It’s been a while since I’ve seen as much detail in a SENS report as with Times Media’s yearend announcement published today. That’s good. Media companies are notoriously leaky places, so best to stop the rumours before they start. Investment banker turned media executive Andrew Bonamour has also competently handled issues you’d have expected him to ace. The R1.1bn debt incurred in the restructuring of the listing is being rapidly repaid from cash flows; “non core” assets have been identified and sold for what look to be reasonable prices; and something over R100m in running costs already stripped out of continuing operations. But that was always going to be the easy stuff. Placing bets on the future direction of the media sector is trickier. Bonamour has started to show his hand. He is opting for a Naspers-type digital strategy of content aggregation as the way of making a profit from the “digital cents” replacing the “print advertising rands” the group has become accustomed to. This may well lead to its own challenges down the line as the advertising model as a whole is transformed through the Google-driven disruption – something which has gotten those spending the cash to focus increased attention on the return on their advertising investments. Bonamour’s other big bet is into Africa, started with the purchase of a minority stake in Ghananian media business. It mirrors the strategy which went so badly wrong in bygone years when the group invested heavily into Nigeria only to lose its proverbial shirt. But as you’ll read in the transcript of our interview, Bonamour is confident that this time the Due Diligence has been done more responsibly. – AH
For the video of the interview on CNBC Africa’s Power Lunch click here.
ALEC HOGG: It’s not too difficult to look a the glass of Times Media as half-full, particularly if you’re one of the investors in that company. We’ll be talking about that in just a moment with the Chief Executive, Andrew Bonamour. But just to give you a little bit of background, the company generated poor top-line results with the pretax profit of R53m as against R110m in the previous financial year. Headline Earnings per Share were down by a similar amount as well. But Andrew, I guess from your perspective the big story here, is the way you’ve been able to repay the debt. There was R1.1bn worth of debt incurred in the transaction which changed everything around and of that amount, R452M has already been repaid.
ANDREW BONAMOUR: These sorts of businesses have been very positive and very strong cash-flow generator. Times Media certainly is. Some of the cost savings are coming through and also improving the working capital in the business. But I think it’s very important – and I try to make that point in my commentary – that the debt that we’ve repaid has actually been out of cash-flow, not asset sales. A lot of the asset sales we’ve done probably only close in the next month or two. I look at the business very differently to a fund manager. We’re very ‘cash-flow’ ‘and return-on-investment- focused and fund managers tend to be very ‘earnings-per-share’. What we tried to do for this year, is look through the business and looked through the divisions where there were issues, where there was stock that had to be written down that hadn’t been written down for a while. We tried to clean the cupboard as it were.
ALEC HOGG: After this asset sales that you’ve already announced; what’s going to happen to the debt? Will that be completely wiped out?
ANDREW BONAMOUR: It would be, but what we’re probably going to do is leave a bit of debt in the business – possibly about R250m/R300m. It improves your return and equity, and it gives us a bit of money to have as a war chest to shore up, either acquisitions or ultimately pay dividends back to our shareholders.
ALEC HOGG: You’ve really gone into a lot of detail in the SENS report. I mentioned earlier, tongue-in-cheek to Lindsay that it’s almost like you’re trying to convince yourselves that you know where the future of media is going. No one else seems to know. What was the thought behind this?
ANDREW BONAMOUR: In the past, even speaking to some of our shareholders…I don’t think people understand (1) what’s in the business and (2) how the businesses actually work. What I try to do, especially in the media side, is actually explain the positioning of the newspaper. Especially like the Sunday Times and why it has such a big role and such a dominant position. It was to explain the various businesses and how they fit together as well as a bit of a strategy. I write it to show a strategy, and what we’re trying to do with the various components. It’s all fine and well to say we’ve got content and we own content. The big thing is; how do you monetise that content? How do you turn what you have that’s potentially valuable, into hard cash? Ultimately, what you’ve got to do there, is to make sure that your business – the various units – actually work together, it’s something I’ve been working quite hard to do and (2) you’ve got to have channels to market. That’s one of the reason’s why we did this foray into Africa and into multimedia – the radio and TV space. Ultimately we can sell our content, be it music, be it films and our other productions that we do. This gives us another channel.
ALEC HOGG: It is, for outsiders, a little strange to see you making this big investment in Ghana – into a company that none of us in South Africa know terribly well – but at the same time retrenching in your local operations.
ANDREW BONAMOUR: Alec, in the interim statement that I wrote out we all saw the business in two phases. Phase one was sort of ‘get back into our core’. If you look, we had four divisions. Each division faced massive headwinds in terms of where the sectors and the businesses were going. So what we tried to do then, was to queue the ones where we actually believe we have a competitive advantage and where we actually do generate good return on our investment. And from there our ‘phase two’ was always; where is the future for our business? Its very difficult for us to get real growth in the media, given that we are quite cross-restricted in cross-media ownership. We’ve always been looking to ultimately get into radio, to get into broadcasting and you and I have had this chat before. We’ve actually got a very strong TV offering which is something we’re trying to develop and where a lot of our focus is going to be, going forward. The businesses have become bloated and what we tried to do – and it’s always a hard job, we’ve taken a head office from 55 people to eight. We really tried to make the business more entrepreneurial and light-footed if I can call it that. At the same time, trying to incentivise and brighten up the business.
ALEC HOGG: The investment into Ghana – the company: How does one do a due diligence on a business like that? Did you fly out a number of times and go and meet the people there?
ANDREW BONAMOUR: Yes, we spent quite a lot of time in Ghana with the team. I think it’s a relationship that has been developing over time. We’ve travelled a lot in Africa, so this was something that was on our radar even before getting involved in Times Media. We spent quite a lot of time in Ghana – a number of trips – and this is also something we’d like to do there next week, to work closely with them. We’re quite excited about it. We think it’s one of those investments that could lead to piles of money. The region’s growing and I think in a place like Ghana, as long as it’s stable, consumers are becoming wealthier. That region is going to do very well.
ALEC HOGG: There are lots of Africa Bulls around. Just to close off with; your strategy perhaps on digital is interesting because it replicates very much what Naspers has done some time ago. You say you scaled back dramatically on your investments there in both technology and staff and that you’re becoming more focused on aggregating content rather than the generation of new content, and of course Koos Bekker did this a couple of years ago. Perhaps you’re following him?
ANDREW BONAMOUR: Not at all. I think we’ve got a lot more cash-flow. To me, business is very A-B-C. At the end of the day it’s got to be Rands and Cents. You’ve got to be able to make money. You can’t put the roof on before you’ve built the walls. So what we said is ‘if this is going to work, we actually have to have a proper business model’ and at the end of the day, business is all about scale. You need to build the appropriate scale and we’re very different in a sense. I know our competitors have one aggregating site, but what we do is, our Times Live, our Sowetan Live, our BD Live and the like, each has their own individual site. We then use Times Live as our aggregator as it were. But we’re quite cautious. This is a game where the ultimate model hasn’t been found yet in terms of what works, and the last thing we wanted to do is go and spend hundreds of millions of Rands only to find out that the model that ends up being adopted is the kind of model that we don’t have. So I think that everyone is still trying to find the correct model that works.
ALEC HOGG: Andrew Bonamour, who is the Chief Executive of Times Media Group.
