Operational review
Broadcasting
Kagiso Broadcasting houses the wholly owned radio assets of Kagiso Media as well as the media sales house, MediaMark, and four associates.
Jacaranda FM and East Coast Radio are majority owned, while Kagiso Media has minority stakes in OFM (Free State), Gagasi 99.5 (Durban) and Heart 104.9 (Cape Town) and an economic stake in Kaya FM (Johannesburg).
Operating environment
Although the South African economy improved during the year, advertisers have remained cautious with their spend as reflected in total advertising revenue for the industry which has not recovered to 2008 levels. In particular, the industry experienced a slow down immediately after the 2010 FIFA World Cup in June 2010. In some segments of the market, deep discounting was evidenced, but Kagiso Media's radio stations held reasonably firm.
Performance
Against this backdrop, the radio stations maintained their revenue. Jacaranda showed single digit growth in line with a higher market share in Gauteng. East Coast Radio was marginally down on the prior year but has ramped up its trade marketing spend to reverse this trend.
Jacaranda FM
The radio station showed double digit growth in its audience in Johannesburg as a result of increased marketing investments. Its operating profit was in line with expectation although this was slightly lower than the previous year.
Highlights for the year include:
• The station reached Number 1 in the Gauteng Afrikaans market with 28,3% share.
• Total audience of 2,2 million, up 9% compared to the same period one year ago.
• Within its category, Jacaranda achieved 21% growth in Gauteng, 29% in Limpopo, 24% in North West and 18% growth in Mpumalanga.
• Repositioning the radio station to penetrate the Mpumalanga region is progressing well with a new studio opening at the Emnotweni Casino in Nelspruit.
• Just Plain Breakfast won the Best Breakfast Show award at the 2011 MTN Radio Awards.
East Coast Radio
Although revenue was under pressure in the first half which resulted in a shortfall, the performance in the second half exceeded expectations to recover most of this backlog. A stringent focus on costs enabled the radio station to achieve its operating profit target.
Highlights for the year include:
• Overall listenership grew by 13% to over 1,9 million underpinned by a 14% growth within the target market category.
• Market share remains dominant in the lucrative LSM 7-10, 25-49 age group at 40%.
• The station completely refreshed and repositioned the line-up to ensure its long-term relevance.
• East Coast Radio published a cookery book, East Coast Tables which is an innovative concept for the radio station. The book sold more than 5 500 copies.
• To grow below-the-line revenue, the station launched the executive business breakfast in association with GIBS. This successful event will now be hosted annually.
• Funsunzi, a long-term campaign, was launched to re-connect people with the East Coast way of life, tapping into their urban pride through key events, activations and stunts. The objective is to entrench East Coast Radio's position in its target market.
Other radio stations
• The group increased its economic interest in Kaya FM to 47,4%, and was delighted with the revenue growth of 24% by the radio station.
• The group reduced its economic stake and shareholding in Gagasi 99.5 and Heart 104.9 from 33,3% to 20,0%. Gagasi 99.5 reflected 12,8% revenue growth for the year with a small increase in audience to 1,87 million listeners. Heart 104.9's audiences in its target markets stabilised during the year, following the successful repositioning of the radio station in the previous year.
• OFM delivered on expectations with 9,4% revenue growth with stable listenership.
MediaMark (previously RadMark)
The business unit continued to evolve from a radio sales house to incorporate digital sales and position itself for television sales in line with its strategy to become a media marketing solutions provider.
Regulatory environment
New radio licences
ICASA has delayed announcing the recipients of the three new licences; however, these are expected to be awarded by December 2012.
Needletime
On 12 December 2008, SAMRO lodged a complaint against the National Association of Broadcasters (NAB) with the Copyright Tribunal. The matter has been set down for hearing late in 2011. The NAB has introduced six expert witnesses who will deal with issues ranging from: background to the dispute; the manner in which royalties are calculated and paid internationally; the uniqueness of the South African market; and how the formula for calculating royalties is arrived at.
Kagiso Media has taken a conservative view and has provided accordingly.
Consumer Protection Act
The Consumer Protection Act, which came into effect during the year, has a direct effect on the conduct of promotional competitions and will therefore have a significant impact on the radio stations. Broadcasting has taken cognisance of the new requirements and the group's legal department collated a detailed paper on the ramifications to enable the radio stations to comply.
Prospects
The focus is to develop the two large regional radio networks into regional media entities that leverage off their FM audiences to build new event properties which are capable of being monetised. The division continues to develop the associated online portals. By way of example, Jacaranda FM's morning show garnered an audience of over 100 000 Facebook fans, which was a record at the time for any morning show globally. The division is positioning itself to interact with its audiences through multiple- media platforms, including social marketing. Accordingly, Broadcasting's radio stations now engage with audiences on air, online, at events and activations and on mobile.
The division has experienced more buoyant advertising sales since the fourth quarter of the 2011 financial year. As a result, the fundamentals are in place for Broadcasting to show positive revenue growth for 2012 fiscal year.
