youPrimedia Limited Annual Report 2006 Annual Report 2006

Notes to the Financial Statements
for the year ended 30 June 2006

    Group   Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
1. REVENUE                
  Continuing operations                
  – Sale of goods 837 444   628 037   –   –  
  – Services rendered 1 549 766   1 309 732   –   –  
    2 387 210   1 937 769   –   –  
  Discontinued operations                
  – Services rendered (note 18) 40 102   42 539   –   –  
    2 427 312   1 980 308   –   –  
                    
    Group   Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
2. EXCEPTIONAL ITEMS                
  IFRS 2 expense relating to BEE ownership transaction (108 398)   –   (108 398)   –  
  Net profit on disposal of assets and investments 13 902   3 063   –   –  
  Reversal of loan impairment 4 700   14 910   –   3 970  
  Profit on disposal of listed investment and intellectual property 4 430   –   3 840   –  
  Impairment of assets and equity investments (3 308)   (578)   (4)   26 405  
  Reversal of onerous lease provisions 811   3 334   –   –  
  Revaluation of listed investment –   1 165   –   1 165  
  Charitable donation to The Nelson Mandela Foundation –   (3 000)   –   –  
  Costs relating to The Museum of Television and Radio                
  International Council meeting –   (2 846)   –   –  
  Write-back of costs previously written off –   320   –   –  
  Gross exceptional items (87 863)   16 368   (104 562)   31 540  
  Taxation (included in note 7) (3 067)   485   –   –  
  Net exceptional items (90 930)   16 853   (104 562)   31 540  
                   
    Group   Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
3. OPERATING PROFIT/(LOSS)                
  Operating profit/(loss) is arrived at after taking into account                
  the following items not disclosed elsewhere:                
  Income                
  Foreign exchange gain – realised 1 311   23   –   –  
  Foreign exchange gain – unrealised 1 252   1 682   –   1  
  Profit on disposal of property, plant and equipment 746   1 258   –   –  
  Management fee received 632   514   –   –  
                   
  Expenses                
  Auditors' remuneration                
  – current year 7 113   5 617   660   536  
  – prior year (113)   348   –   –  
  – other services 591   1 209   22   165  
    7 591   7 174   682   701  
  Fees paid to consultants 20 029   14 148   –   387  
  Foreign exchange loss – realised 10 781   2 241   –   –  
  Foreign exchange loss – unrealised 6 452   1 565   –   26  
  Loss on disposal of property, plant and equipment 851   1 052   –   –  
Impairment of property, plant,
     equipment and intangible assets 212   544   –   –  
  Operating lease rentals                
  – premises 68 220   67 659   –   –  
  – plant and equipment 5 066   4 094   –   –  
      73 286   71 753   –   –  
  Research and development costs 3 815   3 437   –   –  
  Employee costs 387 103 313 811   –   –  
  Directors' emoluments – executive directors                
  – current year         18 602   13 743  
  – less: paid by subsidiary companies         (18 602)   (13 743)  
            –   –  
  Directors' emoluments – non–executive directors                
  – board and committee fees         4 105   3 369  
  – other services as directors         304   718  
            4 409   4 087  
  – less: paid by subsidiary companies         (111)   (114)  
            4 298   3 973  
 
    Group   Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
4. INVESTMENT INCOME                
  Dividends received from subsidiary companies         943   –  
  Interest received from subsidiary companies         21 424   9 567  
  Interest received from bankers 8 264   6 894   –   –  
  Interest received from South African Revenue Service 2 154   127   264   –  
  Revaluation of interest rate swap 1 463   –   1 463   –  
  Other interest received 940   718   –   492  
    12 821   7 739   24 094   10 059  
 
      Group   Company  
    2006   2005   2006 2005  
    R’000   R’000   R’000   R’000  
5. FINANCE COSTS              
  Bank overdrafts and borrowings (24 934)   (10 338)   (15 931) (5 892)  
  Term loans and finance leases (33 284)   (34 809)   – –  
  Revaluation of interest rate swap –   (7 518)   – (7 518)  
  South African Revenue Service (113)   (657)   – (1 603)  
  Amounts owed to vendors (191)   (38)   – –  
  Interest paid to subsidiary companies         (6 162) –  
  Other finance costs (1 822)   (1 713)   (976)   –  
    (60 344)   (55 073)   (23 069)   (15 013)  
    Group   Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
6. SHARE OF ASSOCIATED COMPANIES' PROFITS              
  Unlisted investment –   457          
   
    Group   Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
7. INCOME TAX (EXPENSE)/CREDIT              
  South African normal taxation              
  – Current year (92 528)   (55 058)   – (516)  
  – Prior year 7 810   641   221 (4)  
                 
  Foreign taxation              
  – Current year (1 101)   696        
  – Prior year (156)   –        
                 
  Secondary taxation on companies (112)   –   – –  
                 
  South African deferred taxation              
  – Current year (28 116)   (30 485)   1 029 1 136  
  – Prior year 12 498   (454)   (587) –  
  – Statutory tax rate change –   (2 328)   – (17)  
                 
  Foreign deferred tax              
  – Current year (340)   (389)        
  – Prior year (10)   –           
    (102 055)   (87 377)   663   599  
  Reconciliation of rate of taxation: %   %   %   %  
  South African normal tax rate 29,0   29,0   29,0   29,0  
  Permanent differences 9,8   (0,1)   (28,1)   (31,3)  
  Prior year (under)/over provision (1,9)   0,1   (0,3)   –  
  Deferred tax not raised on assessed losses 0,4   0,1   –   –  
  Deferred tax asset raised on prior year assessed losses (4,6)   (2,4)   –   –  
  Secondary tax on companies and other taxes 0,3   –   –   –  
  Effect of statutory rate change –   0,7   –   –   
  Effective tax rate per income statement 33,0   27,4   0,6   (2,3)  
  In addition to the income tax expense charged to profit or loss, a deferred tax charge of R0,5 million (2005: a credit of R2,8 million) has been recognised in equity during the year.
    Group   Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
8. EARNINGS PER SHARE
8.1 Number of shares ('000)
Ordinary shares 52 086   52 086  
N ordinary shares         184 542   176 542  
Total number of shares in issue 236 628   228 628  
Treasury shares        
– Ordinary shares (465)   (379)  
– N ordinary shares         (10 168)   (6 501)  
Total number of shares in issue (net of treasury shares) 225 995   221 748  
Weighted average number of shares 225 891   223 032  
Unexercised share options          6 408   5 462  
Diluted weighted average number of shares          232 299   228 494  
8 .2 Earnings per share        
  Profit for the year attributable to ordinary shareholders   182 177 214 320  
  Profit for the year from discontinued operations          (204)   (148)  
  Profit for the year attributable to ordinary shareholders from continuing operations 181 973   214 172  
  Earnings per share attributable to ordinary shareholders        
  – Basic cents 81 96  
  – Diluted cents        78   94   
  Earnings per share from continuing operations attributable to ordinary        
  shareholders        
  – Basic cents 81 96  
  – Diluted cents       78   94   
8.3 Headline earnings per share        
  Profit for the year attributable to ordinary shareholders   182 177 214 320  
  Adjusted for:        
  Net loss/(profit) on disposal of property, plant and equipment   105 (206)  
  Exceptional items:        
  – Impairment of assets and equity investments   3 308 578  
  – Profit on disposal of assets and investments   (13 902) (3 063)  
  – Write back of costs previously written off          –   (320)  
      171 688 211 309  
  Tax effect of non-headline earnings items          1 688   95  
  Headline earnings          173 376   211 404   
  Headline earnings per share        
  – Basic cents 77 95  
  – Diluted cents       75   93   
8.4 Normalised headline earnings per share        
  Headline earnings   173 376 211 404  
  IFRS 2 expense relating to BEE ownership transaction   108 398 –  
  Normalised headline earnings   281 774 211 404  
  Normalised headline earnings per share        
  – Basic cents 125 95  
  – Diluted cents       121   93   
  Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders for the year by the weighted average number of shares in issue during the period, net of the shares held by The Primedia Trust.

Diluted earnings per share is calculated by adjusting the weighted average number of shares in issue by the number of shares that would have been issued at fair value in respect of options granted but not exercised, as well as shares issued subsequent to year-end. The dilution did not affect earnings.

Headline earnings per share is calculated by dividing the headline earnings attributable to ordinary shareholders by the weighted average number of shares in issue during the period, net of the shares held by The Primedia Trust.

Diluted headline earnings per share is calculated by adjusting the weighted average number of shares in issue by the number of shares that would have been issued at fair value in respect of options granted but not exercised, as well as shares issued subsequent to year-end. The dilution did not affect earnings.

