sales to 99 430 (98 259).
During the same review period, the Sunday Times increased its core sales to 399 234 copies (399 102) per edition,
and the Sunday World to 127 659 copies (126 120).
In the Eastern Cape, the Daily Dispatch recorded daily sales of 25 836 (compared to 26 596 in the corresponding
quarter last year). The Herald sold 21 670 copies daily (21 898).
Advertising
According to the industry advertising measure (Adex), TMG's share of the total newspaper advertising market
grew from 20% (April 2011 March 2012) to 23% (April 2012 March 2013) a 3% gain in one year. Impressively,
this growth excludes sales of BDFM titles. Once the BDFM titles are included, TMG's advertising market share grows
from 23% to 26%.
The TMG titles, represented by our national sales team under the leadership of Trevor Ormerod, grew their advertising
revenue by 10,8% during this period. This figure again does not include the BDFM titles. To put this growth in
advertising revenue in perspective, one must realise that in South Africa the total newspaper category grew by only
0,3%, while paid-for newspapers actually declined by 0,9%.
Adex does not include Careers advertising, for which TMG is the market leader, nor does it account for discounting.
Our market intelligence indicates that we discount less than our competitors.
Newspaper cost of sales
- Gauteng printing
The transfer of our Gauteng printing requirements to CTP Caxton was completed in the first quarter of 2013.
The full-year savings on the Sunday Times, The Times, Sowetan and Sunday World totalled R42 million. A further
R4-million saving was achieved on Business Day. Since printing of the Sunday Times main body only moved to CTP
Caxton in January 2013, we achieved only a six-month saving on the printing of this section during the financial year.
- Eastern Cape Printing Press
An investment into the automatic inking system at the Port Elizabeth print plant is underway that will result in
reduced waste and better quality printing.
Overheads
As outlined above, we have adopted an aggressive approach to reducing overheads. In the year under review, the Media
division incurred retrenchment costs amounting to R8 million. These staff cut-backs will however result in annual
savings of R18 million going forward. The majority of staff cut-backs were in the support services departments.
The Media division additionally reduced its rental costs by R2 million per year, and operating costs, which included
security and cleaning services, were reduced by R3 million per year.
Financial results
The EBITDA of our newspaper, magazine and news websites increased by 31% to R188 million in the year under
review. TMG's Out of Home business increased its EBITDA contributions by 137%, to R6 million. Our digital businesses,
on the other hand, saw their EBITDA contributions fall by 36%, to R19 million.
Overall, TMG's Media division (excluding I-Net Bridge) increased its EBITDA contribution by 23%, to R200 million.
Title reports
- Sunday Times
The Sunday Times remains our flagship title attracting the bulk of TMG's media advertising spend. Core circulation
remained steady in the period under review, but we expect to show steady growth on the back of several
innovations introduced by the new editor, Phylicia Oppelt who joined after an extremely successful spell at the
helm of The Times.
The Sunday Times main body has been re-designed to provide more space for news reporting and intelligent
analysis. To this end, Oppelt has bolstered her staff with the recruitment of several key writers including
Sam Mkokeli from Business Day, Gareth van Onselen and Carlos Amato.
Business Times, now under the leadership of multiple award-winning journalist Rob Rose, has undergone a
complete revamp that has been well-received by the market.
In addition to new hires at the publication, the Sunday Times has also been bolstered by the return of former editors
Ray Hartley (Sunday Times and The Times) and Brendan Boyle (Daily Dispatch), in senior writing positions.
A key contributor to the success of the Sunday Times in the past 12 months has been the growth of our lifestyle suite
of products.
The Fashion Weekly supplement was launched on 1 May this year to complete the lifestyle suite of offerings.
It has been enthusiastically received by the market, and forward bookings from retailers indicate that this sector
offers real growth opportunities for the Sunday Times, despite a challenging economic environment.
Our more established Travel Weekly supplement continues to prosper despite the current economic climate.
The supplement relies largely on response-driven advertising, and the fact that our advertising base remains
strong reinforces Sunday Times' position as the market leader, delivering a captive audience to advertisers whose
businesses depend on very tight margins. Going forward, we are looking to enrich our content with more locally-
generated copy, versus bought-in editorial content.
The Sunday Times Express edition launched in the first half of 2011 and has enjoyed great success, particularly in
the more far-flung, rural areas of South Africa. Copy sales are now averaging in excess of 70 000 per week.
- The Times
The Times has enjoyed another year of stellar growth, easily establishing itself as South Africa's leading quality daily
newspaper, with a core circulation in excess of 140 000 copies per day.
The Times has also increased its EBITDA contribution by more than 15%. Importantly, the title now delivers a
double-digit EBITDA margin, positioning it confidently for long-term sustainability.
Stephen Haw, who previously headed up the Media division's product development unit, and launched and edited
the Sunday Times Express edition, has subsequently replaced Phylicia Oppelt as editor of The Times.
Haw has strengthened his team with the appointment of industry veteran Mike Moon as head of production,
supported by the talented Quincy Tsatsi as head of design. TJ Strijdom has been appointed business editor.
The talented duo of Darrel Bristow-Bovey and Tom Eaton were added to the paper's already strong array of
columnists, joining the likes of Justice Malala and Jonathan Jansen.
TMG's new local government and court/legal "centres of excellence" (of which more is described further down)
are based in The Times newsroom, and will enable the publication to significantly improve its coverage in these
two important areas. The local government hub is headed by The Times' deputy editor, Dominic Mahlangu.
The court/legal hub is headed by Kim Hawkey who has re-joined the Group after a spell as editor of the legal
journal, De Rebus.
- Sowetan and Sunday World
Sowetan and Sunday World are aimed at the niche middle-class black African reader, in terms of editorial
content and regional distribution. With this focus, particularly on the northern provinces of South Africa, Sowetan's
EBITDA grew 49% year-on-year.
- Sowetan
During the previous quarter, Sowetan's content and design was revamped with the objective of growing
circulation, thereby increasing revenue and profitability in the new financial year. Sowetan also appointed
Mapula Nkosi as deputy editor, and journalist Lucas Ledwaba (winner of the Standard Bank Sivukile Award
for feature writing) as part of the drive to recruit the best journalistic talent in the market, as this remains the
backbone of a good publication.
Sowetan's revamped business and lifestyle sections have been launched and the publication has been re-
configured. Community-focus and human interest stories which are unique to Sowetan are displacing general
political and news items which can be found in other media. This shift serves to differentiate Sowetan and
make its content more relevant and desirable to its target audience. Front pages, where appropriate, are also
regionalised to reflect headline news items specific to audiences in KZN, Cape Town, Limpopo and Gauteng.
- Sunday World
Sunday World, too, has recruited a new editorial team with former deputy editor of the Sunday Times,
Marvin Meintjies, taking the reins as editor. Additional appointments include features editor, Babalwa Shota
(formerly with City Press), pictures editor, Darryl Hammond from the Sunday Times, and chief sub-editor, Nidha
Narrandes (formerly with The Star).
