Advertising

Solid growth in the advertising industry, reflecting buoyant economic conditions and consumer confidence

DIVISIONAL RESULTS*

OVERVIEW

The year under review saw solid growth in the advertising industry, reflecting buoyant economic conditions and consumer confidence. This, coupled with sound strategy, strong divisional management, innovation and teamwork has resulted in another record performance with all major businesses performing exceptionally well and revenue increasing by 21% to R1,1 billion (2005: R950,3 million).

PBIT increased by 32% to R395,3 million (2005: R298,8 million) and PBIT margins increased to 34,5% from 31,4%. Primedia Broadcasting remains the advertising division's biggest contributor, delivering R255,6 million in PBIT (2005: R191,5 million), an improvement of 33%. The division’s non-broadcasting businesses, which include Primedia Outdoor, Primedia Instore, Comutanet, Cinemark and Primedia Sport, contributed R139,7 million in PBIT, up 30% (2005: R107,3 million).

BROADCASTING BUSINESSES

Revenue (R’mil)		PBIT (R’mil)		Contribution to advertising PBIT

Primedia Broadcasting is the owner and operator of four premiumbranded commercial radio stations, namely 94.7 Highveld Stereo, 94.5 Kfm, Talk Radio 702 and 567 CapeTalk, which together have a combined audience base of around three million upwardly mobile listeners. The 2006 fiscal saw excellent performances from the radio stations with revenues from both 94.7 Highveld Stereo and Talk Radio 702 reaching new heights. 94.7 Highveld Stereo constantly continues to refine its on-air product, building great brand loyalty and a strong listenership base, and this resulted in a 16% growth in net advertising sales and PBIT growth of 20%. Talk Radio 702 increased net advertising sales by 30%, translating into a 206% increase in PBIT. This fantastic performance was primarily due to an innovative approach to targeting new direct clients using the Image Plus programme, as well as continued improvements in on-air programming. 94.5 Kfm reported an improvement in its profitability, with PBIT margins increasing by 4% year on year due to improved business efficiencies resulting from closer collaboration with the group’s other radio stations. 567 Cape Talk also had a very satisfactory year.

Regulatory milestones

During the year under review, Primedia Broadcasting achieved a number of regulatory milestones:

• In March 2006, Talk Radio 702 obtained regulatory approval to migrate from its AM frequency to two FM frequencies, 92.7 FM in Johannesburg and 106.5 FM in Pretoria, resulting in Primedia Broadcasting owning and operating three commercial FM sound broadcasting licences, two of which are in Gauteng. The test phase for transferring Talk Radio 702 onto FM in Johannesburg was launched on 14 July 2006 and the first official FM broadcast was on 24 July 2006. Pretoria’s first official FM broadcast is expected in November 2006.
• In June 2006, Primedia Broadcasting obtained regulatory approval to increase its shareholding in Africa on Air (Pty) Limited (94.7 Highveld Stereo), to 100% (previously 85,8%).

Excellent community involvement

All four radio stations have shown that they have the ability to mobilise their respective audiences to make a difference in the lives of those who need assistance. The radio stations continue to grow their strong alignment to their local communities.

NON-BROADCASTING BUSINESSES

Revenue (R’mil)		PBIT (R’mil)		Contribution to advertising PBIT

Primedia Outdoor

Primedia Outdoor is a leading South African outdoor advertising media specialist, with significant presence in six primary sectors of the outdoor market including airports, spectaculars, campaign outdoor, bus shelters, PrimeLites and AdLites. The company also operates in Lesotho, Swaziland, Namibia, Botswana, Angola and Mozambique.

Primedia Outdoor enjoyed one of its best years of growth during 2006 with PBIT up 37% on the prior year. This growth was driven on four levels:

• Organic growth: Improved occupancy across most outdoor formats;
• Innovation: Roll out of new projects initiated in the current and previous fiscal periods;
• African expansion: Growth of the company’s subsidiary in Mozambique, launched in the previous fiscal; and
• Acquisitions: Acquisition of Indiza Media, which bolstered the company’s premium inventory at airports.

The company also achieved a major transformation milestone by obtaining an “AA” rating by EmpowerDex. The rating is an independent verification of the company’s commitment to implementing sustainable transformation over the last five years.

Primedia Instore

Primedia Instore is South Africa’s leading provider of retail in-store media and promotional solutions, ranging from Trolley Ads to the newly launched Shelf Illuminator (the world’s first, battery operated, illuminated shelf defender unit). Primedia Instore services in excess of 900 “top-end” supermarkets and hypermarkets which translates into a monthly audience of 22 million shoppers.

Primedia Instore recorded a modest revenue growth of 2% and PBIT growth of 5% in 2006 following the exceptional growth achieved in the previous two financial years. Performance was affected by the loss of certain key rights. However, a number of new media services were launched during the year, which contributed 8% of total revenue.

Primedia Face2Face

Primedia Face2Face’s communication and distribution businesses focus predominantly on the lower to middle income LSM 3 to 6 markets. The communication business delivers interactive, face-toface activation type services, which allow marketers to entrench their brands within the targeted market segment. The distribution business services a network of 10 000 developing market retail outlets and community organisations throughout the country entrenching brand loyalty through various programmes.

Primedia Face2Face achieved excellent financial results in 2006 with revenue growing by 33% and PBIT growing by 173%.

Primedia Sport

Primedia Sport comprises Megapro Marketing, Signet Licensing, Powerview (now named Megaview) and Warwick Sport and Media.

Megapro Marketing exclusively markets the commercial rights of a number of major sporting bodies in the form of sponsorships, stadium advertising, corporate hospitality, sponsorship management, strategic marketing and events management. Megapro Marketing achieved revenue growth of 19% and PBIT growth of 35% driven by a superb performance across its main sporting codes.

