Introduction

Kagiso Media delivered a 10% increase in total revenue to R1,0 billion (before adjustment for the pending sale of LexisNexis, which was previously treated as a joint venture and proportionately consolidated), underpinned by solid organic growth in the Content division and a better than anticipated performance in our New Media category. Profit before income tax of R338,8 million (including LexisNexis) showed growth of 8% which translated into total profit of R234,2 million, up 13,6% on the prior year. Kagiso Media generated strong cash flows, with cash generated from operations of R377,6 million. With the payment of dividends amounting to R127,1 million in 2011, the group has exceeded its dividend cover policy for the benefit of all shareholders.


Kagiso Media has made solid progress to become a converged organisation and delivering on the revenue diversification strategy which it embraced five years ago. The revenue profile in 2011 is a clear demonstration of success as non-broadcasting assets contributed 51,5% of total revenue.


Subsequent to year-end, the board accepted an offer of R565,0 million from its joint venture partner to sell its 50% interest in LexisNexis to them. The group anticipates the completion of this transaction by end of October. Management is in the process of evaluating various alternatives to replace this asset.

Strategy review

The evolution of Kagiso Media’s strategy has led to a change in its investment criteria as it became apparent that a more proactive approach to managing its assets would enhance value creation in the longer term. As such, the executive team has repositioned itself to increase its influence over its media assets during the current year. Kagiso Media will now only consider future investments which present the opportunity to acquire a majority interest. The group has made progress with repositioning its investment portfolio in support of its strategy:

• The group increased its stake in Kaya FM, the fastest growing radio station in South Africa to 47,4% of the economic interest, with effect from 3 June2011. The transaction included an agreement to reduce Kagiso Media’s stake in Gagasi 99.5 FM and Heart 104.9 to 20%.
• Knowledge Factory, a geospatial and deeds information company was acquired with effect from 1 November 2010.
• The group’s 50% holding in LexisNexis is in the process of being sold to its joint venture partner. The disposal is expected to be finalised subsequent to year-end, and was concluded as there was no scope to take a controlling interest to drive growth.

Kagiso Media has successfully extended its business from a commissioned provider of content to a content owner. However, we remain committed to our four key segments, namely Broadcasting, Content, New Media, and Information and Other.

Kagiso Media made significant progress in fine-tuning its strategy to ensure the long-term economic sustainability of the business.


A further benefit of the diversification strategy for the group has been our more balanced exposure to various market segments. Kagiso Media was previously highly geared towards consumers and heavily reliant on business-to-consumer flows. The strong suite of Content assets which we have built since 2008, has enabled the group to strengthen its exposure to the business-to-business market whose spending patterns are more resilient during economic downturns.

Operational capacity development
Kagiso Media has taken cognisance that a critical success factor for the delivery of its strategy is having the correct structures in place at group level. During the year, Kagiso Media’s human resources department integrated an electronic performance management tool at head office and throughout the operations to align our people’s professional goals and objectives to the goals of the company to leverage performance and to create value.

In the 2011 financial year, the group also refined its internal structures with a view to divisionalising its four core segments of operation, starting with the appointment of a dedicated divisional CEO in each division. These leaders have been
mandated to deliver on the specific divisional strategies, in terms of positioning and growth. In addition, an executive committee was established for the Broadcast and New Media segments in order to achieve a greater operational focus in support of Kagiso Media’s strategic and operational objectives.

The finalisation of the new Companies Act and the advent of King III was the catalyst for further structures being implemented by the group during the year. Although these were necessitated by regulatory compliance, the timing also coincided with Kagiso Media’s more proactive strategic approach.
The Delegation of Authority Policy was approved by the board in 2010 and implemented throughout the group. All authority levels, roles and responsibilities from the main board and executive, filtering through to the operations and subsidiary executive teams, have been fully defined.

Regulatory environment

We believe that a rigorous regulatory environment is essential for a successful media industry, but the framework in South Africa in its current form is restrictive on companies. It also has the potential to limit the growth of black-owned media companies such as Kagiso Media in South Africa. The licensing limitations
on radio media owners are stringent, compared to the rest of the continent and in most democratic markets. In the television sector, South Africa also has significantly lower levels of licensing than other democracies in similar size markets. The new digital technology platforms will significantly ramp up the capacity of available channels which will justify a more expansive regulatory environment, encouraging new entrants to ensure a sustainable, competitive and vibrant industry in South Africa.

