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Tencent helps boost Naspers earnings

Staff Writer
By Staff Writer, ITWeb
Johannesburg, 27 Jun 2016
Naspers says Tencent is well positioned for the long term due to excellent leadership, continued investment and innovation and strategic partnerships across its businesses.
Naspers says Tencent is well positioned for the long term due to excellent leadership, continued investment and innovation and strategic partnerships across its businesses.

Naspers' Internet segment, Tencent, continues to shine as the company reported a 21% uptick in core headline earnings for the year ended 31 March 2016, to $1.2 billion (R18 billion). The video-entertainment segment, however, bore the brunt of a sharp fall in commodity prices, which weakened both African currencies and consumer sentiment.

The South African-based global Internet and media company's headline earnings per share (HEPS) for the year was flat, at 168 US cents a share, while core HEPS rose 17% to 298 US cents.

For the year ended 31 December 2015, Chinese Internet company Tencent's revenue was 102.9 billion Yuan, up 30% annually. Weixin monthly active users increased 39% year on year to 697 million, while mobile games and online advertising revenue was up 53% and 110% respectively - with mobile accounting for 65% of total advertising revenue.

"Excellent leadership, continued investment and innovation, together with building strategic partnerships across its businesses, position Tencent well for the long term," says Naspers.

Mail.ru's revenue for the year ended December 2015 was up 11% to 36.3 billion Ruble, and the e-commerce segment also recorded a bright year, with revenue growing 6% to $2.6 billion.

eTail grew revenue by 12% and remains a driver of revenue in the company's e-commerce segment. A big share of the growth came from Flipkart in India; Souq in the Middle East and North Africa; and eMAG in Central and Eastern Europe.

The video-entertainment segment's revenue, however, fell 11% year on year to $3.4 billion. The weakening of currencies in many African markets, driven by a collapse in commodity prices, resulted in lower US dollar revenue. Increased competition for content also pushed up costs. Naspers says the combination of lower revenue and a higher cost base saw trading profit decrease to $610 million - down 17% on the prior year.

"In sub-Saharan Africa, we implemented substantial price increases, given the large US dollar cost base and weakening currencies. This combination of higher prices and weaker consumer sentiment resulted in a loss of 288 000 direct-to-home (DTH) customers."

Naspers says it expects macroeconomic headwinds to continue for a while longer. The company expects to have to absorb the full impact of sub-Saharan currency and customer declines in the next year, which will continue to depress financial performance in the near term.

"Our strategy is to focus on the mid and lower segments of the market, where there is still room for growth. Early signs from consumers after content changes and a commitment to maintain pricing in most sub-Saharan markets are encouraging, but the outlook remains unclear given current volatility."

Given uncertainty related to analogue switch-offs - the process of migrating terrestrial television broadcasting from analogue to digital format - Naspers says it has chosen to focus on content, service delivery, decoder sales and retention.

The new subscription video-on-demand (VOD) service, ShowMax, "recorded a good start in South Africa, with a deeper and more customised content offering than competitors and a focus on service delivery".

The media segment also faced headwinds, and Media24's revenue declined 20%, while year-on-year trading profit improved marginally to $29 million, despite continued investment in new initiatives. Media24's digital media and e-commerce businesses delivered top-line growth of 8%.

Progress was made in the classifieds unit, which generated strong revenue growth of 35%. Naspers also says it has demonstrated its ability to outperform direct competitors and gained share in India, Argentina and other markets.

Going forward, the company says the focus will be on continuing to deliver top-line growth while scaling the more established e-commerce businesses. Naspers will invest in long-term growth opportunities, including ShowMax, and seek further promising models.

"In-video entertainment, the loss of DTH subscribers and falling currencies in sub-Saharan Africa will have a significant impact on earnings and cash flows. It could take some time before the plans implemented to reinvigorate growth and cut costs have a material positive impact."

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