Sunday World previously held a high circulation based on its show-business style editorial content, which,
admittedly, the advertising market did not find attractive to engage with. The editorial style has been adapted
over the past year to provide more significant news content, while still maintaining a particular Sunday
World tone. Meintjies is in direct communication with the advertising and circulation departments, obtaining
feedback to appropriately position story content and tonality.
Times Media Eastern Cape (TMEC)
TMG's Eastern Cape business continues to trade profitably in a tough economic environment. Our main titles,
Daily Dispatch and The Herald both delivered significant EBITDA growth for the 12 months ended June 2013.
- Restructuring
During the past financial year, the TMEC business has been restructured, resulting in a reduction of nine permanent
positions and several contract positions within the business.
The consolidation of the production hub in the Eastern Cape region has been concluded. All the Eastern Cape titles'
page production functions will be performed by this department using shared resources across the titles. The aim
is to reduce costs and improve productivity.
- Circulation
This year, the Daily Dispatch recorded an all-time high sales record for the matric results issue, with almost
100 000 copies being sold. Successful promotions and activations helped build circulation in the region.
The Herald continues to buck the trend of daily newspapers by growing its readership 8% year-on-year. Its
ABC results remain stable against a decline in SA daily newspapers.
The Weekend Post and Saturday Dispatch continue to struggle in the tough Saturday newspaper market.
Magazines
TMG's diverse portfolio of magazines maintained its strong performance during the year under review, with SA Home
Owner (SAHO) and MIMS medical publishing performing exceptionally well in a difficult market.
SAHO achieved an EBITDA growth of 25%. SAHO also changed distributor from On the Dot to RNA. The magazine's
circulation (April 2012 to March 2013) grew by 6% against the comparative period in the previous year. SA Mining,
which targets the mining industry, and Khuluma, the Kulula airline magazine, also performed favourably.
Licensed consumer titles faced stiff competition in advertising and circulation sales and their business models are
under review. While TMG did not renew its licence to publish Stuff, the company launched a new monthly lifestyle
magazine called Business Class, aimed at achievers. Business Class is distributed nationally to 65 000 Sunday Times
subscribers in high-LSM metropolitan areas, and has been well-received by readers and advertisers alike. TMG is
planning to launch more titles and grow its magazine interests in the coming year.
MIMS achieved on-budget revenues and curtailed expenses, resulting in profit that was a 29% improvement on the
corresponding period. The annuals, OTC and MDR, performed particularly well. A new publication, Optimag, created
for the optometry industry, was published during the period under review. Two new publications are planned to cover
infectious diseases and women's health. The MIMS mobile product, mobiMIMS, has been developed and will launch soon.
TMG will cease publishing Elle Magazine and Elle Décor in December 2013. Elle and Elle Décor have been loss-making
for a number of years, and TMG strategy is to concentrate on developing its own titles rather than international licensed
publications.
Times Media Live (TML)
In the year under review, TML grew revenue by 50%, and reduced overheads by more than 45%. As a result, the
business recorded its first ever positive EBITDA contribution.
As at 1 July 2012, TML reported 1,8 million local unique browsers and 28 million impressions. In July 2013, TML
reported 2,7 million local unique browsers, and 27 million impressions.
In 2011, TML represented only three websites. By July 2012, TML supported 11 websites, and grew this to 20 websites
by July 2013.
TML is now the second largest online publishing network in South Africa, and is also responsible for sales on the five
BDFM sites.
This network expansion allows TML to offer scale, giving advertisers access to a wider online portfolio, and also
provides a wider funnel for collecting user-data and offering other transactions in the near future. A large online
network with centralised administration costs creates further profitable cross-marketing opportunities across TMG,
delivering unique value to advertising clients, as evidenced by the recent Johnnie Walker campaign which integrates
print and online platforms.
The online advertising industry is undergoing constant disruption, but we are building capacity in behavioural trends
and direct online advertising to mitigate downward pricing. We are considering new product ranges around content
consolidation (eg: home, motoring, geographical-based, directories) as soon as we complete the integration with BDFM.
BDFM successfully launched its paywall in May 2013 with early success. In July we launched a digital-only subscription
which has been positively received.
TimesLive Radio
With a growing network, vast resources of in-house content, and availability of technical expertise, we have embarked
on a strategy of entering the radio broadcast market in South Africa with the launch of TimesLive Radio, an internet
radio venture. This small initiative is the start of a broader ambition to own radio assets in South Africa and across
the African continent. The radio landscape, as with television, is undergoing significant change and offers fresh
opportunities as platforms such as the internet emerge as credible alternatives to traditional broadcast. We would be
interested in owning traditional radio assets in South Africa but are hamstrung by stringent cross-media ownership
legislation.
Requiring minimal set-up costs, TimesLive Radio was unveiled to the public on 28 June this year, presenting a four-hour
show every weekday. The next step is to finalise the commercial models (sponsorship, syndication and advertising)
for TMG to utilise in-house journalists to produce content for this new format. (The link is http://bit.ly/10oPW4R).
Times Media E-Commerce
E-Commerce is in its relative infancy in South Africa. The South African market is not yet as sophisticated as those in the
US and Europe which have well-developed e-commerce markets. The American consumer is comfortable transacting
online, having the benefit of product purchasing via catalogues and home shopping TV channels, for a good number of
years already. The South African market may still be many years away from adequate returns on the capital that must
be invested into e-commerce strategies.
TMG's strategy in this sphere is not to be the pioneer and spend vast sums in technology, platform and infrastructure
development, for no real return. Having said that, e-commerce will be an important pillar for our growth, and we need
to be vigilant and involved in the development of the market, using our platforms and brands such as the Sunday Times.
TMG has been testing the e-commerce waters using the Sunday Times Home Weekly and Fashion Weekly content,
partnering with one of South Africa's most exciting e-commerce platforms, Citymob.co.za. The partnership has allowed
us to access consumer insights that will inform a print to digital e-commerce strategy for future implementation across
all our publications. We have been tailoring our print content for adverts and editorial where we direct readers to fun,
expertly-curated Citymob.co.za pop-up shops offering them specials and discounts to incentivise conversion.
Citymob.co.za provides us with analytics that indicate how the synergy between print and digital conversion is
performing. Results to date have been positive, returning higher conversion rates than current industry standards.
Other digital properties
Includes Amorphous Digital and Interactive Junction.
TMG's digital strategy is centred on ways to monetise our offerings to the growing digital audience, in a sustainable
manner.
Advertising-focused businesses such as Interactive Junction continue to play a major role, but a highly competitive
market has challenged business models, and margins are under pressure. Interactive Junction is in the process of
restructuring internally and remodelling its product-set to leverage competitive advantage.