Strategic shareholder: Kagiso Tiso Holdings

The merger of Kagiso Trust Investments, the group’s major shareholder, with the Tiso Group, came into effect on 1 July 2011, leading to the formation of Kagiso Tiso Holdings (KTH). This has enhanced Kagiso Media’s empowerment credentials. KTH’s foundation of giving back to communities is fully aligned with Kagiso Media’s core values of ”building communities for good”. It also presents an opportunity for Kagiso Media, as KTH’s strengthened balance sheet, portfolio diversification and stronger cash-flow profile is expected to create more opportunities for growth.

Board of directors and corporate governance

During the year, the board focused strongly on ensuring alignment with the requirements of the new Companies Act which became effective from 1 May 2011 and the recommendations of King III code. In particular the charter of the board and all its committees was formalised. Internal audit and enterprise risk management processes were implemented and the membership of the audit and risk committee was strengthened to comprise independent directors only. Ms Mary Vilakazi, a chartered accountant was appointed as a non-executive director with effect from 12 August
2011, and will be a member of the audit and risk committee. Mr Frencel Gillion was appointed as a non-executive director to represent Kagiso Tiso Holdings with effect from 14 February 2011.


During the year, the risk committee adopted a highly practical approach to risk management. It focused its efforts on analysing the risks which could impact our ability to deliver on the strategy and the development of practical mitigation measures. The top eight risks are outlined on page 6.

In implementing the recommendations of King III, Kagiso Media is pleased to present to its stakeholders its first integrated report. In preparing the information which we have presented in this report, we engaged in extensive self-analysis. Again, this was timeous as it coincided with our decision to adopt a more proactive approach to dealing with any issues which have a direct or indirect bearing on our strategy. We considered all the stakeholders who engage with Kagiso Media and the material issues which arise as a result of these interactions, be they challenges or opportunities. The information presented shows that while we have all the required structures in place, it is the linkages between the stakeholders and specific risks and opportunities that enabled us to embrace the very essence of what integrated reporting is striving towards. We also conducted an in-depth stakeholder review during the year, the
findings of which support the philosophy of the integrated reporting approach (see page 9).

Outlook and prospects

While the South African economy showed signs that it had weathered the worst of the recession storm which followed the global upheaval in 2008, the economy’s growth rate is still far from satisfactory. The recent re-emergence of debt concerns in the US and several European countries indicate that there could be further instability in the year ahead. Notwithstanding the domestic uncertainty which could ensue, we believe that the South African economy holds attractive opportunities for media companies. In addition, with the rule of law becoming more prevalent in sub-Saharan Africa, business opportunities are also emerging which the group continually evaluates.

From a consumer perspective, interest rates are still low and average incomes are showing real growth which bodes well for retail demand and consequently for our business-to-consumer- related revenue streams. At the same time, the scene is set for heightened competitor activity in both the retail and telecommunications sectors. These are valuable trends for the business-to-business elements of our business, in Broadcasting, Content and New Media. From a connectivity perspective, the further reduction in bandwidth costs can only benefit all dimensions of Kagiso Media’s business.

With the impending sale of LexisNexis, the group is evaluating other investment opportunities in the Information and Other sector in which to reinvest the proceeds. The dynamic nature of the domestic legislative environment as well as the liberalisation of the African continent should drive demand in the sector.

The group is cautiously optimistic that the environment will be conducive to showing positive earnings growth in the 2012
financial year.

Acknowledgements

Kagiso Media made significant progress in fine tuning its strategy to ensure the long-term economic sustainability of the business as well as our equally important objective of “building communities for good”. This would not have been possible without the continued commitment of every member of the Kagiso Media family.

We extend our heartfelt gratitude to the board of directors for their strategic counsel which contributed significantly to our progress during the year. The additional demands on your time, while the group positioned itself for King III and the new Companies Act, are acknowledged.

The efforts of the executive team to drive the revenue diversification strategy of the business in difficult and uncertain conditions will stand the group in good stead for the future. We congratulate you for these efforts.

We also thank each and every member of our staff whose loyalty and efforts have been equally important in Kagiso Media’s ability to overcome the challenges that were presented to us during the year.

We salute our partners and suppliers, shareholders and providers of capital for their continued support.

We wish to extend a special welcome to our new strategic shareholders. We believe that the advent of the KTI and Tiso merger (KTH) will strengthen our empowerment pedigree even further as we embark on the next phase of our growth journey and we look forward to partnering with you.



Maud Motanyane
Independent non-executive chairperson



Murphy Morobe
Chief executive officer