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Annual Results Presentation For The Year Ended 31 March 2010. Thursday, 24 June 2010. Disclaimer.
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Annual Results PresentationFor The Year Ended 31 March 2010 Thursday, 24 June 2010
Disclaimer This presentation contains forward-looking statements. These statements may be identified by words such as “expect”, “should”, “could”, “shall” and similar expressions. Avusa cautions investors that such forward-looking statements have inherent risks and uncertainties that could cause actual results and events to differ materially from what is contemplated by the forward-looking statements. Such statements should therefore be viewed in the context of those factors and undue reliance should not be placed on them Avusa disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise
Avusa Landscape Avusa business is its brands:
Avusa Landscape • Traditional businesses remain the largest source of revenue generation today and will continue for a long time • While physical product cycle may have peaked, efficiencies and new business models in traditional businesses can still drive higher returns • Existing brands will deliver the revenues to enable the evolution to multi-media • Combined physical and digital newspaper advertising revenues will be lower than current advertising revenues into the future • Innovative solutions required to capture new and existing revenues • Grow and evolve new businesses that have innovation and uniqueness at the core • Newspapers, books and movies will coexist with innovative solutions and new businesses
Strategy 2011 Implementing organic growth strategy Prudent acquisitions Extracting greater returns from existing business Internships Talent Management Future Executives Building Avusa into a multimedia player with diverse revenue streams
Group Overview • A recessionary climate continued for the full year • The first half delivered a 5% loss in revenues and a resultant operating profit 61% below prior year. • The full year 2010 delivered revenues 4% below the prior year and an operating profit at 39% below the prior year The improvement in the second half comes entirely from the early initiatives to address the anticipated recession and the major benefit has flowed through in the second half
Group Overview • Revenues for the year were below the prior year by 4% - our fixed cost media and entertainment business model saw the top line revenue loss translated to the bottom line • The shortfall in revenue and profitability against prior year arises largely from reduced advertising support in the Media businesses • Sustainable initiatives were introduced early in anticipation of recessionary climate • Reduced operating cost delivered, absorbing inflationary increases above 6% in wages, rental and input costs The Avusa Business model remains sound and robust
Media Daily, weekly and monthly newspapers and magazines
Media • Avusa results are mirrored in the reduced advertising revenue compared to prior year of approximately 17%, which has translated largely to the bottom line, in a larger fixed cost to variable cost business model • The recession has led to job reductions across the corporate and the public sector and consequently this segment of advertising shows the largest decline, approximately 70% of the total reduction in advertising revenue • An approximate R200m loss in advertising revenue compared to the prior year has been softened by a substantial savings from early introduced cost saving initiatives • New initiatives on advertising segmentation bearing fruit – retail and classified support growing
Media Newspapers • Advertising Market share has remained constant • Circulation revenues grew by 1% • Retail advertising has grown as has classified and legals • Sunday Times grew readership by 8.5% passing the 4m mark for the first time ever • Our Eastern Cape Titles grew profits following extensive restructuring and cost saving initiatives • Closed Weekender. BDFM delivered an Ebit loss of R24m (our 50% share being R12m)
Media The Times • Positive trendline continues, loss in second half is 50% lower than preceding period • Growth in classified advertising • Strong support from retailers 6 Monthly Financial Results
Media TimesLive • Since its launch in September 2009 TimesLive has grown domestic users by 93% and total users by 128% • Avusa’s total domestic audience in May was 1.5m unique browsers making us the third biggest online publisher • Sowetan grew local users to 350 000 users and was up 96% in the year
Entertainment Cinema, Home Entertainment, Film, Interactive and Music
Entertainment Substantial improvement in profitability from: • Increased market shares • Larger contribution from contra-recessionary businesses segment • Delivery from re-engineered business • Withstanding the challenges of: • A recessionary climate • Increased fierce competition