Basic and diluted earnings per share for the discontinued operation are 0,1 cent per share (2005: 0,1 cent per share), based on

  
             Leased       Office      
            assets and   Motor   furniture,      
            leasehold   vehicles,   equipment,  
  Land and   Advertising   improve-   plant and   décor and      
  buildings   structures   ments   equipment   computers   Total  
    R’000   R’000   R’000   R’000   R’000   R’000  
9. PROPERTY, PLANT AND EQUIPMENT                        
  Group – at 30 June 2006                        
  Cost 12 426   194 189   53 650   147 559   258 151   665 975  
  Accumulated depreciation and                        
     impairments (5 533)   (104 190)   (10 974)   (86 069)   (143 485)   (350 251)  
  Net carrying value 6 893   89 999   42 676   61 490   114 666   315 724   
  Movement summary                        
  Opening net carrying value 11 683   85 616   45 143   42 777   120 866   306 085  
  Additions 186   22 817   280   22 135   29 782   75 200  
  Acquisition of businesses –   2 271   267   11 062   1 969   15 569  
  Disposal of businesses –   –   –   –   (1 014)   (1 014)  
  Disposals – at cost (5 764)   (2 525)   –   (8 203)   (46 287)   (62 779)  
  Disposals – accumulated depreciation 822   2 094   –   7 389   44 367   54 672  
  Depreciation (continuing operations) (560)   (19 987)   (2 260)   (13 151)   (29 363)   (65 321)  
  Depreciation (discontinued operations) –   –   –   –   (864)   (864)  
  Reclassified as held for sale –   –   –   –   (1 550)   (1 550)  
  Exchange rate adjustments –   397   (1)   (19)   98   475  
  Reclassifications to intangible assets 526   (684)   (753)   (500)   (3 338)   (4 749)  
  Closing net carrying value 6 893   89 999   42 676   61 490   114 666   315 724  
  Group – at 30 June 2005                        
  Cost 14 179   170 025   51 633   118 096   292 011   645 944  
  Accumulated depreciation and                        
     impairments (2 496)   (84 409)   (6 490)   (75 319)   (171 145)   (339 859)   
  Net carrying value 11 683   85 616   45 143   42 777   120 866   306 085  
  Movement summary                        
  Opening net carrying value as                        
     previously reported 9 386   78 389   45 585   32 077   83 482   248 919  
  IAS 16 restatement (note 35) 5 462   2 997   517   3 499   10 377   22 852  
  Opening net carrying value as restated 14 848   81 386   46 102   35 576   93 859   271 771  
  Additions –   15 809   257   16 953   53 368   86 387  
  Acquisition of businesses –   6 309   –   1 547   2 400   10 256  
  Disposals – at cost (1 885)   (3 130)   (195)   (2 543)   (15 036)   (22 789)  
  Disposals – accumulated depreciation 18   1 900   195   2 347   14 561   19 021  
  Depreciation (continuing operations) (950)   (16 678)   (1 214)   (11 057)   (27 252)   (57 151)  
  Depreciation (discontinued operations) –   –   –   (69)   (951)   (1 020)  
  Impairment –   –   –   –   (544)   (544)  
  Exchange rate adjustments –   20   (2)   13   123   154  
  Reclassifications (348)   –   –   10   338   –  
  Closing net carrying value 11 683   85 616   45 143   42 777   120 866   306 085  
 

Leased assets comprise buildings, leasehold improvements, motor vehicles and equipment. Assets are encumbered as detailed in notes 21 and 22.

A register containing the information required by paragraph 22 (3) of the 4th schedule to the Companies Act is available for inspection at the registered office of the company.

  
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        Tradenames,                  
        copyrights                  
        and       Intangible          
    Goodwill   trademarks   Licence   rights   Software   Total  
    R’000   R’000   R’000   R’000   R’000   R’000  
10. GOODWILL AND INTANGIBLE ASSETS                    
  Group – at 30 June 2006                        
  Cost 414 313   183 496   25 904   13 793   48 315   685 821  
  Accumulated amortisation and                        
     impairments (212)   (102)   –   (4 032)   (28 149)   (32 495)  
  Net carrying value 414 101   183 394   25 904   9 761   20 166   653 326  
  Movement summary                        
  Opening net carrying value 223 790   183 407   25 904   –   8 532   441 633  
  Additions 62 657   –   –   –   13 535   76 192  
  Disposals – at cost –   –   –   –   (2 209)   (2 209)  
  Disposals – accumulated depreciation –   –   –   –   1 449   1 449  
  Acquisition of businesses 129 785   –   –   13 793   31   143 609  
  Disposal of businesses (1 919)   –   –   –   (830)   (2 749)  
  Amortisation –   (13)   –   (4 032)   (5 091)   (9 136)  
  Impairment (212)   –   –   –   –   (212)  
  Reclassifications from property,                        
  plant and equipment –   –   –   –   4 749   4 749  
  Closing net carrying value 414 101   183 394   25 904   9 761   20 166   653 326  
  Group – at 30 June 2005                        
  Cost 223 790   183 496   25 904   –   39 843   473 033  
  Accumulated amortisation and                        
     impairments –   (89)   –   –   (31 311)   (31 400)  
  Net carrying value 223 790   183 407   25 904   –   8 532   441 633  
  Movement summary                        
  Opening net carrying value as                        
     previously reported 82 446   110   –   –   10 231   92 787  
  IFRS restatement (note 35) –   –   –   –   (959)   (959)  
  Opening net carrying value as restated 82 446   110   –   –   9 272   91 828  
  Additions 68 991   –   –   –   4 108   73 099  
  Disposals –   –   –   –   (171)   (171)  
  Acquisition of businesses 69 461   183 310   25 904   –   11   278 686  
  Amortisation –   (13)   –   –   (4 688)   (4 701)  
  Negative goodwill released 2 892   –   –   –   –   2 892  
  Closing net carrying value 223 790   183 407   25 904   –   8 532   441 633  
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Group    Company 
2006   2005   2006   2005
       R’000   R’000   R’000   R’000  
The following intangible assets were assessed as having indefinite lives:
Tradenames 183 248 179 634
Licence   25 904   25 904            
    209 152   205 538            
  Goodwill and other intangibles with indefinite lives are tested for impairment as disclosed in note 36.  
 
Group    Company 
2006   2005   2006   2005
       R’000   R’000   R’000   R’000  
11. INVESTMENTS IN SUBSIDIARIES AND JOINTLY CONTROLLED ENTITIES (ANNEXURE 2)
11.1 Investments in subsidiaries              
  Shares at cost         511 068   496 570
  Loans to subsidiaries         2 315 007   2 291 009
  Loans from subsidiaries           (187 898)   (188 372)  
            2 638 177   2 599 207
  Write-down of investments against share premium         (2 292 656)   (2 292 656)
  Recoupment of amounts previously written off against              
     share premium           328 028   264 204  
              673 549   570 755  
11.2 Investments in jointly controlled entities (note 33)              
  Loan from jointly controlled entity           (24 617)   (22 693)  
 
Group    Company 
2006   2005   2006   2005
       R’000   R’000   R’000   R’000  
12. INVESTMENTS IN ASSOCIATED COMPANIES (ANNEXURE 1)              
  Balance at beginning of year 10 940   8 062        
  Share of associated companies' profits –   457        
  Reversal of impairment of investments and loans 4 614   10 940        
  Repayment of loans advanced (9 822)   –        
  Loans advanced –   81        
  Reclassification from associate to subsidiary   –   (8 600)          
  Balance at end of year   5 732   10 940          
  Analysis of closing balance:              
  Unlisted investments              
  – Shares at cost (net of goodwill amortised) 420 616   420 616        
  – Share of reserves (246 169)   (246 169)        
  Loans owing by associated companies 102 537   112 359        
  Impairment of investments   (271 252)   (275 866)            
      5 732   10 940           
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      Group   Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
13. OTHER INVESTMENTS AND LOANS                
  Loan granted to a director on exercise of share options 2 656   2 656   –   –  
  Loan granted to V&A Waterfront 1 500   2 000   –   –  
  Loan granted to jointly controlled entity 1 250   –   –   –  
  Disposal proceeds due 1 032   –   –   –  
  Preference share funding to empowerment partner (1) –   –   81 359   81 359  
  Listed shares (2) –   5 879   –   5 879  
  Unlisted investment                
  – VWV Productions (Pty) Limited –   3 970   –   3 970  
  Other 191   98   –   –  
    6 629   14 603   81 359   91 208  
 
(1) The preference shares bear cumulative dividends at variable rates linked to the prime bank rate.
 
(2) The listed investment comprised 624 125 ordinary shares in African Media Entertainment Limited which was carried at fair value.
 
