Chief Executive’s statement

WILLIAM KIRSH
A constructive year

The group has emerged from a challenging but constructive year with a sharpened strategic and operational focus.

Not withstanding the difficult trading conditions experienced across most sectors during the year, this focus has resulted in the implementation of a number of key strategies, which has placed the group on an improved financial footing for the future.

To track our progress, it is useful to review the issues that were identified for attention in last year’s annual report, which were key to unlocking shareholder value and building a strong base for consistent earnings growth into the future:


  1. The need to address the imbalance in our portfolio of media and entertainment assets, by:
    • reducing the group's exposure to cinema exhibition through the sale of Ster Century Europe; and,

    • increasing our interests in electronic media through acquisition.

  2. The need to improve the quality of our earnings through the ongoing turnaround of Ster-Kinekor Theatres, supported by strategic initiatives aimed at growing cinema attendances into new markets.

  3. The need to sharpen the group’s focus on traditional media and entertainment activities, by:
    • reducing our interests in one-to-one marketing services ; and,

    • selling all non-core assets.

  4. The ongoing ransformation of the group through the continued, meaningful strengthening of our black empowerment credentials.

  5. The examination of opportunities to simplify our capital structure through the conversion of the debentures and enfranchisement of the "N" units.

Given these imperatives, how have we fared in 2001?

  1. Rebalancing our portfolio
    Although early indications on pricing for Ster Century Europe were very favourable, the collapse in the share prices of US cinema operators due to over-screening resulted in a temporary loss of investor appetite. Consequently, we took the view that it would not be in the interests of shareholders to proceed with the sale of Ster Century Europe at the pricing levels under offer. This, unfortunately, led directly to the Board’s decision to suspend discussions with Kagiso Media, which owns a number of good radio stations, as conclusion of his acquisition would have resulted in unacceptably high gearing levels for Primedia at the time. We have made good progress in reducing our gearing levels, as indicated in the financial section of my report, and remain commited to addressing the imbalance in our portfolio of assets.

  2. Improvement in quality of earnings We have made significant progress in turning around Ster-Kinekor Theatres, which has historically had a very negative impact on our earnings. Following the restructuring and the renewed focus on identifying new target markets, we believe that Ster-Kinekor Theatres faces a much brighter future with an improved level of sustainable earnings and strong cashflows. This augers well for the group going forward.

  3. Media focus
    When we announced our intention to seek a separate listing for Primecom, market conditions were more favourably disposed towards technology and Internet stocks. The subsequent down turn in these sectors has been far more severe than anticipated and a separate listing is not feasible at this time. Management took swift action to limit the impact of the downturn, particularly on the digital businesses. This saw a significant downsizing of these operations, which resulted in a R34 million restructuring charge before tax and minorities’ share (9 cents headline earnings per unit impact after tax and minorities’ share). Following he decision not to list, Primecom has successfully disposed of certain businesses for R174 million. Looking ahead, we will continue to consider alternative ways of maximizing shareholder value from this company. In addition to the sale of various Primecom assets, the group was also successful in the disposal of a number of other non-core businesses in South Africa, notably Primedia Music and Velocity Films.

  4. Black Economic Empowerment
    The strides we have taken in our path to becoming a truly representative South African media player wi h s rong black empowerment credibility, have already been detailed by our outgoing Chairman and newly appointed Chairman int their statements. Further accomplishments are set out in page 20 and 21 of this report. Let me reiterate that black empowerment is of central importance to the sustained growth of our business in South Africa. From a strategic and operational perspective, we will continue to drive transformation in the interests of a strong Primedia and look forward to a sustained and successful relationship with our major shareholder, the Mineworkers’ Investmen Company.

  5. Simplification of capital structure The Board has resolved to convert the debentures into combined units with effect from 1 January 2002. This should improve the group’s covenants with its bankers, as well as potentially attracting greater investor interest.

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