Our digital businesses are well-positioned for continued growth in the digital arena. Post year-end, Amorphous
acquired 50% plus one share of Acceleration Media, providing it with increased national scale in digital media and
a strong presence in the growing social media market. The digital agency businesses, with offices in Johannesburg
and Cape Town, will increasingly be integrated with our other digital properties (TimesLive) to maximise synergies,
increase and improve our product offering and deliver sustainable profitable growth.
Out of Home
Out of Home performed above expectation as the positive effects of installing the new trivision at Johannesburg's
OR Tambo International Airport began to deliver results for Airport Media.
Ponte Tower continues to be a hugely profitable site for Airport Media. BOO Media showed strong growth in earnings,
benefiting in part from economies of scale as a result of introducing a single management team.
Out of Home produced revenues 18% higher than the previous year, and was a strong 137% ahead at EBITDA, at
R6 million.
Disposal of non-core assets
The sale of non-core assets is underway.
TMG's Media division has accepted an offer for the I-Net Bridge business. I-Net Bridge's future relies on being able to
compete in a relatively small, proprietary market with major international players. I-Net Bridge requires investment
and a global presence to help retain a competitive offering.
The sale of our East London and Port Elizabeth properties is underway and should be completed by the end of
October 2013.
Television
With the acquisition of the remaining 50% stake in BDFM, we acquired control of African Business Channel (ABC)
which operates Business Day TV, The Home Channel and Ignition. ABC was the only profitable element of BDFM.
We have moved ABC directly into our Media division along with our TV production business, Ochre Media, in order
to integrate all broadcast related businesses under one umbrella, including movie and music rights. This will provide
economies of scale to achieve market share and back-end savings.
Ochre Media produces Scandal for e.tv as well as Takalani Sesame, amongst others.
The opportunities here are to invest in local TV and film production for both local and international consumption.
Owing to the launch of DTT, there will be an increased demand for programming and ABC is perfectly placed to
participate in this growth. ABC is a low cost producer which allows us to develop programming and channels outside of
South Africa. ABC will also work closely with our Films division.
Bringing ABC directly into the Media division allows ABC to add value directly to our existing newspaper and magazine
businesses (and vice versa) through multi-platform initiatives, especially in the lifestyle and business markets.
- Business Day TV
In October we implemented our daytime TV strategy, focusing on small business, investor education and personal
finance, as well as property and motoring. The result was that Business Day TV peaked at fifth place across the
twelve news and business channels, eclipsing Al Jazeera, and following closely behind BBC. The latest DStv research
shows Business Day TV has a weekly audience of 247 000 viewers. It is vital for Business Day TV to maintain and
grow this audience, as TV advertising is strongly motivated by viewership figures.
Commercially, the alignment with Business Day has been well-received and we hope to see this enthusiasm flow
into our revenue stream. Business Day will shortly be offering live video webcasts of corporate results across its
digital platforms.
- The Home Channel
The Home Channel has consolidated its space in the lifestyle bouquet. The viewing audience is 1,1 million (according
to AMPS 2012) and is comprised predominantly of upper LSM, employed females.
The Home Channel competes against large international channels and ranks 4th in the bouquet behind TLC,
BBC Lifestyle and Food Network, but ahead of Style, Fashion and Travel. The key differentiators for The Home
Channel are its priority for local content and its emphasis on show-and-tell formats.
Revenues were lower than expected, but the sponsorship pipeline is solid, allowing us to increase the roll-out of
more local shows. Two new areas are in our sights, based on detailed viewer research healthy living and talk/
advice. With the integration of The Home Channel into TMG, new opportunities, both editorial and commercial, are
opening up for our Group titles.
However, for The Home Channel to prosper, it needs to increase its compact viewership and innovate with more
flagship programmes and varied show formats.
- Ignition
Ignition appeals to a profitable niche market and has been growing viewership which now stands at 418 000
(AMPS 2012).
With its repositioning next to SABC1, Ignition provides a great opportunity to target a black male audience between
the ages of 18 and 35.
Industry developments
TMG participates in ongoing developments with respect to industry bodies such as Print and Digital Media South Africa
(PDMSA) and South African Audience Research Foundation (SAARF). Both are at a crossroads in terms of their role
and efficacy as industry bodies and require significant change if they are to remain relevant to TMG and the industry
as a whole.
PDMSA is in the process of considering changes that could see its role shift to one based on administering the key issue
of self-regulation for the industry, and providing print research and advocacy support to members.
SAARF, whose core function is the management of the All Media Products Survey (AMPS), will this year complete a
project to determine its future role for the industry.
The Competition Commission probes into the Media industry are on-going, but are not expected to impact TMG.
Looking forward
- Editorial
While we have much to be proud of regarding the progress of our titles in producing unique, quality content, there
remains room for improvement.
Over the past decade, South African newspaper editors have generally been drawn from a pool of political reporters.
This has resulted in an increasing bias towards news of political interest, often catering to the political elite at the
expense of the more varied interests of readers in our target market. This trend reached its nadir in the run-up to
the ANC Mangaung Conference when tens of thousands of column centimetres were devoted to stories leaked by
one or other of the competing factions. Very few of the stories were either accurate or insightful, and even fewer
were of interest to ordinary citizens. It is therefore no wonder that this period was characterised by an alarming
slump in newspaper circulation overall.
Our titles fared better than most, but that is of little consolation for having alienated readers.
Seven of our ten titles acquired new editors in the past year. The new editors were selected specifically for their
wider experience in editing news, features, business and sport as well as politics coupled with their skills in
newspaper production and presentation. They have received strict briefs to produce newspapers that serve the
varied interests of our readers.
To ensure that our journalists have the skills required to edit publications and produce compelling content in an
increasingly competitive and challenging environment, more than R10 million will be spent this year on training.
A key feature of this training will be the co-ordination of foreign postings for senior journalists, enabling them to
broaden their experience and witness first-hand how the world's leading titles are coping with the challenges they
will face in coming years.
We are also establishing two journalistic "centres of excellence", with one hub aimed at court and law reporting,
and the other hub focused on local government and provincial legislature. These hubs will provide cornerstone
training, both formal and experiential, for our graduate interns. The interns will be required to spend substantial
periods working in both hubs during their training year.
The hubs will also supply specialist 'beat' expertise and content for our titles. The hubs have mandates for training,
mentoring and improving the quality of journalism of specific 'beats' which have been neglected by formal training
institutions and media houses alike, over the past decade.
Writing coaches are being contracted to work closely with news desks and with individual writers and reporters for
specific periods, on several of our titles. We would like to nurture the talents of our people and relieve the pressure
on our news desks in the long term.
Finally, we continue to invest in training sub-editors, particularly black female sub-editors an area where our
transformation efforts have not enjoyed a great deal of success in the past two decades.
TMG's newspaper titles have given notice to the South African Press Association (Sapa) that they will be
withdrawing from the partnership with effect from 1 January 2014. Our titles make little or no use of the content
provided by Sapa and the several million rand saved by withdrawing from the partnership will be re-invested in the
creation of our own unique content.