Information and Other
LexisNexis
LexisNexis is a provider of content-enabled workflow solutions for professionals in the legal, risk management, corporate, government, law enforcement, accounting and academic markets. The business delivered satisfactory financial results for the 2011
financial year, with revenue and operating profit up by 5% and
16% respectively on the previous year. Subsequent to year-end Kagiso Media has accepted an offer for its share in this asset from Reed Elsevier plc for R565,0 million.
Knowledge Factory
A 65% stake in Knowledge Factory was acquired by Kagiso Media in November 2010. Its business model is largely driven by annuity revenues from its client base which comprises a number of blue-chip South African corporates. Knowledge Factory is an information business which specialises in the use of geospatial and property deeds data to gain in-depth understanding of consumer behaviour.
Revenue for the year met the acquisition plan expectations and the current sales pipeline provides encouragement that it will deliver on its budgets in 2012.
Mobil Alliance
The business unit, which is 50% owned, has the management contract for the Sharks digital advertising within the Kings Park stadium and performed well in 2011. It recently secured the rights to manage the contract for another national team in South Africa and is pursuing an additional rugby franchise.
Prospects
After completing the acquisition of Knowledge Factory, the new branding was launched and its resource pool was boosted with the recruitment of several highly skilled analysts and developers.
As a result of these changes, the business unit has a strong order book to support its performance in the year ahead.
Mobil Alliance is pursuing several highly valued eventing contracts, including the rights to host a global event in South Africa. If these are successfully concluded, its growth prospects will improve substantially.
New Media
The division comprises the group's internet and digital business units: Gloo Digital Design, howzit.msn and Acceleration Media. The division posted an excellent performance for the year with
123% revenue growth to R84,1 million.
Operating environment
The online industry is anticipating solid sustained growth as advertisers are shifting their media spend online, broadband access costs are declining and audience growth rates remain high. The mobile segment is showing the strongest growth in internet penetration which together with social media, is a key focus of the division.
The fastest growing segment of the South African online community is the black market. New Media is catering to this market as demonstrated by the audience analysis of howzit.msn, which reflected a 46% representation by black, Indian and coloured communities, which continue to grow.
Gloo
Gloo delivered an impressive revenue growth of 76,3% as it continued to expand its blue-chip client base. The business unit made substantial investments to ramp up its capacity which temporarily impacted operating profit growth although this remained healthy. It continues to be recognised as the leading digital services agency in South Africa.
Howzit.msn
Kagiso MSN publishes howzit.msn.co.za which has grown rapidly to become South Africa's largest website by audience as measured by the OPA. It is now poised for expansion into East Africa and although anticipated to be dilutive of profits in its
first year it will still show strong revenue growth and profit. Additional howzit.msn.co.za growth is anticipated to come from mobile and the continuation of an extensive channel and rollout strategy.
The launch in the first quarter of howzit.msn.co.za's video channel represents a new revenue opportunity for South African digital marketers as well as the launch of MSN mobile channel.
Acceleration Media
Acceleration Media delivered a pleasing performance, delivering revenue growth of 21,3% with a solid increase in operating profit. The business unit focused on revenue diversification during the year and is also targeting high margin consultancy revenues as well as refining its services and developing new products.
Prospects
Gloo Digital is well positioned for the 2012 financial year as it is pursuing a number of large projects with blue-chip customers.
Following the success of the howzit.msn portal in South Africa, Kagiso Media will launch an East African version in January 2012.
Content
Urban Brew Studios (UBS) is one of the largest independent television studios on the Africa continent, producing television content for all South African broadcasters. During the year, it celebrated 25 years of URBANATION, being in the business of serving the media landscape.
Operating environment
The production market is tight, especially as a result of continued financial, operational and management challenges being faced by the industry. The commissioned content pie has decreased in size with heightened competition and lower budgets.
However, UBS is well positioned in this market as it traditionally has a success rate of more than 90% on renewals of prior year contracts. It will continue to focus on securing both renewals of existing opportunities with local broadcasters, as well as finding innovative ways to increase the number of projects it produces.
Performance
For 2011 financial year, UBS delivered significantly improved results compared to 2010 with 23,5% revenue growth to R189,8 million. All divisions performed well despite industry-
specific pressures, which include the slowdown in local content commissioning and the increase in operational costs across most areas of the business.
The highlights for the year include:
• As the management company appointed by Soweto TV, UBS
was instrumental in it achieving good revenue growth.
• UBS was appointed as the management company for the channel branded as 1KZN TV which was launched on 1 July
2011.
• One Gospel became the most watched music channel on the
DStv Compact bouquet.
• UBS maintained a number of commissioned productions with new names, including Dance Your Butt Off; Kom Ons Karaoke; Ambush; Headline; Trevor Noah Show; One Day Leader; TV to the Power of 5; and Home Sweet Home.
• It was awarded the contract to produce a 156-episode telenovella for Mnet to commence early 2012.
• UBS was commissioned for the first time to produce various projects for the Mnet group of channels that include KykNet and Mzansi Magic.
Prospects
The outlook is complex, due to the unpredictable and short-form nature of most of the contracts awarded in the content sector,
as well as the unpredictability of the television media and advertising market in the coming year. UBS is focused on delivering on its strategic plan, and retaining of all existing commissions to sustain its performance.