Entertainment Cinemas • Growth of market share at +2% • Revenue - 22% increase on last year – supported by strong content • Significant turn-around in the business – this has been driven by intense management intervention on brand, operations and marketing • Attendances increased by 14%, average ticket prices up 13% and confectionary per person up 10% • Loyalty programme initiated with Clicks Club Card • Retained 6 of Top 10 movie sites in South Africa (measured by attendance) • 16% of attendances are coming from 3D products
Entertainment Home Entertainment • Unit sales increased 2% from last year. Average price down 4% • Acquired Sony Pictures Home Entertainment license rights • Acquired Paramount / Dreamworks license rights • The business now represents 5 of the 6 major studios • 80% share of South African Blu Ray sales • The division lost the rights to 20th Century Fox representation
Entertainment Films • NMF released 3 of the year’s biggest films: Avatar, Ice Age 3 and Twilight: New Moon • Renewal of Warner Licence for 3 years and Fox for 2 years for Film Distribution Interactive • 55% revenue growth • The business grew market share by 4% to 12% Music • Profitability of 4% operating profit margin for the re-engineered business
Retail General and Academic Books
Retail Excluding the investment in the Digital Development Project Retail has delivered a growth in market share and expanded the portfolio whilst delivering a competitive Ebit in the current recessionary environment that delivers lower discretionary spend
Retail Exclusive Books • Sales grew by 5%, same store 1% growth • Market share growth • Expanded the portfolio by 5 new stores closed 3 stores Van Schaik • Van Schaik a successful year with 6% growth in turnover on a high base set in prior year • Opened new stores in Maponya Mall and Kimberley Digital • Successfully launched exclusives.co.za, a multimedia online store selling DVD’s, CD’s, electronic games and books • The site has more than trebled the traffic received on the previous website
Books and Maps Random House Struik, Struik Christian Media, MapStudio, MapIT, BooksiteAfrika, ELS and CDT
Books and Maps In addition to the lower revenues contributing to a softer bottom line, common with South African discretionary spend businesses, there were negative contributions from: the contribution of a large loss from the UK book business, the digital mapping business recognising increased development costs, once-off legal costs for our CD manufacturing business and an increased foreign exchange loss, all contributing to an overall poorer performance.
Books and Maps • Performance dominated by soft retail sales in SA and the UK • Margins well maintained over the year and increased over the prior year • Paper based mapping remains under pressure. Ebit improved over the prior year driven primarily by expense cuts • Struik Christian Media returned to profit • Secured a new agency, Destiny Image (Struik Christian Media) • Logistics and manufacturing businesses (ELS, BooksiteAfrika, CDT and Collage) benefited from their diversification in a difficult economic environment
FINANCIAL REPORT For The Year Ended 31 March 2010
Statement Of Comprehensive Income(Selected line items) • Media revenue is R242m lower • Advertising revenues down 17% on 2009, approximating R200m Recruitment advertising particularly affected, as employers restrict new appointments • Retail, Entertainment, Books and Maps revenue is R62m higher Group revenue is R180m lower than previous year Revenue losses flow to the bottom line
Statement Of Comprehensive Income(Selected line items) • Gross profit is R167m lower than previous year • Margins under pressure
Statement Of Comprehensive Income(Selected line items) • Focus on operating costs delivers 2% reduction on prior year, while absorbing salary, rental, general inflationary increases, and digital development costs
Statement Of Comprehensive Income(Selected line items) • Group Ebit is R158m lower than previous year
Statement Of Comprehensive Income(Selected line items) Media is R125m lower Retail, Entertainment, Books and Maps is R23m lower
In Conclusion • Advertising revenues down 17% • Headline earnings per share down 38% BUT… • Operating costs decreased by 2% • Dividend up 25% AND… • Proposed UHC acquisition to deliver attractive new revenue streams for Avusa Financial results delivery mirrors recession Avusa in a strong financial position
Digital “2010 – Organic Digital Strategy Progressed” • Extending our audience beyond the core print audience • Investing with a clear view on payback • Implementation phase Projects • Avusa Retail (Online Shop) • Project status • Exclusives.co.za launched in March 2010 • Van Schaik.com exceeded targeted sales • Next objectives • Expansion of DVD and CD catalogue • Introduce E-books catalogue
