Primedia’s advertising businesses are located principally in South Africa. This broad base of assets spans both the traditional and non-traditional media sectors and enables marketers to reach an increasingly fragmented and diverse audience. The businesses enjoy a high degree of exclusivity derived from regulated rights to the various delivery platforms, which contributes to their attractive operating margins.

Trading conditions in the year under review were particularly difficult, with self promotion and discounting by media owners prevalent throughout the industry. Industry estimates indicate that real advertising spend declined by 2,8% during the year, well below the 5,7% increase in the consumer price index. Amid this lacklustre industry performance, the group’s advertising businesses did well to maintain revenues and operating margins on par with the previous year and contributed 63% of the group’s EBITDA (2001: 60%).

DIVISIONAL PERFORMANCE BROADCASTING AND INTERNET

The broadcasting and internet division once again delivered a solid performance and remains the most significant contributor to the group in terms of profitability and cash flow.

94.7 Highveld Stereo
94.7 Highveld Stereo continues to underscore its position as Gauteng’s number 1 radio station through programming improvements and enhancement of its brand. During the year, its seven-day audience base grew to over a million listeners. To sustain its successful history of revenue and profit growth, new revenue streams are consistently explored, including packaged on-air medium and internet opportunities. With the station’s high exclusivity in both content (adult contemporary format) and platform (FM frequency), the station’s continued growth is assured.

702 Talk Radio
702 Talk Radio, Gauteng’s only 24-hour talk radio station also had a good year, due to continued improvements in its programming and an increased focus on costs. In order to remain ahead in an increasingly competitive market, 702 is looking to address its poor AM signal frequency by either migrating to the FM band or relocating its MW transmitters into the Gauteng region. These changes will, however, be subject to regulatory approval.

567 Cape Talk
567 Cape Talk is the Western Cape’s only 24-hour talk radio station. It has been very successful in building a strong brand since its inception and benefits from a good AM signal, which is well suited to the mountainous Cape region. It is 35% owned by Primedia, which also has management control. It does not yet contribute materially to the group’s results.

iafrica.com
iafrica.com is one of South Africa’s leading internet portals, with over 350 000 unique users. It generates income from advertising, e-commerce, content syndication, hosting and also from licensing its proprietary content. iafrica.com’s parent company, Metropolis* Limited, was delisted from the JSE Securities Exchange South Africa in November 2001. In terms of the delisting, Primedia increased its shareholding by 22,2% to 71,4%. As a full subsidiary of the group, it is able to leverage its media offerings with the rest of the group as well as share from the benefits of cost rationalisation.

OUT OF HOME

Primedia Outdoor
Primedia Outdoor, which is a major player in the South African outdoor advertising market, faced increased competition during the year. Profit margins were eroded by an inventory oversupply in the industry, which resulted in significant price discounting and an increase in site rental costs. The company continues to be innovative, identifying new exclusive platforms, and is focussed on improving its margins through a variety of means, including the outsourcing of certain operations.

Primedia Face2Face
Product Marketing Services was rebranded as Primedia Face2Face, during the year, in order to capitalise on the strength of the Primedia name with advertisers. The company achieved a R2 million turnaround in its results, largely as a result of cost savings brought about from the new out of home organisational structure, as well as improved capacity utilisation. The company is also set to benefit from the successful launch of its new innovative media platform, the Glomobile.

CASE STUDY

The Glomobile is a unique advertising medium in South Africa which combines outdoor advertising with a state-of-the-art sound system and stage facility, giving the client the ability to run high impact, interactive campaigns both day and night. In addition to this, the mobility of the unit allows clients to take outdoor advertising into urban areas previously inaccessible to outdoor as a medium. This should establish Primedia Face2Face as a significant player within the minds of the advertising agencies in terms of providing communication solutions targeting the LSM 3-6 market segments.

Primedia Instore
Primedia Instore has exclusive in-store representation in over 600 of the leading hypermarkets, supermarkets and other retail formats. In the same vein that Product Marketing Services was rebranded, Cartad In-store was successfully re-launched as Primedia Instore during the year. The company had a disappointing year due to cut backs of advertising spend by international FMCG advertisers following the rapid depreciation of the rand. The stabilisation of the rand, coupled with a spate of new innovative media services has seen a significant rebound in trading in the first quarter of 2003.

CINEMA AND PRINT

Both CineMARK and Primedia @ Home experienced a significant decline in profitability during the year.

