Bruce Whitfield:
Sliding into the chair next to Chris Steward in our Cape Town studio is William Kirsh, the chief executive of Primedia, we will talk to him in a moment.

Welcome to the programme and also welcome to the boss of Primedia, William Kirsh, he is in our Cape Town studio this evening. Results from Primedia highlighting a number of issues, revenues predominantly from broadcasting of the group’s content division, which included the movie business Ster Kinekor, rising 23 percent to nearly R2.4-billion, cash flows were strong and adjusted headline earnings per share rose 32 percent to R1.25.

William Kirsh joining us now from Cape Town and very strong revenue growth William, operating profit before depreciation rose to a very respectable 28 percent, but there is a very big charge under exceptional items of nearly R88-million, what does that include?

William Kirsh:
Well that is my bonus Bruce.

Bruce Whitfield:
I was assuming that, but I did not want to be so bold as to suggest it.

William Kirsh:
Bruce, the charge is two pieces to that charge. First of all, there is a cost of about R108-million relating to our black empowerment deal with the MIC (Mineworkers Investment Company), whereby we issued eight million shares to them, which has enabled them to significantly up weight their economic interest in Primedia another of Primedia’s largest shareholder as well as the joint controlling shareholder of Primedia. So that was a cost which many companies have had to incur in order to ensure that they meet their transformation objectives of this country as well as the transformation objectives of the respected companies. And then the cost was off set by some gains on disposals, etc., of about R30-million which brought it down to R88-million.

Bruce Whitfield:
Thank you for clarifying that. Just how big is Primedia’s BEE shareholding right now?

William Kirsh:
MIC’s direct economic stake in Primedia is just under 20 percent and they have joint control vote of Primedia of 50 percent. That is very significant.

Bruce Whitfield:
That 20 percent makes Primedia the most empowered media company in South Africa. Is that the sort of level at which the empowerment shareholders are happy to set out, or are we looking to raise that 25 percent?

William Kirsh:
Our target is 25 percent in terms of the charter, which I am confident we will meet. We only have to achieve that within ten years and we are already at 20 percent. MIC should increase its stake either by buying shares directly in the market, or alternatively, we may do joint ventures with them like we did with the Highveld Stereo deal, and then swop out their underlying stake into the top company.

For instance, we have just done this big deal with M-Web, whereby we bought another 14 percent in Highveld Stereo. The group has the cash capability to do that, but we do have the shares in order to further our objective in the context of increasing their economic stake in Primedia.

Bruce Whitfield:
We are just going to look at the operations of Primedia. Advertising, which included the radio station that we are on at the moment, content which includes Ster Kinekor, both of those divisions delivering revenues of over R1-billion, which is pretty strong going.

William Kirsh:
Yes, a billion rand is always a nice number in anybody’s book. Good growth coming out of both those businesses, obviously, our advertising business is driven by broadcasting assets that performed exceptionally well. I think their PBIT was up about 33 percent. Our content business was up about 17 percent, but the second half improvement in out content businesses was far more significant than that, because in the first half, our content businesses were muted by virtually the fact that Ster Kinekor was not able to receive product in support of its low price ticket strategy.

From December onwards, once we have started to receive product, the turnaround in attendances and the turnaround of our low price ticket strategy has really come to the fall and our attendances in the six months at our junction sites are up 53 percent, box office 22 percent and overall revenues, which includes catering, up 42 percent.

Bruce Whitfield:
There are lots of numbers in there William, but the bottom line is, and it was quite interesting looking at the results of Johnnic Communications, which owns Nu Metro and at Primedia, which owns Ster Kinekor, were not to belittle the strategy of the competitor, but the Ster Kinekor strategy seems to have bedded down more successfully than Nu Metro.

They don’t seem to have that low price ticket option working quite as effectively as Ster Kinekor have, and the growth at the R14 cinema’s seems to be working a lot more effectively than Ster Kinekor.

William Kirsh:
I think it is very difficult to comment on competitor’s strategy, but it is certainly working for us. But what we are fortunate to have is we have got a far greater scale, and when you have got scale, one’s ability to prove up this type of strategy is far easier and relative to when you don’t have scale.

But I think that particularly when one takes into account alternative entertainment options that consumers are increasingly having, going to the movies is an incredible experience, but there is a trade off point which consumers will trade off the cinema versus alternative entertainment choices, and we have proved up in our junction strategy, that if we price it correctly, they will stay with us.

Bruce Whitfield:
Are the junction theatres more profitable than the classic cinemas? Because the classis cinemas, where tickets are more expensive, you have not seen the same sort of revenue growth there. Which is the more profitable option?

William Kirsh:
Bruce, they currently represent about, and I stand to be corrected here, but an equal proportion of our total revenues. So the classis sites, although they have not shared in the same growth, the classic sites did grow their overall turnover by about nine percent over the comparable period. Attendances dropped marginally, but there was a pick up in the average ticket price at our classic sites, which helped them turning a positive top line performance. But the classic sites are very significant in the overall mix. They contribute equally, but the momentum is coming from the junction sites.

Bruce Whitfield:
Lower profits also from the new media sectors, but you have been investing there a lot. You have been making acquisitions, vast numbers of these things, there is just, almost a week does not go by, without an announcement of a new acquisition. Lower profits there, is that part of the investment into these businesses?

William Kirsh:
The profits are distorted by the content side of Primedia Limited, not the advertising side of Primedia Limited. We have strategically positioned our focus on new media sectors, following on the fact that Primedia has an advertising and a content focus, so we have started this new division called Primedia Limited, which has two parts to it, advertising and content and it is the content side of the business which has dragged down the profits, mainly because of two operations, one which is being disposed of which is Video and DVD City, that was our foray into DVD stores into the townships, we just could not get a critical mass of location, so we have sold that off.

It is still operating, but it is operating in a smaller format and the other one was Book for Golf. We bought this business, we lost about R5-million. It was very apparent that the model would not work and after about seven months, we closed it down. The bad thing is that we lost money and the good thing is we took action quickly.

Bruce Whitfield:
And those are lessons learned from 1998 in the IT boom and those sorts of times isn’t it?

William Kirsh:
Yes, Primedia is a company which I believe is very entrepreneurially based, very innovative. We will take risks, we will make mistakes, but we won’t make the same bit mistakes that we made in 1999, 2000 era that I can assure you, certainly in my watch. But we won’t make those capital mistakes that could be very costly for shareholders, but Book for Golf, we thought it would be an investment, we knew there were some risks, we valuated our downside, we knew at what point we would cut it, and when we reached that point, we cut it and we could not see the upside.

Bruce Whitfield:
William Kirsh, thank you very much for your time this evening, the chief executive officer of Primedia taking us through some of the highlights of the Primedia results.