Signet Licensing manages the licensing and merchandising strategies for many of South Africa's leading sports brands, including SA Rugby and Kaizer Chiefs. Signet Licensing showed very encouraging growth in its business, increasing revenue by 29% and PBIT by 49%. Its business was influenced by the success of its licensing programmes, the management of sponsorship programmes for Kaizer Chiefs and the royalty programme of the Super 14 franchises and the Currie Cup teams.

During the period under review, Primedia Sport acquired Powerview, a business that owns and operates LED screens, now common in European football, as a means of stadium perimeter advertising. It was introduced and commissioned in time for the international rugby tests and at the commencement of the ABSA Currie Cup season. Subsequent to the acquisition and in order to highlight its association with Megapro Marketing, Powerview’s name was changed to Megaview (Pty) Limited. It is planned that this medium will be introduced into cricket stadia as well as major football events. It has already proven to be a success for Primedia Sports’ sponsors and rights holders.

Subsequent to year-end, Primedia Sport acquired a 70% interest in Warwick Sport and Media (Pty) Limited, a key player in the corporate hospitality business, in order to further enhance Primedia Sport’s strategic positioning in preparation for the 2010 FIFA World Cup.

Commuter Media Division

Comutanet reaches in excess of 17 million economically active commuters and offers advertisers a bouquet of media platforms ranging from advertising on taxis, trailers, buses and trains to audio advertising, and interactive promotions. Following a year of consolidation in 2005, the division experienced a phenomenal year of growth, with PBIT for 2006 growing by 41%. This was mainly due to strong organic performance from the traditional businesses, helped by the acquisition of GMR, a former competitor, which was one of the businesses acquired as part of the Altmedia transaction.

Cinemark

Cinemark is an advertising sales company representing Ster-Kinekor Theatres and major independent theatre owners, both on-screen and in cinema foyers. 2006 was a challenging, yet exciting year for Cinemark. With the cancellation of its rights to advertise in a major competitor’s cinemas from 1 January 2006, Cinemark was extremely challenged in the second half of the fiscal following an excellent performance in the first six months. Despite this loss of footprint, Cinemark was able to retain or replace its Golden Reel clients and still achieved revenue equal to that of the previous fiscal. Cinemark also launched a new in-foyer advertising innovation which involves the branding of the entire foyer of cinemas. In addition, the Leon Schuster hit movie Mama Jack enabled Cinemark to launch its product placement business.

Primedia@Home

Primedia@Home is a direct marketing company that specialises in targeted leaflet distribution and consumer promotion and represents the majority of the leading retailers in South Africa, Botswana and Namibia.

Primedia@Home had a difficult year, with increased competition from community newspapers in its core business. The business has been re-structured and is showing promising signs in the 2007 fiscal.

Primedia Publishing

Primedia Publishing is one of the country’s leading specialist magazine publishers, with 13 titles in its stable spanning finance, media and marketing, industrial hire, gardening, home and décor, pharmaceutical and information technology. The company’s magazine titles service niche areas, communicating with highly targeted groups of readers ranging from engineers to gardening enthusiasts, financial advisors to architects and pharmacy assistants.

Primedia Publishing produced another good set of results, reflecting a significant improvement in margins and PBIT.

PRIMEDIA UNLIMITED ADVERTISING

A key feature of Primedia's growth strategy is to enter into growing sectors of the South African media industry that fall outside the group’s historical asset base. During 2004, Primedia Unlimited was established to acquire and develop non-traditional media businesses and grow new and innovative sectors of the media industry.

During the period under review, two additional businesses were acquired, which have subsequently been well integrated into the group, namely:

• X/Procure, a pharmacy ordering software company that provides unique advertising opportunities for drug manufacturers directly at the point of purchase. The effective date for this acquisition was 1 September 2005 and an expansion of the company’s current offering into point of sale and dispensing systems is planned in the next fiscal; and
• The Letter Corporation, which provides washroom-advertising opportunities at a range of venues, including cinemas, fitness clubs, sports clubs, nightclubs and bars. The effective date for this acquisition was 1 September 2005 and this business has already innovated through expansion into new venues (student venues, fitting rooms and shopping centres) as well as new products, including Talking Frames.

Subsequent to year-end, Icon Media was also acquired, which has secured the rights to an international patent for specialised shopping carts in retail environments. These shopping carts offer the opportunity for advertisers to get their brands closer to the point of purchase and where shoppers can entertain their kids by a branded racing car or space shuttle cart. Take-up by advertisers and channel partners has been excellent.

In addition, the existing businesses in the division made some notable achievements:

• Wide Open Platform further expanded its media holding at airports and launched projections at nightlife venues in the main city centres. Advertising on hoardings and beautifying building sites have also been added to clients’ advertising solutions. With effect from 1 July 2005, Primedia Unlimited increased its shareholding in this business to 60%.
• Primall started the roll-out of “eye catchers” (plasma screen advertising), developed the C-Through product (a translucent hanging banner) and 3D advertising solutions in mall environments.
• Primestars, a start-up business, which commenced operations in 2005, launched the first edutainment channel for entrepreneurs in Ster-Kinekor cinemas and broke even in 2006.
• The acquisition of Moving Tactics, a company focused on media targeting university students from 27 universities throughout South Africa. This company has already realised synergies from sister company, Rank TV, through the introduction of Campus TV.

PROSPECTS

The higher interest rate environment and reduced GDP growth has to be factored into our growth prospects for the year ahead. We remain confident, however, that the combination of well executed acquisitions, continued growth in radio advertising and the diversity of our media offerings outside of broadcasting, will enable us to mitigate the impact of any economic slowdown.

K Pillay
Divisional Chief Executive, Advertising Division

25 October 2006