Digital • E-Classifieds • Project status • Redeveloped classified platform • Next objectives • Launch AutoJunction and PropertyJunction Projects cont’d • Content Management • Project status • TimesLive launched • Next objectives • Gross revenue targeted • Cumulative domestic audience targeted • Launch SowetanLive
Digital • BusinessLive • Project status • Completion of architecture and design • Next objectives • Functionality and design sign off • Public launch
Digital Risks • Costs incurred in the planning stage are expensed as incurred • Costs incurred in the development stage are capitalised • Income statement and balance sheet impact • Income statement charge – New projects • 2010 R16m • Balance sheet • 2010 R16m • 2009 R24m
Printing Analyst Presentation November 2009 Analyst presentation November 2009 Printing • Plant that prints the Sunday Times in our joint venture is 36 years old. • The size of the print run has risk of plant breakdown only for the Sunday Times. • In Gauteng, no single plant can meet all the Sunday Times printing window of Saturday evening • Replacement investment will need to be made in the joint venture or outside the joint venture • Shareholders will support a replacement investment that will improve bottom line, mitigate the risk of non-supply and create strategic business opportunities • Outsourcing is the most expensive printing alternative • Our joint venture press with a leading industry player for our Port Elizabeth throughput has lost R31m in 3,5 years. Our share R16m • In Durban and Cape Town our strategy remains to outsource • Replacement investment will be unequivocally required at the coastal plant Requirement is replacement investment to deliver current capacity not to increase capacity
Printing Current Printing Landscape Options For Future Printing Landscape Own Joint Venture Outsourced Contract
Future Printing Landscape Options • Sequence • Secrecy • Timing – 6 to 18 months • Delay has been positive for pricing • Implementation phase
UHC • Introduces a BEE shareholder • Acquisition at a lower PE than Avusa • Target in net cash position • Cash generative and resilient earnings • Offers new revenue streams for Avusa • Synergies • Quality management and reputable company • Favourable transaction terms
Looking Ahead FOCUS • Our brands and continued investment in brands differentiate us • We leverage content across our media and entertainment businesses holistically • Digital delivers an opportunity to find new businesses offering integrated solutions • We have optimised key operations and are executing a well planned strategy • Understand and manage the evolution from the traditional business to the digital space
Looking Ahead OUTLOOK • The execution of our strategy to deliver long-term growth will deliver shareholder value • The positive impact from the Soccer World Cup and continued positive returns from sustainable initiatives introduced in the current recession, will be positive contributors to results • We remain well positioned to capitalise on the anticipated improvement in the economy
Customer Intelligence The UHC acquisition brings with it an entrenched customer base, where the service offering is client-solution driven: • Avusa has access to customers at many levels – c.2,4m buyers named and addressed at purchase or interaction level. UHC understands the same customers, and many more, at a retail level. • The combined entity has the ability to link the marketer to their required target at a lower cost and higher ROI than any competitor. • The data that allows this approach is the centre of a knowledge-based company • Opportunity is to be the customer’s choice through CRM, customer intelligence, improved service and ease of service. • Effectively it will matter less how marketers change the resource split - Avusa will have an enhanced ability to profit regardless of how budgets are re-allocated.
Innovation The enlarged entity will allow for the following innovation: • Combined entity offers the market and marketers greater integration and consistency across the whole communications chain. • The new offering facilitates the execution of what is already possible, but which often falters because of structural and organisational hurdles. • Easier to win a greater share of the whole market, rather than focusing on either the above-the-line or the below-the-line segments in isolation. • End-to-end solution within existing assets, intellectual property and business processes to increase revenues. • Avusa and UHC management are aligned in terms of strategy, with the two key pillars of future growth in new markets likely to come from digital and education. • Avusa and UHC have significant overlap in customer bases, but not in the market areas and advertising spend.