- Advertsing
Innovation is essential if we wish to increase our advertising appeal while economic growth remains sluggish.
To this end we are introducing the following initiatives:
- Augmented Reality
Image recognition software (specifically for download as applications on mobile devices) that converts static
2-D print advertisements into dynamic, moving and engaging visuals when viewed on the screen of a mobile
device (such as a cell phone that is held above the ad), is an exciting area we're developing. This technology
provides us with an opportunity to re-invigorate and up-sell print advertisements, and access additional digital
advertising revenues. Our first ad went live at the end of July 2013.
- Brand Talk
A new-look advertorial concept that transposes editorial into controlled advertising content, giving print the
opportunity to open up a new advertising revenue source that appeals to clients and advertisers.
- CSI and "Greening" initiatives
The buzzwords amongst clients needing to showcase their CSI and "greening" initiatives. We will publish
regular supplements in TMG titles to access untapped advertising revenues. The first of four "Unilever"
environment supplements ran on 30 June 2013.
- i-Jobs initiative
A link to each recruitment ad that gives readers the opportunity to download a job specification onto their
mobile phone and automatically send a CV. This can be priced in at an additional R500 per ad, at the advertiser's
discretion. With an average of 22 000 recruitment ads run per year in Business Times, this relatively nominal
charge can result in a substantial boost to TMG's career advertising revenue.
- Innovations in career advertising
A number of innovative sponsorship opportunities have been identified in the career advertising section. These
initiatives have been taken to market and the response to date has been very positive, which once again will be
reflected in additional revenue.
- The Viral Tribe
A social media initiative that will not only add great value to a print advertising campaign, but will also result
in increased revenue per campaign. The first campaign was undertaken during July.
- NRS direct sales
An internationally-based direct-selling training initiative, that intensively trains our staff to mass-canvass
direct advertisers, and grow the revenue base with succinct package offerings and committed annual contracts.
- "Business Market Packages"
The re-launch of the highly successful "Own the Business Market" package. This offers advertisers the
opportunity to "Own the Business Market" through combination packages of Business Times, Business Day and
Financial Mail. The new package, however, will now be enhanced with Business Day TV, BDLive and numerous
other business platforms within the TMG Group.
- Risk and reward initiatives
We are running a number of initiatives for non-traditional advertising clients where advertising is run in
"unsold inventory" across TMG's titles. A revenue-share is negotiated on the profits generated from products
sold as a result of the advertising.
Circulation division
Times Media's circulation division continues to invest in the development of its distribution network, primarily in home
delivery and informal channels, but also within the retail space.
The Times Media home delivery network is a six-day-a-week service, delivering approximately 59 million newspapers
per annum across almost the entire expanse of South Africa. As a result of this reach and the economies of scale, Times
Media has become the preferred home delivery service provider for many third-party titles, offering a greater reach at
a lower cost than what they would have been able to achieve on their own.
A key focus for the circulation division has been the development of its informal sales network. A large percentage of
the South African consumer market does not make regular use of formal retail outlets, yet they represent an important
segment for our titles and advertisers. The informal sales network was developed to focus on this traditionally under-
serviced market. This network now sells over 27 million newspapers per annum, has created 32 new businesses and
over 1 000 new employment opportunities. The challenge now is to move this channel from an investment phase into
a business stabilisation phase.
The retail distribution channel remains the largest sales channel for Times Media titles, but is also the channel that
has come under the most cost pressures, and requires a review of many of the traditional business practices within
the channel. As an example, in the Netherlands there is a move away from physically collecting unsold newspapers
from retailers. Currently, the practice in South Africa is to collect all unsold papers from retailers, at a significant cost
to TMG, and then send them on to be pulped. The Dutch solution requires retailers to submit their unsold stock at the
end of the day via an online portal, and thereafter recycle the paper themselves. Another illustration of innovation
from the Dutch market is the agreement on a single newspaper distribution service, servicing all the different media
houses. Given the large distances covered, and the inflationary pressures on input costs in South Africa, a similar
approach to the Dutch would seem a practical solution.
Printing
With the completion of the move of our Gauteng printing to CTP Caxton, the TNPC partnership with Independent that
dates back to 1985 has come to an end. This follows the termination of our printing relationship with Independent
in Cape Town. The last surviving print relationship with Independent is in Durban. Our contract enables us to review
the continuation of the relationship.
Digital
Changing consumption trends in developed markets have resulted in significant revenue shifts. In South Africa, however,
print remains a powerful medium and continues to play a central role in the market. Digital consumption continues to
grow, and Times Media holds a strong position in the market, but revenues remain subdued. We expect improvements
in bandwidth capacity to increase digital accessibility and affordability, and are positioning our newspaper websites as
paid content environments. We will continue to drive audience growth in digital.
BDFM
As from 1 July 2013, BDFM has been integrated into TMG's Media division.
Business Day and Financial Mail
During the year under review, TMG acquired the remaining 50% stake in BDFM from Pearson Publishers in the UK.
Successful, profitable newspapers rely on economies of scale, and sharing costs across many publications. It is our view
that one cannot run a single newspaper on its own, with its own infrastructure and cost base. Circulations are declining
whilst costs are increasing. BDFM is evidence of this trend, and by owning 100%, it allows TMG to incorporate the two
publications onto our media platform, eliminating cost-duplication and maximising profit. We are cautiously optimistic
that we can turn BDFM around over the next twelve months, and progress has already been made in this regard.
The hard reality about BDFM is that the business under-performed from inception to closure, not delivering the
10% EBITDA margin that we expect from our media assets.
The first corrective actions taken during the year under review required the reduction of the Head Office staff
from twelve employees to four.
Further restructuring of the business is in progress. This has seen the television assets of BDFM merged with those
of TMG to create a single business focused on channel and rights management, as well as programme production.
On the newspaper management side, Business Day and Financial Mail are now fully integrated into the existing
TMG Media division. The same teams that service the Sunday Times and Sowetan will now provide sales, pre-press,
print management, circulation and financial services to the two titles to further reduce an unsustainable cost base.
Total staff cost savings that will be realised from the restructure are expected to be approximately R25 million during
the 2014 financial year.
Editorial costs, whether measured as a percentage of EBITDA or as a cost per page, are much more expensive than
those of our other titles. These need to be reduced, but not at the expense of producing compelling, original content.
In May 2013, we made a decision to cease supplying our online content for free. Since the launch of the paywall
in May, BDLive has realised more than 30 000 online registrations and generated revenue in excess of R600 000 through
subscriptions. In July 2013, BDFM successfully launched the digital-only version of Business Day. Further success will be
entirely dependent on continually improving the quality of our business journalism.
RETAIL SOLUTIONS
Retail Solutions comprises Hirt and Carter (H&C) and Uniprint.
Retail Solutions delivered a turnover of R1,274 billion and an operating profit of R132 million before exceptional items.
Capital invested in the division was R1,072 billion.
