GROUP OPERATING PERFORMANCE
Turnover from continuing operations grew by 8% to R1,7 billion, fuelled by the 35% increase in the local filmed entertainment division’s revenues, which resulted from good content and increased attendances. Revenues from the one to one marketing division were eroded by the fallout in the internet market and declined by 15% to R389 million. Advertising revenues grew by 1% to R550 million, with the broadcasting and sport businesses in particular, showing good growth.

The excellent performance of the South African operations, which grew operating profits by 27% to R166 million, was largely attributable to the local filmed entertainment division. This excellent performance was overshadowed by the decline in the operating profits of the one to one marketing division, from a profit of R20 million to a loss of R21 million, which was exacerbated by the 33% depreciation of the Rand relative to the £ Sterling. The deterioration in the operating results of the one to one marketing division was reflected in its reduced operating margins, which fell from 4% to –5%. Both the local filmed entertainment and advertising divisions improved their operating margins to 9% (2001: 7%) and 23% (2001: 22%) respectively. Overall operating profit margins for the group, net of central costs, were slightly lower at 9% (2001: 9,5%).

Finance costs, including debenture interest, declined by 34% to R72,1 million. This was largely due to the reduction in debenture interest, which resulted from the conversion of the group’s debentures to equity with effect from 7 January 2002. Finance costs excluding debenture interest, net of interest income were well covered by operating income at 7,1 times (2001: 7,7 times).

Goodwill amortisation declined as a result of the asset impairments accounted for during the year. Equity accounted losses, mainly from the international filmed entertainment businesses, Ster Century Europe and Ster Century Middle East, increased by 24%. Ster Century Europe’s revenues grew by 71% to US$73,4 million driven by new site openings and improved trading at more established cinema sites. Ster Century Europe incurred a net loss after tax, but before exceptionals, of US$16,6 million (2001: US$13,4 million). This current-year loss included finance costs of US$5,9 million (2001: US$1,5 million) on Ster Century Europe’s bank and mezzanine debt. The bank debt was fully repaid after year-end as well as US$10 million (out of US$54 million) of the mezzanine notes.

The carrying value of Primedia’s investment in Ster Century Middle East has been written down to nil. In line with the group’s accounting policy, future equity accounted losses will be limited to any further cash investment made by Primedia.

The current year’s effective tax rate declined to 7,7% from 32,5% as a result of the increased exceptional losses and equity accounted losses from associates. Net loss for the year increased from R42 million to R363 million.

During the year, Primedia incurred a foreign exchange profit of R25 million on its mezannine note invested into Ster Century Europe.

This was, however, offset by Primedia’s proportionate share of a US$6 million foreign exchange loss incurred by Ster Century Europe. Earnings from continuing operations and excluding exceptional items and equity accounted losses from associates increased by 24% to R64,4 million. Headline earnings declined from a profit of R17,4 million to a loss of R1,7 million.

EXCEPTIONAL ITEMS

An impairment review of Ster Century Europe’s assets was performed at the year-end, resulting in a total impairment charge for the year of US$25 million, US$19 million of which was recognised in the first half’s results. In accordance with standard accounting practice, in performing the impairment review, no compensating adjustments were made for assets with positive net recoverable values.

Following the refinancing of Ster Century Europe, Primedia’s shareholding was diluted from 50% to 40,6% resulting in a R40 million loss. The remaining goodwill attributable to Ster Century Europe and a number of other companies in the group were written off during the year, given their poor trading performance. In addition, a provision of R68 million was raised in recognition of a possible parent company exposure to Ster Century Middle East’s bankers.

EARNINGS PER SHARE
Headline earnings per share from the group’s South African operations increased by 21% to 46 cents whilst the headline loss from international operations increased by 62% to 47 cents. Overall, headline earnings per share for the group declined from 9 cents to a loss of 1 cent. The loss of the tax shield on the debenture interest, following the conversion of the debentures into equity in January 2002, contributed to a 5 cents decline in headline earnings per share.

SHARE BUY-BACK
A cautious approach was adopted with regard to the share buy-back programme and 2 427 984 “N” shares were acquired at an average price of R3,76 per share.

CASH FLOW
Available cash flow from operations continues to be strong, increasing from R109 million to R187 million. Investing activities included a R91 million loan advanced to Ster Century Europe and capital expenditure of R69 million (net of a R20 million landlord inducement). Financing activities included the buy-back of Primedia “N” shares of R9,1 million.

Overall, there was a net cash inflow before financing activities and debenture interest of R12,6 million (2001: net outflow of R29,5 million).

BALANCE SHEET
Total assets decreased from R1,4 billion to R1,3 billion, largely as a result of the equity accounted losses from associates and exceptional asset impairments. Included in total assets are intangibles and deferred tax assets of R385 million (2001: R372 million).

Total interest-bearing borrowings (net of cash) increased from R147 million to R162 million, resulting in gearing of 27,9% (2001: 19,2%).

POST BALANCE SHEET EVENTS
Subsequent to the year-end, Wheel Limited and Foresight Limited became wholly owned subsidiaries of Wheel Holdings Limited. As part of the transaction Primedia exchanged its shares in Wheel and Foresight for a 68,08% shareholding in Wheel Holdings Limited.

As set out in note 30 to the annual financial statements, Ster Century Europe completed the sale of its cinemas in Poland and Greece subsequent to the year-end at a profit of US$2,9 million, which exceptional profit will be accounted for in the 2003 financial year.

Funke Ighodaro
Finance Director