 
      Group   Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
14. DEFERRED TAX
Balance at beginning of year – as previously reported 58 445   172 990   13 657   12 538  
SA GAAP restatement and reclassification (note 35) –   (10 739)   –   –  
IFRS restatement (note 35) –   (8 981)   –   –  
Balance at beginning of year – as restated 58 445   153 270   13 657   12 538  
Charge to income statement (15 968)   (33 656)   442   1 119  
Adjustment to equity arising on changes to tax value                
   of trademarks 555   (2 756)   –   –  
Exchange rate adjustments (279)   (455)   –   –  
Acquisition of businesses (3 498)   (57 958)   –   –  
Balance at end of year 39 255   58 445   14 099   13 657   
Deferred tax asset 116 944   124 025   14 099   13 657  
Deferred tax liability (77 689)   (65 580)   –   –   
Analysis of closing balance:                
– Capital allowances (18 595)   (18 266)   –   –  
– Prepayments (22 047)   (22 444)   –   –  
– Provisions 56 292   46 334   –   587  
– Effect of tax losses 24 886   32 416   1 009   –  
– Trademarks, licences and intangible rights (17 298)   1 514   –   –  
– STC credits 14 965   17 840   12 036   12 036  
– Other 1 052   1 051   1 054   1 034  
  39 255   58 445   14 099   13 657  
  Tax losses at the end of the year                
  – South African 191 688 269 423   3 481   –  
  – Foreign 3 865   3 921          
  Utilised to raise deferred tax asset (85 815)   (111 779)    (3 481) –    
  Available to reduce future taxable income 109 738   161 565    –   –  
  Deferred tax not raised due to the uncertainty of future                
      income streams against which the asset can be realised 31 824   46 854   –   –  
  
      Group   Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
15. INVENTORIES                
  Finished goods* 46 781 37 534   –   –  
  Merchandise 6 295   8 407   –   –  
  Raw materials and components 4 123   3 489   –   –  
  Consumables and maintenance spares 2 108    2 337   –   –  
    59 307   51 767   –   –  
  * Includes inventories of R13,0 million (2005: R3,0 million) carried at net realisable value.  
  
      Group   Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
16. TRADE AND OTHER RECEIVABLES                
  Trade receivables 358 434 293 854   –   –  
  Prepaid film royalties 32 305 59 481   –   –  
  Prepayments 12 740 15 687   124   –  
  Tax overpaid 230   350   –   –  
  Financial instrument asset 1 084   –   –   –  
  Other 39 174   36 417   143   353  
    443 967   405 789   267   353  
 

The financial instrument asset relates to the unrealised loss on open foreign exchange contracts in respect of purchased currency (note 34.2) and the mark-to-market revaluation of an embedded derivative instrument (note 34.3).

Accounts receivable of R265,9 million (2005: R201,6 million) have been encumbered to secure long-term borrowings as recorded in note 21.

The directors consider the carrying amount of trade and other receivables to approximate their fair value.

  
  
      Group   Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
17. BANK BALANCES AND CASH
Bank balances and cash 60 740   4 368   –   –  
 

Bank balances and cash comprise cash held by the group and short-term deposits with an original maturity date of three months or less. The carrying amount of these assets approximate their fair value.

Bank balances and cash to the value of R44,6 million (2005: R46,2 million) have been encumbered to secure long-term borrowings as recorded in note 21.

 
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18. ASSETS CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS
During 2005, the board of directors resolved to dispose of The Database Group, the UK one to one marketing business owned by the group. Subsequent to year-end, assets and liabilities of the business have been sold and are presented separately on the balance sheet. The proceeds of disposal are expected to exceed the net carrying amount of the relevant assets and liabilities. Unrecognised actuarial losses on the business' defined benefit plan amounted to GBP 849 000 (2005: GBP 952 000) (note 27).
  Group  
      2006  
      R’000   
The major classes of assets and liabilities are as follows:        
Non-current assets        
– Property, plant and equipment     1 550  
Current assets        
– Trade and other receivables     13 521  
      15 071  
Current liabilities        
– Provisions     2 066  
– Trade and other payables     7 813  
      9 879  
  Group  
  2006   2005  
  R’000   R’000  
Abridged income statement        
Revenue 40 102   42 539  
Expenses (39 011)   (40 867)  
Operating profit before depreciation 1 091   1 672  
Depreciation (864)   (1 020)  
Operating profit after depreciation 227   652  
Exceptional items (45)   (447)  
Net finance costs (12)   69  
Profit before tax 170   274  
Income tax credit/(expense) 34   (126)  
Profit for the year 204   148  
Abridged cashflow statement        
Cash flow from/(utilised in) operating activities 1 238   (1 078)  
Cash flow utilised in investing activities (738)   (519)  
Cash flow from financing activities 852   745  
  Increase/(decrease) in cash and cash equivalents 1 352   (852)  
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     Group    Company   
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
19. SHARE CAPITAL AND PREMIUM                
19.1 Share capital                
  Authorised share capital:                
  100 000 000 ordinary shares of 2 cents each 2 000   2 000   2 000   2 000  
  200 000 000 N ordinary shares of 0,02 cents each 40   40   40   40  
  5 000 000 non-redeemable, cumulative, non-participating                
     preference shares of 0,02 cents each 1   –   1   –  
    2 041   2 040   2 041   2 040  
  Issued share capital:                
  52 086 276 (2005: 52 086 276) ordinary shares                
     of 2 cents each 1 042   1 042   1 042   1 042  
  184 541 569 (2005: 176 541 569) N ordinary shares of                
     0,02 cents each 37   35   37   35  
  1 500 000 non-redeemable, cumulative, non-participating                
     preference shares of 0,02 cents each –   –   –   –  
    1 079   1 077   1 079   1 077  
  Less: shares held in The Primedia Trust                
  464 830 (2005: 379 307) ordinary shares of 2 cents each (9)   (8)          
  10 168 475 (2005: 6 501 417) N ordinary shares of                
     0,02 cents each (2)   (1)          
  Total share capital 1 068   1 068   1 079   1 077  
19.2 Share premium                
  Gross premium, less issue expenses and intangibles written off 649 479 506 688   649 479 506 688  
  Premium on share buy-back (16 476) (16 476)   (16 476) (16 476)  
  Distribution to shareholders (371 548) (199 170)   (371 548) (199 170)  
  Premium on shares held in The Primedia Trust (58 572) (22 895)          
  Distribution received by The Primedia Trust 11 002    5 502              
  Total share premium 213 885   273 649   261 455   291 042  
  Total share capital and premium 214 953   274 717    262 534   292 119  
     Group    Company   
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  
20. NON-DISTRIBUTABLE RESERVES                
  Tax relief on intangible assets written off against share premium 232 409 231 854          
  Foreign currency translation reserve 12 668 10 739          
  Shares held in The Primedia Trust (110 845) (63 056)          
  Goodwill and trademarks disposed of by subsidiary companies                
  previously written off against share premium 5 291   5 291          
  Minority share of intangibles written off against share premium 66 445 70 894          
  Recoupment of investments and loans to subsidiaries                
  previously written off against share premium         286 387 222 563  
  Other 1 062   1 062   8 010   8 010  
    207 030   256 784   294 397   230 573  
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      Group  
      2006   2005  
      R’000   R’000  
21. INTEREST-BEARING BORROWINGS      
  Secured borrowings:      
  – Term loans 147 175   233 776  
  – Finance leases   54 781   58 157  
  Total secured borrowings 201 956   291 933  
  Less: current portion included in bank overdrafts and      
     short-term borrowings (note 26)        
  – Term loans (96 659)   (90 757)  
  – Finance leases   (10 319)   (8 431)  
      94 978   192 745  

The term loans bear interest at three-month JIBAR plus a margin of 2,65%. The effective interest rate for the period to 30 June 2006 was approximately 9,7% (2005: 10,3%). Repayments on these loans commenced on 3 January 2005 and will continue until 31 October 2007.

The finance leases bear interest at various rates linked to the prime interest rate and are repayable in various monthly instalments over a period of one to nine years.

All the interest-bearing borrowings are denominated in South African Rand.
                  Group  
                  2006   2005  
Secured over assets with a carrying value of:                 R’000   R’000  
Land and buildings                 38 140   39 758  
Advertising structures                 5 559   3 503  
Office furniture, equipment, décor and computers               2 139   1 672  
Accounts receivable                 265 894   201 613  
Bank balances and cash                 44 645   46 197  
                  356 377   292 743  
Certain companies in the group have provided cross guarantees and suretyships in respect of the term loans.  
  2007   2008   2009   2010   onwards   Total  
  R’000   R’000   R’000   R’000   R’000   R’000  
Repayment terms                        
Term loans 96 659   50 516   –   –   –   147 175  
Finance leases 10 319   12 510   792   1 643   29 517   54 781  
  106 978   63 026   792   1 643   29 517   201 956  
Finance leases                        
Future minimum lease payments 20 248   19 615   5 771   6 069   43 651   95 354  
Finance costs (9 929)   (7 105)   (4 979)   (4 426)   (14 134)   (40 573)  
  10 319   12 510   792   1 643   29 517   54 781  
The directors consider the carrying amount of interest-bearing borrowings to approximate their fair value.  
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Group
2006 2005
                    R’000   R’000  
22. LANDLORD INDUCEMENT PREMIUM
Total premium 16 572 23 642
Less: current portion included in bank overdrafts and short-term borrowings (note 26)   (1 870)   (2 258)  
                  14 702   21 384   
 

A subsidiary company has entered into an agreement with the landlord of a cinema complex, in terms of which the landlord has provided an equipped cinema complex. The monthly lease payments in terms of the agreement are based on the level of customer attendances experienced by the complex and extend for a period of six years to 2012. The landlord has encumbered rights to the assets acquired with a value of R11,6 million (2005: R12,7 million) and the imputed interest cost in respect of the premium has been charged to finance costs.

The directors consider the carrying amount of the landlord inducement premium to approximate its fair value.