Significant progress has been made in integrating the shared services and support functions across H&C and Uniprint.
We expect this integration to deliver cost-savings benefits to both businesses by driving greater operational efficiencies.
The strategy is to set up a single backbone from which the two separate brands and operating divisions can be
supported.
The point of sale (POS) operations of Uniprint and H&C were consolidated during the financial year, maximising
throughput and allowing the division to exploit the advantage of critical mass in the market. The consolidation and
subsequent restructuring of POS resulted in abnormal costs of R4 million being incurred during the year.
Both H&C and Uniprint generate strong cash flows for the Group.
Hirt and Carter (H&C)
H&C is a unique business with powerful brand positioning in the market. H&C aims to be the partner of choice for
marketers and advertisers looking to sell products into the sub-Saharan consumer market. H&C's primary medium of
choice for communication is print, which is where the bulk of its investment currently sits.
H&C wrote and developed South Africa's first integrated workflow control system for retailers, and remains at the
forefront in providing software solutions to the retail and FMCG market. Being at the cutting edge of every major
technological advance in the pre-media and digital printing industry in South Africa, H&C provides turnkey, innovative
media solutions to the marketing, advertising and general communications industry.
As part of H&C's comprehensive service offering to the retail market, SKUWorks maintains the largest national product
library for FMCG manufacturers and retailers alike.
Using a combination of leading technology and customised software solutions, H&C delivers a differentiated solution
to leading marketers. The seamless integrated solution alleviates the need to focus on process, and rather allows our
customers to get their message to market quicker and in the most cost effective manner.
Turnover for H&C grew by 10% on a normalised basis after stripping out the effect of the Uni POS integration. This was
largely driven by a 9% growth of our core retail customers and a 6% growth of our customers in the food and beverage
sector. Commercial print remained flat year on year. Internalisation from TMG contributed to the balance of achieved
growth.
While turnover increased, there was pressure on margins as a result of a deteriorating exchange rate. The consequential
cost increases could not be fully recovered, and resulted in a 3% margin decrease when compared to the prior year.
Margins are expected to remain under pressure in the year ahead, and extensive work is in process to mitigate the
effects of this pressure.
Operating costs as a percentage of turnover increased slightly from 23,5% to 23,6%. However, stripping out exceptional
items arising as a result of restructuring and relocation of operations would reduce this to 22,7%. The Retail Solutions
back-end integration will continue to deliver overhead cost savings and drive efficiencies.
At an EBITDA level, H&C saw an 8% reduction compared to the previous year. Abnormal costs accounted for R7 million,
when these are included they reflect a flat normalised EBITDA year on year.
Key Highlights include:
- Regional hubs
During the year under review, H&C relocated both its Cape Town and Gauteng facilities into new locations. The new
facilities are able to offer clients in those centres a greater product range, led by the continued investment in the
latest digital print technology. Due to the increasing cost of logistics, it makes sense to be closer to clients. The effect
of the relocations on the earnings for the year resulted in once-off costs of R3 million.
- Acquisitions
In addition to ensuring that our national footprint is designed around our client's needs, we are pursuing niche
acquisitions that will bolster earnings and assist in delivering innovative solutions for our client base.
Effective 31 July 2013, we concluded the first of these, an acquisition for H&C of Typesetting and Repro Services for
a maximum purchase price of R10,5 million net of cash. The transaction is earnings enhancing for H&C and adds
critical mass to its Gauteng operations. The transaction is structured such that we pay R3,5 million on conclusion of
the transaction with 50% of the remaining purchase price payable after 12 months . The other 50% is payable after
24 months subject to the achievement of performance criteria.
- Technology
In December 2012, H&C took delivery of a large-format digital flatbed from Hewlet Packard (HP). The flatbed
has enabled H&C to deliver unique messaging solutions for its clients, and will further drive the transition from
analogue to digital printing. As the market drives towards personalised and differentiated messages to consumers,
H&C will be able to deliver innovative solutions as a result of its investment in technology. The digital flatbed is the
highest producing flatbed in the Emerging Markets Europe and Africa (EMEA) region, which indicates how quickly
customers have taken advantage of the technology.
In addition to the digital investment across the country, substantial capex has also been channelled into H&C's
conventional litho print offering.
H&C will continue to remain at the forefront of technology that supports its key customers and delivers innovation
to the market.
- Software
As a core focus of its business, H&C continues to invest in its software development division. Throughout the year,
extensive investment in the latest technology and processes has resulted in a complete redevelopment of its core
products. H&C has integrated and partnered with various leading international software companies to further
enhance its ability to provide clients with cutting edge software solutions.
The outlook for the year ahead points to a tough trading environment. The effect of the exchange rate on input costs will
require careful management. A reduction in overhead costs through the consolidation of support services at a Retail
Solutions level should assist in lowering the cost base of the business.
The investment in technology and software solutions will continue to drive opportunity in the market for H&C. The
ability of marketers to lower their production costs by utilising the unique technology and solutions offered by H&C
should provide some growth during the year. The enhanced software platform will deliver solutions that continue to
differentiate the H&C business in an extremely competitive environment.
Uniprint
Uniprint was founded in 1926 and is one of South Africa's most successful empowerment companies, having grown
and developed throughout the apartheid years. Uniprint operates primarily in business forms (from conventional
computer stationery to large volume mailings) and labels (including self-adhesive labels, unsupported labels and wet
glue labels). Until August 2013, Uniprint also operated a web printing division.
Uniprint experienced a year in which several operational changes were undertaken amidst the tough economic
conditions prevailing in South Africa. The division has also suffered as a result of margin squeeze due to the depreciation
of the Rand.
Uniprint achieved a turnover of R592 million during the year under review with an operating profit of R50 million
before exceptional items and IFRS 3 amortisation charges.
Uniprint was unsuccessful in renewing the contract with Trudon, as from January 2013, to print the South African white
and yellow telephone directories. As a result, the current year's figures are not comparable to those of the previous year.
However, the 2014 outlook for Uniprint is optimistic on a number of fronts.
Uniprint began the year with the following divisions in operation:
- POP and Packaging division;
- Labels division;
- Forms and Direct Mail division; and
- Web Printing division
During the course of the year, the POP division was integrated into H&C's operations and the Packaging division was
integrated into the Labels division.
The integrated Labels and Packaging division has secured a five-year multi-million rand contract to produce digitally-
printed labels for a premium brand. This contract has allowed the division to install leading edge digital printing
equipment, placing it in prime position to offer the South African market a unique variety of labelling solutions. This, in
turn, offers significant benefit to brand campaigns designed by the H&C division, where label production can dovetail
with the production of supportive point-of-sale materials. Retail Solutions, through H&C, is already the largest supplier
of digital print in Africa, and this development further cements its position as a leader in this fast-growing market.
The Forms and Direct Mail division is expected to increase its market share despite tough trading conditions, and has
recently secured a three-year R75-million contract with the public sector.