CineMARK
CineMARK, South Africa’s only on-screen advertising company has exclusive rights to all cinema foyers and off-screen advertising opportunities in South African cinemas. During the year, it felt the impact of the final ban on tobacco advertising, the depressed advertising market and a squeeze on gross margins as production costs were absorbed in order to compete with the massive discounting that took place, particularly in the TV sector. To combat these pressures, it launched digital cinema advertising during the year, aimed at opening up its services to the local retail market, especially to those advertisers needing a quick turnaround in terms of tactically placing their adverts on screen. Digital advertising will also make it viable for TV advertisers to convert their adverts to the cinema screen in a timely and cost effective manner. To date, fifty-two digital projectors have been installed in cinemas across the major metropolitan areas, providing the critical mass to meet demand.

Primedia @ Home
Direct Response Marketing was rebranded during the year as Primedia @ Home to better depict its business focus of targeted distribution of pamphlets and leaflets to over 7 million homes (out of 9 million) in South Africa. Though highly cash-generative, the company operates in a competitive sector with low barriers to entry, which contributed to its poor performance during the year. The company has commenced the new financial year positively, on the back of improved industry conditions, benefits from the rebranding and the commencement of the franchising of its labour and capital intensive operations. This will enable it to pursue a more vigorous sales strategy.

Primedia Publishing
Primedia Publishing, which publishes 13 specialist trade and consumer magazines, had a very successful year, giving credence to its strategic focus of owning titles that are number 1 in their category. High quality targeted editorial and strong brand loyalty were also a feature.

COMMUTER MEDIA

This division comprises Comutanet and the recently launched innovations, Rank TV and Rank Branding.

Comutanet
Comutanet experienced a disappointing drop in sales due to increased competition, tight advertising conditions and the shorter term nature of campaigns being flighted. The 2003 financial year has commenced well, as a result of improved advertising conditions and the competitive advantage provided by Rank TV and Rank Branding through the packaging of advertising. Rank Branding and Rank TV, which are profiled in a case study below, are expected to contribute materially to the results of the advertising division going forward as the businesses are leveraged off existing infrastructure. The full launch of the two companies occurred after the year-end.

Rank TV / Rank Branding CASE STUDY
Primedia’s emphasis on ongoing innovation is exemplified by Rank TV and Rank Branding, the new media platforms specifically tailored for the South African market by Comutanet, Primedia’s market leading taxi, bus and train advertising company. Rank TV brings a powerful audiovisual medium to over 18 million South African commuters through large, permanent state-of-the-art LED screens placed in the busiest taxi ranks countrywide, allowing advertisers to reach 1,2 million economically active commuters daily, at a time when traditional media cannot. Through an exclusive relationship with the SABC, together with other programming specialists, Rank TV broadcasts an appropriate mix of popular content, including news, sports, special events, music, educational and life skills programmes. Commuters gain a welcome entertainment interlude, unparalleled picture and sound quality, and derive indirect benefit from the monthly rentals paid to taxi associations through improved destination boards, sanitation, comfort and generally more appealing and user-friendly taxi ranks. The power of this channel is reinforced by Rank Branding, established to complement Rank TV and Comutanet’s other services. Rank Branding gives advertisers the opportunity to completely brand taxi ranks and train stations using billboards and signage. For Primedia, these innovations bring low downside risk and significant upside by contributing from start-up to the group’s cash flow. Prior even to the launch of these initiatives, revenue of R50 million had been secured over a two year period, with a start-up outlay of under 50% of this initial income stream.

SPORT

Megapro
Megapro Marketing is South Africa’s leading sports marketing company. It has representation rights with sporting federations and unions and is the exclusive sports marketing agent for South African Rugby (which includes the Springbok and Super 12 teams), all the cricket unions, as well as Kaizer Chiefs and the South African Football Association. As a result of an improved management focus, the company reflected a very satisfactory R8 million turnaround in operating profits. Recently, it was appointed as the exclusive hospitality provider to the 2003 Cricket World Cup and it is anticipated that this will contribute meaningfully to the company’s 2003 second half results. Kaizer Chiefs
Kaizer Chiefs, South Africa’s leading football club, has approximately 12 million supporters. Primedia has a 40% shareholding interest in the company. In the year under review, Kaizer Chief’s contribution to profitability was not material.

Kuben Pillay
Chief Executive Officer – Advertising