  
Group
2006 2005
                    R’000   R’000  
23. MINORITY SHAREHOLDER LOANS
Loans from minority shareholders                 25 498   27 147  
These loans are interest-free, have no fixed repayment terms and relate to funding provided by minority shareholders to group subsidiary companies.   
 
    Post-                      
    retirement                      
    medical           Onerous          
    benefit   Leave pay   Bonus   leases   Other   Total  
    R’000   R’000   R’000   R’000   R’000   R’000   
24. PROVISIONS                        
  Group – at 30 June 2006                        
  Balance at beginning of year 15 712   12 926   52 513   811   11 043   93 005  
  Additional provisions raised 1 300   12 544   62 076   764   5 115   81 799  
  Provisions reversed (564)   (131)   (179)   (811)   (4 327)   (6 012)  
  Payments against provisions –   (9 977)   (56 923)   –   (1 921)   (68 821)  
  Acquisition of businesses –   211   –   –   –   211  
  Reclassifications from accounts payable –   –   –   – 4 781   4 781  
  Reclassification to liabilities associated                      
     with assets classified as held for sale –   –   –   –   (2 066)   (2 066)  
  Exchange rate adjustment –   –   8   –   316   324   
  Balance at end of year 16 448   15 573   57 495   764   12 941   103 221  
  Less: current portion (1 300)   (15 573)   (57 495)   (764)   (7 990)   (83 122)   
  Long-term provisions 15 148   –   –   –   4 951   20 099   
  Group – at 30 June 2005                        
  Balance at beginning of year as                        
     previously reported 15 025   11 092   44 320   4 145   24 988   99 570  
  IFRS restatement (note 35) –   –   –   –   584   584   
  Opening balance as restated 15 025   11 092   44 320   4 145   25 572   100 154  
  Additional provisions raised 868   8 193   50 122   –   929   60 112  
  Provisions reversed (181)   (988)   (382)   (3 334)   (1 781)   (6 666)  
  Payments against provisions –   (6 347)   (41 596)   –   (16 827)   (64 770)  
  Acquisition of businesses –   978   60   –   2 994   4 032  
  Exchange rate adjustment –   (2)   (11)   –   156   143   
  Balance at end of year 15 712   12 926   52 513   811   11 043   93 005  
  Less: current portion (1 418)   (6 796)   (52 513)   (811)   (8 768)   (70 306)  
  Long-term provisions 14 294   6 130   –   –   2 275   22 699   
  Company – at 30 June 2006                        
  Balance at beginning of year –   –   –   –   –   –  
  Reclassification from accounts payable –   –   –   –     3 633   3 633   
  Balance at end of year –   –       –   3 633   3 633  
  Less: current portion –   –   –   –   –   –   
  Long-term provisions –   –   –   –   3 633   3 633   
  Post-retirement medical benefit
The group’s policy is not to provide post–retirement medical benefits for employees. The obligation in respect of future post-retirement medical benefits payable to pensioners and employees of certain subsidiary companies relating to the period before the new policy become effective is accounted for as a defined benefit.

Leave pay
The leave pay provision relates to vested leave pay to which employees may become entitled upon leaving the employment of the group. The provision is utilised when employees who are entitled to leave pay leave the employment of the group or when accrued leave is utilised.

Bonus
The bonus provision consists of a performance bonus based on the achievement of predetermined financial and qualitative targets.

Onerous leases
The provision relates to lease contracts on which the unavoidable costs of meeting the obligations in respect thereof exceed the economic benefits expected to accrue from the lease.

Other
These include provisions for interest, refunds, rebates and sales commission.

  
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  Group      Company   
2006   2005   2006   2005  
    R’000   R’000   R’000   R’000   
25. TRADE AND OTHER PAYABLES                
Trade payables and accruals 318 834 334 836   13 630 17 313  
Deferred income 35 881   9 031   –   –  
Amounts owed to vendors (1) 113 322   7 704   2 247   –  
Financial instruments liability (2) 6 055   11 380   –   –  
  474 092   362 951   15 877   17 313   
(1)

This includes 5 962 385 N ordinary shares, fair valued at R91,2 million, due to be issued to Mineworkers Investment Company (Pty) Limited and cash of R22,1 million (2005: R7,7 million) owed to various vendors.
 
(2) The financial instruments liability arises from the fair value revaluation of an interest rate swap (note 34.6), unrealised losses on open foreign exchange contracts in respect of purchased currency (note 34.2) and the liability arising as a result of the valuation of the embedded derivative (note 34.3).
 
  The directors consider the carrying amount of trade payables and accruals to approximate their fair value.  
  Group      Company   
2006   2005   2006   2005  
    R’000   R’000   R’000   R’000   
26. BANK OVERDRAFTS AND SHORT-TERM BORROWINGS  
  Current portion of long–term borrowings (note 21) 106 978   99 188   –   –  
  Current portion of landlord inducement premium (note 22) 1 870   2 258   –   –  
  Bank overdrafts 124 776   10 779   153 437   103 550  
                   
    233 624   112 225   153 437   103 550  
  The directors consider the carrying amount of bank overdrafts and short-term borrowings to approximate their fair value.  
 
27. RETIREMENT BENEFIT FUNDS
It is the policy of the group to encourage, facilitate and contribute to the provision of retirement benefits for all permanent employees. The majority of the group's employees belong to fourteen defined contribution and three defined benefit funds, one of which is located outside South Africa and is accordingly not subject to the Pension Funds Act, 1956. All South African funds are governed by the Pension Funds Act, 1956.

The total cost charged to income of R22,7 million (2005: R17,4 million) represents the contributions payable to these schemes by the group at rates specified in the rules of the schemes. All funds, with the exception of the Database Group Pension Fund, were confirmed as being financially sound as at their last valuation.

During prior years, the United Kingdom based Database Group Pension Fund, a defined benefit fund, was discontinued. Based on the latest actuarial valuation conducted as at 30 June 2006, the fund had a GBP 1 103 000 (2005: GBP 1 131 000) deficit, being the differential between the market value of plan assets of GBP 4 201 000 (2005: GBP 3 819 000) and the present value of plan liabilities of GBP 5 304 000 (2005:GBP 4 950 000). In accordance with the accounting treatment detailed in IAS 19 Employee Benefits, an amount of GBP 254 000 (2005: GBP 179 000) has been raised as a liability, with the balance of GBP 849 000 (2005: GBP 952 000) representing unrecognised actuarial losses to be amortised over the remaining working lives of the participating employees.
 
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    2006   2005  
      %   %  
  The key assumptions used in valuing the Database Group Pension Fund were as follows:  
  Discount rate 5,50   5,50  
  Expected rate of inflation 2,90   2,75  
  Expected rate of return on plan assets    
  – equities 8,10   8,60  
  – bonds 5,00   4,75  
  – cash 4,50   4,75  
  Future pension increases 2,90   2,75  
  The other two defined benefit funds have been valued by independent actuaries as follows:    
    Valuation
interval		   Latest
valuation
date		  
  (1) Primovie Pension Fund 3 years    30 June 2002  
  (1) Alexander Forbes Pension Fund No.2 3 years    30 April 2003  
The assets of the South African defined benefit funds are held mainly in cash and interest bearing stocks and currently show a surplus of R63.1 million (2005: R57,9 million). Retirement fund surpluses are required to be apportioned in terms of the Pension Funds Second Amendment Act, 2001 and a surplus apportionment implementation process has been instituted for the Primovie retirement funds. As this process has not yet been completed, the group has adopted a prudent view in recognising none of the surplus that will possibly accrue to it.

The key assumptions used in valuing the group's South African defined benefit funds were as follows:
         
  2006   2005  
  %   %  
Discount rate 8,00   9,00  
Expected rate of salary increases 6,00   5,50  
Expected rate of return on plan assets 8,50   10,50  
(2) Future pension increases 3,35    3,56   
(1) These statutory valuations will be submitted to the Financial Services Board during 2006.
(2) The fund's pension increases are determined by Sanlam. In light of proposed legislation, the funds will be required to set an increase policy targeting a percentage of CPI, but this will be limited to the actual increases declared by Sanlam.
 