Although the Web Printing division struggled to replace the lost Trudon business, both the Labels and Packaging, and
Forms and Direct Mail divisions expect to grow their bottom line and meet budgets.
Uniprint has also successfully landed a R20-million contract to supply election material to an African country and
is confident of securing similar contracts in Africa for election material bearing in mind that in 2013 Uniprint
were unsuccessful in the African export market.
The integration of the finance and administration, human resources and IT functions of Uniprint and H&C will bring
about further savings that will benefit Retail Solutions. Uniprint is well positioned, and we are looking for selective
acquisitions that can augment Uniprint's existing offering.
The loss of the Trudon contract essentially made the Web Printing division unviable and the decision was made to exit
web printing and sell the equipment at the end of August 2013. Web printing is a highly competitive segment in
the market that is dominated by CTP Caxton and Paarl Media. Uniprint's Web division simply could not compete on
price or technology, and the returns generated by Web did not justify further investment. Uniprint realised R59 million
from the sale of the Web division's plant and machinery, and it is anticipated a further R10 million to R15 million
will be realised from the sale of the division's spares, stocks and consumables.
BOOKS
The Books division delivered a turnover of R1,584 billion and an operating profit of R92 million before exceptional
items. Capital invested in the division was R347 million.
At year end, the Books division consisted of book retail (Exclusive Books and Van Schaik Bookstore), book and
map publishing (Random House Struik, Struik Christian Media, New Holland Publishers and Map Studio) and book
logistics (Booksite Afrika and Mega Digital). The digital mapping business, MapIT, was sold for R37,5 million at the end
of May 2013.
In March 2013, TMG announced its intention to exit non-core assets which included the Books businesses.
Struik Christian Media was sold for R10 million at the end of July 2013. TMG is currently in negotiations with a number
of potential bidders for the remaining books businesses.
The Books division's results are reported on under discontinued operations.
Turnover for the Books division increased by 4,5% over the prior year. This was achieved primarily from strong
growth in the academic book retail business due to growth in outlying university stores as well as continued growth
in the sale of non-book product. The book publishing business also achieved good turnover growth due to a strong
publishing list that included the 50 Shades trilogy.
Non-cash adjustments were made to the carrying value of certain inventory (impacts gross profit) and tangible
and intangible assets (impacts depreciation and amortisation) which have had a negative impact on the results for
the year. Gross profit margins after the effect of the non-cash adjustments to inventory decreased slightly. Operating
expenses were well maintained, coming in at 1,3% below the prior year. EBITDA increased by 8% (before the stock
adjustments) due to the improved sales levels and lower operating costs. Similarly, EBIT was impacted by the asset
impairments. During the year, the R15 million carrying value of the online asset, Exclusives.co.za, was fully impaired.
ENTERTAINMENT
During the year, the Entertainment division comprised Nu Metro Cinemas, Times Media Films, Gallo Record Company
and Gallo Music Publishing, Times Media Home Entertainment, the Gallo Warner joint venture, Compact Disc
Technologies (CDT), Entertainment Logistics Services (ELS) and Associated Musical Distributors (AMD).
The Entertainment division delivered a turnover of R1,062 billion (R648 million from continuing operations and
R414 million from discontinued operations), with an operating loss of R34 million before exceptional items
(R31 million from continuing operations and R3 million from discontinued operations). Capital invested in the division
was R123 million (R43 million from continuing operations and R80 million from discontinued operations).
The Entertainment division has been a problem-child within TMG, and over the last few years a significant amount
of money has been lost while the division absorbed capital from the Group without delivering returns. This past
year was no exception. The division lacks appropriate scale and has been neglected through weak management.
We have removed a management layer in the division, and it now reports directly to Head Office. We have slimmed
down the overall staffing to the correct levels. Some of these businesses have been badly managed whilst others have
performed very well and are unique.
During the period under review, we sold certain assets in Entertainment, namely our 50% interest in both Monte
Cinemas and Suncoast Cinema (Three Groups Cinemas) for a total consideration of R38 million inclusive of a R5 million
dividend received from Suncoast Cinemas. In addition, in July 2013, TMG disposed of its 40% shareholding in the
Warner Music Gallo Africa joint venture realising R12 million whilst retaining our rights to Needletime from the joint
venture. The joint venture has not worked for either party and it has struggled to make money.
Times Media Home Entertainment
Delivered a turnover of R272 million, but reported an operating loss of R52 million.
The core of the Home Entertainment business is the acquisition and retention of studio licences, and the marketing and
sale of studio content to the correct geographical location across the South African retail trade.
Most of the losses in the Entertainment division were as a result of issues in Home Entertainment. The structure of
some of the deals concluded with the studios was not optimal from a TMG perspective and the losses were a result
of these onerous contracts and stock build-up. Home Entertainment is a sunset business, which makes it difficult to
sell. Home Entertainment remains the dominant player in the market, with over 50% market share and continues
to represent the major Hollywood studios, along with top independent licences. Trading has been very challenging,
particularly in the rental market.
We wrote off Home Entertainment stock which should have been written off prior to our involvement. We have
identified the issues with Home Entertainment and hope to turn it around in the coming year.
Following the installation of new management at Home Entertainment, overheads have been reduced and better
controls, disciplines and procedures have been implemented, and we have relooked key supplier costs and operational
efficiencies as well. Home Entertainment will be working a lot closer with CDT in order to maximise benefits throughout
the supply chain.
Entertainment platform businesses CDT/AMD/ELS (CDT)
CDT delivered a turnover of R188 million, and an operating profit of R16 million.
CDT has approximately 70% market share in South Africa in the manufacture and distribution of DVDs and CDs.
CDT is a sunset business with a finite lifespan and it has been run as such. CDT's lifespan is linked to Home
Entertainment to an extent. CDT has had a remarkable turnaround over the past year, increasing profit from R9 million
to R16 million. This is as a result of the implementation of a turnaround strategy where key customers were acquired
in the market. The cost base was scaled down dramatically, consolidating service departments and removing excess
management structures. Innovative campaigns were launched where Group structures were utilised to distribute
content via the Sunday Times platform. An industry-record order was processed on the release of Justin Bieber's CD,
distributed via non-traditional channels.
CDT owns its property in Bedfordview, Johannesburg worth approximately R65 million.
Gallo Record Company (GRC) and Gallo Music Publishing (GMP)
Delivered a turnover of R43 million, but reported an operating loss of R14 million.
Losses were incurred as a result of the settlement of outstanding litigation, releasing artists, and retrenchments.
In July 2013, TMG sold its 40% share in the Warner Music Gallo Africa joint venture for R12 million.
TMG will retain ownership of both GRC and GMP.
- GRC
GRC has been trading since 1926. GRC is the largest and oldest independent record label in South Africa. TMG's
strategy with GRC is to concentrate on catalogue and music licence deals. GRC will no longer take on new signings.