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Group
  2006   2005  
  R’000   R’000   
Amounts recognised in the income statement in respect of the        
   defined benefit plans are as follows:        
Current service cost 127   119  
Expected return on plan assets (12 525)   (12 936)  
Interest on obligation 6 249   6 750  
Unrecognised asset 6 479   6 420  
  330   353   
Amounts recognised in the balance sheet in respect of the        
   defined benefit plans are as follows:        
Present value of funded obligations 110 909   97 692  
Fair value of plan assets (159 428)   (141 726)  
  (48 519)   (44 034)  
Unrecognised actuarial gains or losses (36 243)   (9 133)  
Unrecognised asset 88 126   56 616  
Net liability recognised in the balance sheet 3 364   3 449  
Changes in the present value of the defined benefit        
   obligation were as follows:        
Opening defined benefit obligation 97 692   87 775  
Service costs 127   119  
Interest costs 6 249   6 750  
Actuarial losses 5 625   3 376  
Exchange differences 5 682   4 644  
Risk premiums (19)   (26)  
Benefits paid (4 447)   (4 946)  
  110 909   97 692  
Changes in the fair value of plan assets were as follows:        
Opening fair value of plan assets 141 726   126 142  
Expected return 12 525   12 936  
Actuarial gains 4 361   1 371  
Contributions by employer 692   66  
Exchange differences 4 590   6 183  
Risk premiums (19)   (26)  
Benefits paid (4 447)   (4 946)  
  159 428   141 726  
Fair value of plan assets at balance sheet date is analysed as follows:        
Equity instruments 86 731   78 336  
Debt instruments 27 879   23 445  
Other assets 44 818   39 945  
    159 428   141 726  
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    Group   Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000   
28. RECONCILIATION OF OPERATING PROFIT/(LOSS) BEFORE                
  DEPRECIATION TO CASH GENERATED FROM/                
  (UTILISED IN) OPERATIONS                
  Operating profit/(loss) before depreciation                
  – Continuing operations 531 449   415 039   (5 532)   (343)  
  – Discontinued operations 1 091   1 672   –   –  
  Adjustments relating to exceptional items –   (3 758)   –   –   
    532 540   412 953   (5 532)   (343)  
  Adjustments for:                
  Profit/(loss) on disposal of assets and investments 105   (4 263)   –   –  
  Provisions charged to the income statement 82 662   58 546   –   –  
  (Payments)/recoveries against provisions (70 222)   (65 005)   (1 603)   1 603  
  Bad debts written off 2 033   2 969   –   –  
  Impairment of property, plant equipment and intangible assets 212   544   –   –  
  Accruals and other non-cash flow items (3 850)   (7 177)   (2 027)   –  
  Operating profit/(loss) before working capital changes 543 480   398 567   (9 162)   1 260  
  (Increase)/decrease in trade and other receivables (38 463)   (48 452)   103   (165)  
  (Decrease)/increase in other current liabilities (14 409)   54 432   2 311   (1 318)  
  Increase in inventories (10 235)   (14 697)   –   –   
  Cash generated from/(utilised in) operations 480 373   389 850   (6 748)   (223)  
  Provisions charged to the income statement                
  As stated above 82 662   58 546   –   –  
  Included in current assets                
  – Provision for bad and doubtful debts (2 623)   (1 629)   –   –  
  – Provision for stock obsolesence (4 252)   (3 471)   –   –  
  Additional provisions raised (note 24) 75 787   53 446   –   –  
  Payments against provisions                
  As stated above (70 222)   (65 005)   –   –  
  Included in current assets                
  – Provision for bad and doubtful debts (184)   244   –   –  
  – Provision for stock obsolesence 1 585   (9)   –   –  
  Payments against provisions (note 24) (68 821)   (64 770)   –   –  
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    Group   Company   
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000   
29. TAX PAID                
  Current tax liabilities (41 951)   (50 389)   (516) (1 601)  
  Tax overpaid 350   652   –   –   
  Amounts unpaid at beginning of year (41 601)   (49 737)   (516) (1 601)  
  Prior year over/(under) provided 7 810   641   221   (4)  
  Provision for South African current tax (92 528)   (55 058)   – (516)  
  Provision for secondary taxation on companies (112)   –   –   –  
  Provision for foreign tax (1 257)   696   –   –  
  Subsidiary companies and businesses acquired (3 009)   (6 629)   –   –  
  Exchange rate adjustments (1)   (753)   –   –  
  Other movements 2 030   (126)   –   –  
  Amounts unpaid at end of year 54 903   41 601   –   516  
    (73 765)   (69 365)   (295)   (1 605)   
  Amounts unpaid at end of year                
  Current tax liabilities 55 133   41 951   –   516  
  Tax overpaid (230)   (350)   –   –  
    54 903   41 601   –   516  
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30. ACQUISITION/(DISPOSAL) OF BUSINESSES
The following companies were acquired and consolidated during the period under review.
      Economic  
  Acquisition   interest  
  date   acquired   
Book4Golf (Pty) Limited 1 July 2005   50,1%  
Mobile Games Company (Pty) Limited t/a Airgames 1 July 2005   50,0%  
Altmedia (Pty) Limited 1 September 2005   100,0%  
Roga Properties (Pty) Limited t/a The Letter Corporation 1 September 2005   95,0%  
Xprocure (Pty) Limited 1 September 2005   80,0%  
Moving Tactics (Pty) Limited (renamed Primedia Campus Media (Pty) Limited) 1 March 2006   60,0%  
365 Digital (Pty) Limited 1 June 2006   100,0%  
Powerview (Pty) Limited (renamed Megaview (Pty) Limited) 1 June 2006   80,0%  
The fair value of assets, liabilities and contingent liabilities acquired or disposed of by the group were as follows:
    Acquired   Disposed(1)   Acquired  
    2006   2006   2005  
Group – at 30 June 2006 R’000   R’000   R’000   
Non-current assets            
– Property, plant and equipment 15 569   (1 014)   10 256  
– Intangible assets 13 824   (2 749)   209 225  
– Deferred tax asset 181   –   2 696  
Current assets            
– Inventories 20   (83)   –  
– Trade and other receivables 17 489   (82)   31 170  
– Bank balances and cash 757   (122)   22 660  
Non-current liabilities            
– Interest-bearing borrowings (4 222)   1 135   –  
– Long-term provisions (159)   –   (633)  
– Deferred tax liability (3 679)   –   (60 654)  
Current liabilities            
– Current portion of long-term provisions (52)   –   (3 399)  
– Trade and other payables (16 897)   1 023   (12 059)  
– Current portion of long-term borrowings (1 149)   –   –  
– Taxation (3 009)   –   (6 629)   
Fair value of asset acquired/(disposed) 18 673   (1 892)   192 633  
– Minority interest (3 755)   –   (1 231)  
– Capitalised costs –   –   (101)  
– Loss on disposal –   2 302   –  
– Goodwill 129 785   –   69 461  
Purchase price 144 703   410   260 762  
– Bank balances and cash (757)   122   (22 660)   
Net purchase price 143 946   532   238 102  
– Amounts owing(2) (10 777)   (1 135)   (25 432)  
– Amounts transferred from investment in associate –   –   (8 600)   
Net cash flow on acquisition/(disposal) 133 169   (603)   204 070  
(1) This relates to Book4Golf (Pty) Limited, which was placed into provisional liquidation during May 2006, and the disposal of DVD City, a division of Primedia Pictures (Pty) Limited, in December 2005.
(2) The amounts owing are dependent on the achievement of agreed performance criteria.
 
Group
2006  2005
    R’000   R’000  
The following summarises the combined results of the group as though the
acquisition date for all acquisitions had been the beginning of the financial year.
Contribution of new businesses to revenue        
Revenue for the financial year 91 861   162 148  
Revenue recognised since acquisition (63 914)   (120 263)   
  27 947   41 885   
Contribution of new businesses to net profit after tax        
Net profit for the financial year 19 198   48 582  
Net profit recognised since acquisition (7 705)   (39 811)  
  11 493   8 771   
Goodwill arising on the acquisitions is attributable to the anticipated profitability of the distribution of the group's products and services in new markets and the anticipated future operating synergies from the combination.  
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      Group      Company   
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000   
31. COMMITMENTS              
31.1 Capital commitments            
  Capital expenditure authorised, but not yet contracted 108 014   96 870   –   –   
31.2 Financial commitments                
  Film rights 72 436   56 049   –   –  
  Less: Amounts recoverable from third party (21 495)   (13 581)    –   –   
    50 941   42 468   –   –   
31.3 Operating lease commitments            
  Premises and site rentals            
  Future lease payments expiring within:            
  – One year 93 806   93 249   –   –  
  – Two to five years 189 533 192 833  –   –  
  – After five years 52 344   60 927   –   –   
    335 683   347 009    –   –   
  Office equipment                
  Future lease payments expiring within:                
  – One year 4 184   3 086   –   –  
  – Two to five years 3 173   5 049   –   –   
    7 357   8 135   –   –   
The commitments will be financed by cash flows from operations and group borrowings.  
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    Group    Company  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000   
32. CONTINGENT LIABILITIES                
32.1 Contingencies 7 953   4 720   –   –   
32.2 Parent company guarantees:                
  Ster Century Middle East 46 675   53 470   46 675   53 470  
  Ster Century Europe                
  – Bank guarantees 5 182   4 785   5 182   4 785  
  – Lease guarantees 150 401   151 209   150 401   151 209  
  Total contingent liabilities 202 258 209 464   202 258   209 464  
  Less: Indemnities obtained from purchasers of SCE and                
     SCME cinema operations (202 258)   (155 994)   (202 258)   (155 994)  
  Unindemnified contingent liabilities –   53 470   –   53 470   
32.3 Africa on Air trademarks                
  Subsequent to the year-end, the South African Revenue Services ("SARS") has threatened to issue an assessment in respect of expenditure incurred by the group in acquiring the Africa on Air trademarks, which the group claimed as an allowance in terms of the Income Tax Act. This expenditure was previously allowed as a deduction by SARS in terms of assessments previously raised, after specific queries to this effect. At this stage, the quantum of the group's exposure, if any, cannot be ascertained with any degree of certainty. However, the group does not believe that the grounds put forward by SARS for reopening assessments previously raised, have any legal merit and appropriate steps are being taken to defend the group's position.  
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33. INTEREST IN JOINTLY CONTROLLED ENTITIES
The group has the following interests in joint ventures:
  Economic interest  
  2006   2005  
  %   %   
Kfm Radio (Pty) Limited 92,2   92,2  
Clidet No 522 (Pty) Limited (renamed Property Dot Go (Pty) Limited) 50,0   50,0  
Mobile Games Company (Pty) Limited t/a Airgames 50,0   –  
  Group  
  2006   2005  
  R’000   R’000  
The group's proportionate share of assets and liabilities:        
Property, plant and equipment 8 614   2 846  
Intangible assets 205 568   205 549  
Deferred tax asset 428   53  
Other non-current assets 6 697   6 623  
Current assets 30 887   35 601   
Total assets 252 194   250 672  
Non-current liabilities 2 866   60 940  
Current liabilities 24 069   13 415  
Total liabilities 26 935   74 355  
The group's proportionate share of income and expenses:        
Revenue 115 341   79 016  
Expenses (39 512)   (31 068)  
Profit before tax 75 829   47 948  
Income tax expense (21 772)   (13 604)  
Net profit after tax 54 057   34 344  
The group's proportionate share of cash flows:        
Cash flow from operating activities 59 282   44 269  
Cash flow utilised in investing activities (7 212)   (1 401)  
Cash flow utilised in financing activities (61 276)   –  
(Decrease)/increase in cash and cash equivalents (9 206)   42 868  
Capital commitments 953   585  
Other commitments 8 693   8 716  
    9 646   9 301  
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34. FINANCIAL RISK MANAGEMENT
The group’s financial instruments consist mainly of cash and deposits with banks, bank loans and overdrafts, trade and other receivables and payables, investments and secured, unsecured and other borrowings. In respect of all the financial instruments mentioned above, book value approximates fair value. Derivative instruments, such as forward exchange contracts and fixed interest rate agreements, are used by the group. The group does not speculate in the trading of derivative instruments.
34.1 Treasury risk management

A treasury committee, consisting of senior executives of the group, meets to analyse currency and interest rate exposure and to re-evaluate treasury management strategies.
  
The group’s central treasury function provides the group with access to local money markets and provides group subsidiaries with the benefit of bulk financing and depositing.
34.2 Foreign currency risk management

The group’s policy is to cover forward all foreign trade commitments. Each subsidiary manages its own trade exposure. In this regard, the group has entered into certain forward exchange contracts, which do not relate to specific items appearing on the balance sheet, but which were entered into to cover foreign commitments not yet due and will be utilised during the next six months.

The following open foreign exchange contracts relating to purchased currency, maturing from 1 July 2006 to 28 September 2006, existed at year-end:
Foreign   Average   Contract   Market   Fair  
amount   rate   value   value   value  
Group – at 30 June 2006 '000       R’000   R’000   R’000   
Euros 2 675   9,010   24 102   24 581   479  
US$ 2 410   6,930   16 701   17 208   507  
Group – at 30 June 2005                      
Euros 29 664   8,302   246 277   243 917   (2 360)  
US$ 611   6,422   3 924   4 102   178  
GBP 276   12,351   3 409   3 309   (100)  
 

The resultant profit and losses detailed above have been recognised in the income statement.

Included in trade and other payables are amounts denominated in foreign currencies amounting to R36,0 million.
34.3 Embedded derivative
The group is entitled to receive payments for certain film rights which are determined and invoiced in US$, which is the reporting currency neither of the group nor of the third party. This gives rise to an embedded derivative in terms of IAS 39 Financial Instruments Recognition and Measurement. This embedded derivative has been fair valued and the resultant adjustment of R0,1 million (2005: R1,6 million) has been expensed in the income statement.
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34.4 Credit risk management

Potential areas of credit risk consist of trade accounts receivable, cash deposits and investments. Trade accounts receivable consist mainly of a large wide-spread customer base. Group companies monitor the financial position of their customers on an ongoing basis and, where appropriate, use is made of credit guarantee insurance. The granting of credit is controlled by credit application and account limits.

Provision is made for specific bad debts and at the year-end, in management's view, there is no material credit risk exposure that has not already been covered by the bad debt provision or credit guarantee insurance.

It is group policy to deposit short-term cash investments with major banks.
34.5  Liquidity risk management

The group manages liquidity risk by managing forecast cash flows and ensuring that adequate unutilised borrowing facilities are maintained.

There are no restrictions on the company’s borrowing capacity imposed by the articles of association or any other covenant. Total borrowings comprise:
    Group   
  2006   2005  
  R’000   R’000   
Interest-bearing borrowings 218 528 315 575  
Bank overdrafts 124 776 10 779  
Unindemnified contingent liabilities (note 32) –   53 470   
The group has unutilised borrowing facilities of R255,2 million (2005: R132,9 million). These facilities are secured as detailed in
note 21.        
         
34.6 Interest rate management        
The company entered into an interest rate swap agreement on 1 July 2004 that entitles or obliges it to pay interest at a fixed rate on notional principal amounts and entitles or obliges it to receive interest at floating rates on the same notional principal amounts. The interest rate swap allows the company to swap long-term borrowings from floating rates into fixed rates that are lower or higher than those available if it had borrowed at fixed rates directly. Under this interest rate swap, the company agrees with other parties to receive, at specific quarterly intervals, interest at floating rates and pay interest at semi-annual intervals at fixed rates with reference to the agreed notional payments.
Group
2006 2005
  R’000     R’000  
Fair value of interest rate swap liability 6 055   7 518  
The fair value of the interest rate swap liability is represented by a notional principal amount of R100,0 million at a fixed rate of 10,0% and average floating rate of 9,735% (2005: 10,264%), based on three-month JIBAR plus a 2,65% margin for the year.  
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35.   RESTATEMENTS
The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The group is reporting under IFRS for the first time for the year ended 30 June 2006. Comparative information previously published under SA GAAP has been restated to the equivalent basis under IFRS. The effective date of transition to IFRS is 1 July 2004, which represents the start of the earliest period of comparative information presented. The restatement follows the guidelines set out in IFRS 1 First-time Adoption of International Financial Reporting Standards (IFRS 1).

The accounting policies used in the preparation of the annual financial statements are compliant with IFRS and are consistent with those applied in the previous financial period, except as disclosed below.

IFRS 2 Share based payment
In accordance with the provisions of this standard, the group now recognises the fair value of share options granted to employees after 7 November 2002, which had not vested on 1 January 2005, as an expense in the income statement with a corresponding credit to equity. The fair value of options granted has been estimated on the grant date using an actuarial binomial option pricing model.

Following the early adoption of interpretation IFRIC 8 Scope of IFRS 2, the group is extending the scope of IFRS 2 to include the group's black economic empowerment initiative. Consequently, the fair value of the 8 000 000 shares issued at par to Mineworkers Investment Company (Pty) Limited has been expensed in the income statement.

IAS 16 (Revised) Property, plant and equipment
In terms of the transitional election made under IFRS 1, certain items of property, plant and equipment were recognised at deemed cost, being the fair value on 1 July 2004. In subsequent periods, these items have been measured at deemed cost less accumulated depreciation and impairment losses. Residual values and useful lives of assets were re-assessed, and where applicable, restated as required by IAS 16.

IFRS 3 Business combinations
During the previous financial year, the fair values of assets, liabilities and contingent liabilities of certain acquisitions were provisionally determined. These fair values have been adjusted as a result of completing the initial accounting of the business combination. These adjustments resulted in balance sheet reclassifications with no effect on profit.

SA GAAP adjustment
An adjustment was made in terms of SA GAAP to reduce the carrying value of the deferred tax asset incorrectly recognised in respect of the group's obligation to provide medical aid benefits to certain pensioners. The deferred tax asset was initially raised against opening accumulated losses in 2003 and consequently, the subsequent reversal thereof has also been written against accumulated reserves.

Reclassification
In the 2005 annual financial statements, realised foreign exchange gains and losses were reported separately and excluded from operating profit. The group now includes these gains and losses in operating profit as this better represents the financial performance of the group.
   