We also released the artists that were under contract to GRC. Staffing levels have been reduced to better reflect the
size of GRC
GRC is rich in terms of content and history and has over 200 000 songs on master tape, and is in the process of re-
issuing relevant archive material for both digital and physical distribution. GRC is now a content, catalogue-driven
record company and is home to some of the biggest names in South African music history including multi-platinum
selling Lucky Dube, Stimela, Mango Groove, The Soul Brothers, Gé Korsten, Sipho Hotstix Mabuse and Ladysmith
Black Mambazo, to name some. GRC is also home to the biggest traditional Maskandi and Zulu catalogue, with
international artists under licence.
With the termination of the Warner Music joint venture, GRC can now exploit its local content internationally, which
it could not do under the terms of the joint venture. This will open up new markets and territories.
GRC recently signed with Content Connect Africa (CCA). CCA will service the industry through mobile platforms
as a first phase, with continued delivery of additional archive material from the extensive Gallo music archive.
In addition to the mobile deal with CCA, GRC has signed a direct digital deal via INgrooves (an international digital
aggregator) feeding into iTunes, Vimeo and all streaming partners worldwide.
TMG also intends to use the content it owns and controls, such as music, on its various Group platforms and do
more to commercially exploit and market the owned content within the Group.
- GMP
GMP is responsible for ensuring songwriters and composers (who are not necessarily the performers of musical
works) receive payment when their compositions are used commercially. Composers assign the copyright to GMP,
and in return GMP licenses compositions, helps monitor where compositions are used, collects royalties and
distributes them to the composers. GMP also secures commissions for music and promotes existing composition
by recording artists for film and television.
GMP has 6 000 Gallo composers, 28 000 South African compositions, 14 000 licensed local works a heritage
of South African music. GMP also controls Warner Chappell's catalogue of more than one million compositions
throughout Africa, and represents Disney's vast film and music catalogue, Spirit Music, and other boutique
publishers like Bicycle Music, Jack Russell, Pig Factory and Blue Water Music among others. Our latest investment
is into production music, with 22 000 works in the Chicago Music Library catalogue, collated by the founders of the
Hollywood Film Library.
GMP has signed two sub-publishing agreements over the past six months to administer two major aggregators of
composers based in Nigeria, Kenya and Ghana.
Needletime
There is significant revenue expected from Needletime royalties which have not been paid to the record industry since
this right was reintroduced in the copyright legislation in 2002. Lack of payment has been due to inadequately drafted
provisions of the Copyright Act which have resulted in various disputes and legal cases. Until the cases are resolved,
a large portion of the Needletime royalties will not be collected from the broadcasters who are the largest users of
recordings.
It is estimated that R560 million was payable by broadcasters for the period 2002 to December 2012. Collections from
other users, mainly retailers, of approximately R50 million, have been received by the music industry body SAMPRA,
which is in the process of distributing R39 million, after deductions of legal and other expenses. Of this sum, based
on average market share, Gallo can expect approximately 3-4% of the Needletime pool and a further 40% of WMGA's
Needletime share, estimated at 8-10% of the Needletime pool.
Nu Metro Cinemas
Delivered a turnover of R414 million, but reported an operating loss of R3 million before exceptional items.
Nu Metro Cinemas continues its positive turnaround with a full-year EBITDA of R15 million, and growth of 150%
on the prior year. With the 2012 closure of four unprofitable sites that were committed to onerous leases, Nu Metro
Cinemas re-based with the opening of cinemas at Woodlands and Key West, thereby positioning the business for
significant future growth. Total turnover (box office and confectionery sales) also increased by 6%, driven by record
box office sales from Skyfall (James Bond), Twilight: Breaking Dawn, Iron Man 3 and Fast and the Furious 6. 2014
will see another strong growth year for Nu Metro Cinemas with the full conversion to digital projectors scheduled for
completion by December. This technology upgrade is expected to significantly advance the business. Nu Metro Cinemas'
new management team will continue with their aggressive turnaround strategy to improve operational efficiencies,
enhance profit margins, and grow cinema attendance.
Nu Metro Cinemas' results are reported on under discontinued operations.
TMG is currently in a formal process to sell Nu Metro Cinemas. This asset was identified as non-core to the group and
we have made significant progress in realising fair value for the asset in the sale.
Times Media Films
Delivered a turnover of R174 million, and an operating profit of R13 million.
Times Media Films distributes theatrical content into Africa, particularly into East and West Africa.
A significant amount of content from international film markets and independent local producers is acquired by
Times Media Films. Some of the international content includes the Twilight Saga, The Hunger Games and the Step Up
franchise. All rights are acquired for exploitation in cinema, home entertainment, video on demand, pay-TV and free-TV.
These acquisitions amount to Times Media Films sealing 40 to 50 film deals per annum, amassing a substantial library
of films that are licensed for periods of 10 to 15 years.
Times Media Films represents 20th Century Fox, Warner Bros Pictures International and numerous international
independent producers and studios for the theatrical platform. Times Media Films delivered the top performing film at
the box office during 2012, namely the final instalment of the Twilight Saga, Breaking Dawn, which raked in R41 million
at the cinemas. Times Media Films ended the 12-month period to June 2013 with a 40% market share, and held the top
position as South African theatrical distributor for a 6th year in a row. Times Media Films also boasts seven of the top
ten film releases for that period.
In the last 18 months, Times Media Films capitalised on the boon of digital platforms available to South Africans,
including video on demand, DStv's BoxOffice also launching on iTunes in December 2012. Times Media Films continues
to be vigilant of new digital opportunities for its independently acquired content.
Times Media Films' relationships with all the key television operators in South Africa has allowed the business to
benefit from pay-TV and free-TV rights, becoming a consistent supplier of content to the television platform. This has
added to the success of Times Media Films during FY2013.
Times Media Films is looking towards strong theatrical content from both studio and independent producers in
FY2014. This includes securing rights for franchise films from 20th Century Fox (Wolverine, Rio 2), DreamWorks
Animation and Pictures International (Hangover 3, Man of Steel, 300: Rise of an Empire, The Hobbit (parts 2 and 3),
Lego 3D), and Warner Bros Pictures who are anticipating a record-breaking year. Key independent sequel releases for
FY2014 include Red 2, The Hunger Games: Catching Fire, as well as the much anticipated Rush: Need for Speed, and
Walking with Dinosaurs (3D).
Times Media Films has extended its independent content slate by concluding an output deal with DreamWorks Studios
for a two-year period. This deal provides Times Media Films with full rights to continue its successful distribution of
content across numerous platforms in South Africa, and throughout the continent.
The relationship with local producers similarly continues to develop (as does the quality and commercial appeal of
local productions), allowing Times Media Films to strengthen its local catalogue of films.
Times Media Films is core to TMG.
GROUP CONTENT
TMG has interests in various content-rich businesses that historically operated in different divisions. In order to realise
maximum benefit from these businesses from a growth and cost perspective, we have clustered them under a single
management structure. The grouping will include our TV channel and production businesses, our remaining film and
music businesses, our rich archives of music, film and photographic image content, as well as our digital assets. We are
busy collating photographic images throughout the Group (H&C also has a vast library of photographic material) with
a view to create a TMG Image Bank for commercial exploitation.