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35.  RESTATEMENTS (continued)  
The aforementioned restatements did not have any effect on the group's cashflow or minority interests.  
                  SA   Dis-           
  Previously               GAAP ad-   continued   Reclassifi-       
Group balance sheet – reported   IFRS 2   IAS 16   IFRS 3   justment   operation   cation   Restated   
1 July 2004 R’000   R’000   R’000   R’000   R’000   R’000   R’000   R’000   
Property, plant and equipment 248 919   –   22 852   –   –   –   –   271 771   
Goodwill and intangible assets 115 787   –   (959)   –   –   –       114 828   
Net deferred tax asset 172 990   –   (8 981)   –   (6 718)   –   (4 021)   153 270   
Share based payment reserve –   (4 128)   –   –   –   –   –   (4 128)   
Non-distributable reserves (305 119)   –   –   –   –   –   4 021   (301 098)   
Accumulated profit/(loss) 339 322   4 128   (12 328)   –   6 718   –   –   337 840   
Minority interest                                 
– Equity –   –   –   –   –   –   (40)   (40)   
– Other (16 238)   –   –   –   –   –   40   (16 198)   
Other current liabilities (552 896)   –   (584)   –   –   –   –   (553 480)   
Group balance sheet –                                 
30 June 2005                                 
Property, plant and equipment 279 718   –   26 367   –   –   –   –   306 085   
Goodwill and intangible assets 456 326   –   (959)   9 266   –   –   (23 000)   441 633   
Net deferred tax asset 151 417   –   (8 435)   (8 218)   (6 718)   –   (4 021)   124 025   
Investments and loans 12 603   –   –   –   –   –   2 000   14 603   
Trade and other receivables 407 789   –   –   –   –   –   (2 000)   405 789   
Non-distributable reserves (260 805)   –   –   –   –   –   4 021   (256 784)   
Share based payment reserve –   (8 034)   –   –   –   –   –   (8 034)   
Accumulated profit/(loss) 128 323   8 034   (14 982)   –   6 718   –   –   128 093   
Minority interest                                 
– Equity –   –   –   –   –   –   (30 780)   (30 780)   
– Other (80 927)   –   –   –   –   –   53 780   (27 147)   
Deferred tax liability (63 125)   –   (1 407)   (1 048)   –   –   –   (65 580)   
Bank overdrafts and short-                                 
   term borrowings (10 779)   –   –   –   –   –   (101 446)   (112 225)   
Other current liabilities (576 070)   –   (584)   –   –   –   101 446   (475 208)   
Group income statement –                                 
30 June 2005                                 
Revenue 1 980 308   –   –   –   –   (42 539)   –   1 937 769   
Cost of sales (855 492)   –   –   –   –   5 203   –   (850 289)   
Other operating income 17 730   –   –   –   –   –   23   17 753   
Other operating expenses (723 617)       –   –   –   35 664   (2 241)   (690 194)   
Depreciation (62 680)   –   4 509   –   –   1 020   –   (57 151)   
Amortisation of software (4 688)   –   –   –   –   –   –   (4 688)   
Amortisation of other intangible                                 
   assets (13)   –   –   –   –   –   –   (13)   
Net finance costs (47 265)   –   –   –   –   (69)   –   (47 334)   
Share option expense –   (3 906)   –   –   –   –   –   (3 906)   
Foreign exchange (losses)/gains (2 101)   –   –   –   –   –   2 218   117   
Exceptional items 16 915   –   (994)   –   –   447   –   16 368   
Share of associated companies'                                 
   profits 457   –   –   –   –   –   –   457   
Income tax (expense)/credit (86 642)   –   (861)   –   –   126   –   (87 377)    
Profit/(loss) for the year from                                 
           continuing operations 232 912   (3 906)   2 654   –   –   (148)   –   231 512   
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35.  RESTATEMENTS (continued)                  
                Dis-   
    Previously       SA GAAP continued   Reclassifi-  
  Effect on earnings reported IFRS 2 IAS 16 IFRS 3 adjustment operation   cation Restated  
  per share – 30 June 2005 cent cent cent cent cent cent   cent cent  
  – Basic   97 (2) 1 – – – – 96
  – Diluted   94 (2) 2 – – – – 94
  – Headline earnings   95 (2) 2 – – – – 95
  – Fully diluted headline earnings   93 (2) 2 – – – – 93  
                     
                Previously    
                reported IFRS 2 Restated
  Company balance sheet – 1 July 2004             R’000 R’000 R’000  
  Investments in subsidiaries             418 088 4 128 422 216
  Share based payment reserve             – (4 128) (4 128)  
  Company balance sheet – 30 June 2005                    
  Investments in subsidiaries             562 721 8 034 570 755  
  Share based payment reserve             – (8 034) (8 034)  
 

At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not effective:

IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 7 Financial Instruments: Disclosures IFRIC 4 Determining whether an Arrangement contains a Lease

IFRIC 5 Rights to Interest arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IFRIC 6 Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies IFRIC 9 Reassessment of Embedded Derivatives IFRIC 10 Interim Financial Reporting and Impairments

The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the group.

  
 
36.    GOODWILL IMPAIRMENT REVIEW
In accordance with IFRS 3 Business Combinations, goodwill is reviewed annually for impairment, or more frequently if there is an indication that goodwill might be impaired.

The recoverable amount of goodwill relating to all subsidiaries, associates and jointly controlled entities has been determined on the basis of value in use calculations. All these companies operate in the same economic environment for which the same key assumptions have been used. These calculations used cash flow projections based on financial budgets approved by management covering a five year period and a discount rate of 11,4% (2005: 13,9%) for all cash generating units. Cash flows beyond the five year period were extrapolated using a steady 3% nominal growth rate. Management believes that this growth rate does not exceed the long-term average growth rate for the market in which the companies operate. Any changes in revenue or costs are based on past practices and expectations of future changes in the market.

Management believes that changes in any of these key assumptions would not cause any significant additional impairment losses.

  
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37. DIRECTORS' REMUNERATION AND INTERESTS
37.1 Directors' remuneration
Directors' remuneration, including direct and indirect benefits, for the year ended 30 June 2006 is as follows:
            Benefit  
    Retirement       in respect  
    and medical       of share   2006
Salary   contributions   Bonus   options   Total
Executive directors R’000   R’000   R’000   R’000   R’000  
FA Gazendam  1 429   221   2 100   3 090   6 840
O Ighodaro 1 380   270   2 500   2 239   6 389
W Kirsh 1 778   322   3 250   7 149   12 499
M Lekota (appointed 9 June 2006) 62   13   1 127   –   1 202
K Pillay 1 353   297   2 500   1 545   5 695  
  6 002   1 123   11 477   14 023   32 625
Benefit in respect of share options exercised not charged to the income statement (14 023)
Charge to the income statement 18 602
 
Board and   Other      
committee   services as   2006  
fees   directors (1)   Total  
Non-executive directors         R’000   R’000   R’000   
MJ Bosman 220   –   220  
NJM Canca 143   –   143  
I Kirsh 1 127   –   1 127  
HM Khoza 429   –   429  
HM Madima (2) 200   –   200  
P Maw 297   137   434  
K Motaung (resigned 9 June 2006) 143   –   143  
AP Nkuna (2) 600   –   600  
CS Seabrooke 363   152   515  
BJT Shongwe 286   15   301  
SV Zilwa         297   –   297  
          4 105   304   4 409  
(1) Fees paid for time spent on group affairs in their capacity as directors outside of board or committee forums.
(2) These amounts were paid to Mineworkers Investment Company (Pty) Limited.

  
All the above amounts were approved by the Remuneration and Nominations Committee in the 2006 financial year.

None of the directors have service agreements with Primedia Limited extending beyond 1 July 2007.

  
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37. DIRECTORS' REMUNERATION AND INTEREST (continued)
37.1 Directors' remuneration (continued)                  
Directors' remuneration, including direct and indirect benefits, for the year ended 30 June 2005 was as follows:  
                    
            Benefit      
    Retirement       in respect      
    and medical       of share   2005  
  Salary contributions   Bonus   options   Total  
Executive directors R’000 R’000   R’000   R’000   R’000  
FA Gazendam 1 293 208   1 000   1 228   3 729  
O Ighodaro 1 262 238   1 963   1 593   5 056  
W Kirsh 1 647 173   2 305   –   4 125  
K Pillay 1 234 266   2 154   1 078   4 732  
   5 436 885   7 422   3 899   17 642  
Benefit in respect of share options exercised not charged to the income statement           (3 899)  
Charge to the income statement               13 743  
                   
                   
            Benefit      
    Board and   Other   in respect      
    committee   services as   of share   2005  
    fees   directors (1)   options   Total  
Non-executive directors   R’000   R’000   R’000   R’000  
MJ Bosman   200   –   –   200  
NJM Canca   130   –   –   130  
I Kirsh   460   515   2 895   3 870  
HM Khoza   414   –   –   414  
HM Madima (2)   200   –   –   200  
P Maw   270   173   2 562   3 005  
K Motaung (appointed 25 February 2005)   65   –   –   65  
AP Nkuna (2)   600   –   –   600  
CS Seabrooke   363   152   –   515  
BJT Shongwe   260   15   –   275  
SV Zilwa   270   –   –   270  
    3 232   855   5 457   9 544  
Benefit in respect of share options exercised not charged to the income statement   (5 457)  
Charge to the income statement               4 087  
(1) Fees paid for time spent on group affairs in their capacity as directors outside of board or committee forums.
(2) These amounts were paid to Mineworkers Investment Company (Pty) Limited.
 
All the above amounts were approved by the Remuneration and Nominations Committee in the 2005 financial year.		  
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37. DIRECTORS' REMUNERATION AND INTERESTS (continued)
37.2 Interests of directors in contracts
The directors have certified that, during the year and up to the date of approval of these financial statements, they were not materially interested in any transaction of any significance with the company and any of its subsidiaries. Accordingly, a conflict of interest with regard to directors' interests in contracts does not exist.
37.3 Interests of directors in share options                              
  30 June 2006                                  
      Number of   Options   Options       Number of       Date from      
      options at   granted   exercised   Exercise   options at   Option   which      
      30 June   during   during   price   30 June   price   exer-   Expiry  
  Name Type 2005   the year   the year   (cents)   2006   (cents)   cisable   date   
                                     
  FA Gazendam N 258 542   –   (129 270)   1 380   129 272   361   02/12/04   01/12/08  
    N 173 840   –   (57 946)   1 380   115 894   604   01/12/05   30/11/09  
    Ordinary 167 000   –   (167 000)   1 392   –   600   01/01/03   –  
    N 137 112   –   –   –   137 112   1 094   20/05/07   19/05/11  
    N –   117 321   –   –   117 321   1 699   26/06/08   25/06/12  
                                      
  O Ighodaro N 83 334   –   (83 334)   1 370   –   411   30/08/03   –  
    N 203 140   –   (101 569)   1 375   101 571   361   02/12/04   01/12/08  
    N 159 561   –   (53 187)   1 375   106 374   604   01/12/05   30/11/09  
    N 197 603   –   –   –   197 603   1 094   20/05/07   19/05/11  
    N –   117 321   –   –   117 321   1 699   26/06/08   25/06/12  
                                      
  W Kirsh N 44 534   –   (44 534)   1 765   –   425   01/07/02   –  
    N 470 914   –   (313 942)   1 744   156 972   361   02/12/04   01/12/08  
    N 301 325   –   (100 441)   1 620   200 884   604   01/12/05   30/11/09  
    Ordinary 11 134   –   (11 134)   1 901   –   425   01/07/02   –  
    Ordinary 79 605   –   (79 605)   1 901   –   613   18/09/02   –  
    N 249 362   –   –   –   249 362   1 094   20/05/07   19/05/11  
    N –   149 317   –   –   149 317   1 699   26/06/08   25/06/12  
                                      
  MN Lekota N 44 702   –   (14 900)   1 400   29 802   604   01/12/05   03/11/09  
  (appointed 9 June 2006) N 229 420   –   –   –   229 420   1 094   20/05/07   19/05/11  
    N –   63 993   –   –   63 993   1 699   26/06/08   25/06/12  
                                      
  K Pillay N 221 607   –   (110 803)   1 360   110 804   361   02/12/04   01/12/08  
    N 173 841   –   (57 947)   1 360   115 894   604   01/12/05   03/11/09  
    N 265 670   –   –   –   265 670   1 094   20/05/07   19/05/11  
    N –   117 321   –   –   117 321   1 699   26/06/08   25/06/12  
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37. DIRECTORS' REMUNERATION AND INTERESTS (continued)
37.3 Interests of directors in share options (continued)
30 June 2005
Number of  Options   Options   Options       Number of       Date from    
  options at   granted   lapsed   exercised   Exercise   options at   Option   which      
  30 June   during   during   during   price   30 June   price   exer-   Expiry  
Name Type 2004   the year   the year   the year   (cents)   2005   (cents)   cisable   date   
                                     
FA Gazendam N 387 812   –   –   (129 270)   1 120   258 542   361   02/12/04   01/12/08  
N 173 840   –   –   –   –   173 840   604   01/12/05   30/11/09  
Ordinary 66 800   –   –   (66 800)   970   –   600   01/07/02   –  
Ordinary 167 000   –   –   –   –   167 000   600   01/01/03   31/12/06  
N –   137 112   –   –   –   137 112   1 094   20/05/07   19/05/11  
                                       
O Ighodaro N 250 000   –   –   (166 666)   910   83 334   411   30/08/03   29/08/07  
N 304 709   –   –   (101 569)   1 110   203 140   361   02/12/04   01/12/08  
N 159 561   –   –   –   –   159 561   604   01/12/05   30/11/09  
N –   197 603   –   –   –   197 603   1 094   20/05/07   19/05/11  
                                       
I Kirsh Ordinary 500 000   –   –   (500 000)   1 179   –   600   01/07/02   –  
                                       
W Kirsh N 158 632   –   (158 632)   –   –   –   585   01/07/02   –  
N 44 534   –   –   –   –   44 534   425   01/07/02   30/06/06  
N 470 914   –   –   –   –   470 914   361   02/12/04   01/12/08  
N 301 325   –   –   –   –   301 325   604   01/12/05   30/11/09  
Ordinary 11 134   –   –   –   –   11 134   425   01/07/02   30/06/06  
Ordinary 79 605   –   –   –   –   79 605   613   18/09/02   17/09/06  
N –   249 362   –   –   –   249 362   1 094   20/05/07   19/05/11  
                                       
P Maw N 136 581   –   (136 581)   –   –   –   585   01/07/02   –  
N 43 420   –   –   (43 420)   920   –   425   01/07/02   –  
Ordinary 400 000   –   –   (400 000)   920   –   400   01/05/02   –  
Ordinary 16 700   –   –   (16 700)   920   –   425   01/07/02   –  
Ordinary 60 009   –   –   (60 009)   920   –   613   18/09/02   –  
                                       
K Pillay N 332 410   –   –   (110 803)   1 145   221 607   361   02/12/04   01/12/08  
N 173 841   –   –   –   –   173 841   604   01/12/05   03/11/09  
Ordinary 48 987   –   –   (48 987)   1 041   –   613   18/09/02   –  
     N –   265 670   –   –   –   265 670   1 094   20/05/07   19/05/11    
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38.   SHARE OPTION SCHEME
The company has a share option scheme available to executive directors and staff enabling them to participate in the growth of the company. As at 30 June 2006, the number of ordinary shares and N ordinary shares on hand, and thus available to the scheme, was 10 633 305 (2005: 6 880 724). The Primedia Trust was approved at a general meeting of the company held on 25 August 1995.

The following rights and options over allocated ordinary shares and N ordinary shares have been granted and were outstanding in terms of The Primedia Trust at 30 June 2006.
        Subscription price      
Date of grant   Expiry date   (cents)   N ordinary shares   
02/12/02   01/12/08   361   2 858 374  
01/12/03   30/11/09   604   2 474 135  
20/05/05   19/05/11   1 094   9 268 400  
09/12/05   19/05/11   1 361   35 101  
26/06/06   25/06/12   1 699   4 206 400  
            18 842 410  
Options exercisable at 30 June 2006           540 507  
  Ordinary Weighted   N ordinary   Weighted  
  shares average price   shares   average price   
               
Movement during the year:              
Balance at beginning of year 257 739 596   19 287 311   785  
New options granted – –   4 241 501   1 696  
Options relinquished – –   (1 042 780)   858  
Options exercised (257 739) 1 571   (3 643 622)   1 459  
Balance at end of year – –   18 842 410   1 054  

Share options issued in December 2002, December 2003 and June 2006 vest in three tranches from the second anniversary of the date the share options were granted. Share options issued on 20 May 2005 and 9 December 2005 vest in four tranches from the second anniversary of the date the share options were granted. All options granted, except those granted during 2005, are valid for five years. The options granted on 25 May 2005 and 9 December 2005 are valid for six years.

The group accounts for share option expenses in accordance with IFRS 2, share based payment, which requires the fair value of share options granted to employees to be valued at grant date and expensed through the income statement over the vesting term of the option. This has been applied to all options granted after 7 November 2002, which had not vested on 1 January 2005.
  

  
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        The fair value of options granted has been estimated on the grant date using an actuarial binomial option pricing model. The assumptions used in determining the fair value of the options are as follows:
 
          Options granted on          
   02/12/02   01/12/03   20/05/05   09/12/05   26/06/06   
Expected life of options (years) 2,49 – 4,09   2,49 – 4,09   2,97 – 5,21   3,04 – 5,17   3,46 – 4,6  
Risk-free interest rate (%) 10,59 – 10,62   7,27 – 8,29   7,54 – 8,01   7,27 – 7,35   8,50 – 8,44  
Volatility (%) 40,75   35,60   27,61   21,22   20,99  
Dividend yield (%) 5,50   5,50   5,50   5,50   5,50  
  The volatility was estimated by considering the volatility of the 400-day closing share prices prior to the grant date. The expected life of each grant was estimated by considering each of the tranches within that grant. The implied yield on a SA zero-coupon government bond issued for the appropriate expected lifetime was used to estimate the risk-free interest rate.  
 
39.   EVENTS SUBSEQUENT TO FINANCIAL YEAR-END
Subsequent to the year-end, the group has concluded the following acquisitions for a total consideration of R129,0 million:
  • 50% shareholding in eXactmobile (Pty) Limited, a wireless application service provider (WASP) and the leading mobile content provider in South Africa. This transaction is subject to suspensive conditions including approval by the Competition Commission, which is expected before the end of the current calendar year;
  • 70% shareholding in Warwick Sports and Media (Pty) Limited, a company providing corporate hospitality at major sporting events, event management and outbound sport tours, with effect from 1 September 2006;
  • 74% shareholding in Icon Media Group (Pty) Limited, which secured the rights to an international patent for specialised shopping carts in the retail environment, with effect from 1 September 2006;
  • An additional 10% interest in Xprocure (Pty) Limited with effect from 1 July 2006.  

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