Our objective is to grow these businesses in their core markets, and monetise content we own, generate and license,
across the multiple platforms within the Group. The division, currently housed within Media, will be responsible for
delivering our strategy of growing in TV and radio broadcast markets in South Africa and across the continent.
TRANSFORMATION
Much has been reported about transformation in the media industry. I believe this is the right forum for TMG to set the
facts straight with regard to our own transformation, and our commitment to it.
TMG judges itself by the law of the land, which in the case of transformation is the B-BBEE Act. TMG's commitment goes
beyond the requirements of the B-BBEE Act. We also believe in shaping our business and our products to be relevant to
the society we serve. TMG was the first broad-based transformative empowerment deal in the media sector where the
National Empowerment Consortium acquired 35% and management control of TMG in 1996.
Current black ownership of TMG at a scorecard level stands at 55,6% with 13,4% being black females. While there are
fluctuations with this number, it is to be expected of a listed company, and a decline in black ownership is the direct
result of BEE shareholders realising their investments as every investor is allowed to do.
Our ranking in terms of the B-BBEE Codes of Good Practice is presently Level 4 with a procurement recognition level
of 100%, but with the disposal of the Books division, which trails our other divisions in terms of transformation, it
should improve to Level 3.
Within the business, our commitment to transformation is extensive, and in most areas we stand out from the industry:
- The managing directors of the two divisions that will remain in TMG (Media and Retail Solutions) are
both black.
- The publishers of nine of our ten national and regional newspapers (Sunday Times, Sowetan, Sunday World,
Business Day, Financial Mail, The Herald, Weekend Post, Daily Dispatch and Saturday Dispatch) are black.
The publishers of our remaining national newspapers, and our five local newspapers, are both women.
- The editors of seven of the ten national and regional newspapers (Sunday Times, Sowetan, Sunday World,
The Herald, Weekend Post, Daily Dispatch and Saturday Dispatch) are black.
- In the 15 years since the inception of the Times Media School of Journalism, 160 new journalists have been
trained. At least 76 of these journalists still work in South African media, of which 43 remain with TMG.
- In terms of enterprise development, we scored the maximum points a score that the present minister
originally planned to increase. The target spend was R5,1 million and TMG's actual spend was R95,2 million
within the measured 12-month period. The reason for this stems from our circulation department's
investment in door-to-door and service area managers (SAMs). These two initiatives have enabled
70 entrepreneurs to set up their own successful businesses, additionally creating at least 1 650 direct
employment opportunities.
- Another area in which we score full marks is socio-economic development with an actual spend of
R7,5 million (targeted spend was R1,7 million). Over the past decade, throughout all our incarnations, we
have made more than 25 million Story Books available to children who would otherwise have had nothing
else to read. More recently, we have published these Story Books in all eleven of our official languages.
We started doing this long before the B-BBEE Act came into effect, but now that it is, we are receiving
recognition for the work we started way back in 1998. Our belief in supporting education initiatives
continues. We are investing in learning materials and supporting civil society interventions to improve the
lot of South Africa's underprivileged and underserviced learners and schools.
- Our preferential procurement score achieved is not a true reflection of TMG's commitment to addressing
the historical disparity in economic growth. We have therefore committed ourselves to develop a Group
procurement policy to encourage the participation of PDIs in the Group's procurement, and the policy will
be applied in accordance with a system which is fair, equitable, competitive, transparent and cost-effective.
The policy will also provide a framework or guidelines on procurement behaviour and finding innovative
ways in procuring goods and services by giving preference to companies that are B-BBEE compliant.
- The transformation in our business and management is reflected in the readership of our newspapers
which has radically changed over the years. The flagship Sunday Times has grown black readership from
50% in 1992, to 76% in 2002, and to 85% in 2012.
LEASE COMMITMENTS AND POST-RETIREMENT MEDICAL AID LIABILITY
As at the reporting date, TMG had sizeable lease commitments in its book retail businesses of Exclusive Books
and Van Schaik Bookstore, and at Nu Metro Cinemas. The planned disposals of these businesses will release
TMG from these commitments.
TMG also had a substantial post-retirement medical aid liability accounted for at 30 June 2013. The Company
has initiated a project to reduce its exposure by offering a buy-out of the liability from staff and pensioners with
a post-retirement benefit entitlement.
EVENTS AFTER THE REPORTING PERIOD
On 29 July 2013, the Books division sold its Struik Christian Media publishing business for R10 million.
On 31 July 2013, TMG's 40% interest in Warner Music Gallo Africa (WMGA) was sold back to WMGA for
R12 million, while retaining Needletime rights from the joint venture.
Hirt and Carter acquired Typesetting and Repro Services on 31 July 2013 in a transaction that is earnings-
enhancing and adds critical mass to Hirt & Carter's Gauteng operations.
As noted above, the loss of the Trudon contract made Uniprint's Web division unviable, and the decision was
made to exit web printing and sell the equipment at the end of August 2013, with Uniprint realising R59 million
from the sale of the Web division's plant and machinery.
The sale of I-Net Bridge to McGregor BFA for R115 million was agreed in August 2013. The sale is subject to
certain suspensive conditions, including Competition Commission approval.
The sales of Exclusive Books and Van Schaik Bookstore for R90 million and R325 million respectively, to a
consortium led by Medu Capital, were signed earlier this month. The disposals are subject to the fulfilment of a
number of suspensive conditions normal in transactions of this nature, including approval by the Competition
Commission authorities.
On 12 September 2013, TMG acquired a 32,26% interest in Multimedia Group Limited, a Ghanaian radio and
television group, for R144 million.
FORWARD LOOKING
Now that TMG is on track with its restructuring and repositioning, we need to look at growth opportunities for
TMG. With TMG's acquisition finance at a manageable level we need to look at growth for the Group. Given the
highly regulated nature of broadcast media in South Africa, TMG needs to look elsewhere for growth in these
sectors of media. However, any transaction needs to be measured on risk and return and be value-enhancing
to the Group and its shareholders.
The following twelve months are expected to remain challenging given the stretched position of the South
African consumer.
For and on behalf of the board
KD Dlamini AD Bonamour
Chairman Chief Executive Officer
Rosebank
27 September 2013
Directors:
KD Dlamini (Chairman), AD Bonamour* (Chief Executive Officer), W Marshall-Smith* (Financial Director),
JHW Hawinkels, HK Mehta, R Naidoo, MM Nhlanhla, MSM Xayiya
*Executive
Company secretary: JR Matisonn
Email: matisonnj@timesmedia.co.za
Address: 4 Biermann Avenue, Rosebank, 2196, Johannesburg, PO Box 1746, Saxonwold, 2132
Sponsor: PSG Capital
Date: 27/09/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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