Naspers basks in e-commerce glory

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Naspers CEO Bob van Dijk.
Naspers CEO Bob van Dijk.

Global Internet and entertainment group Naspers posted strong results, buoyed by its Internet business.

In its financial results for the year to 31 March, Naspers said revenue increased 19% year-on-year to $14.6 billion.

Naspers is Africa's biggest company by market value. The Cape Town-based firm is a broad-based multinational Internet and media group, offering services in more than 130 countries. Its principal operations are in Internet communication, video entertainment and print media.

The company owes much of its valuation to its 33% Tencent stake, which is worth about R114 billion, or 20% more than Naspers itself. It owns about a third of China's biggest social network and online entertainment firm Tencent Holdings.

Excellent Tencent

Revenue in the Internet segment, which now accounts for 73% of group revenue (67% last year), was up 29% (41%) to $10.6 billion. Trading profit increased 52% (65%), mainly due to Tencent's excellent results and increased profitability of the more mature e-commerce assets, says Naspers.

According to media reports, Naspers is looking to grow beyond Tencent and is looking to expand to other territories in Europe and the US through mergers and acquisitions.

"The group now has 21 profitable e-commerce businesses, delivering $699 million in revenue and $229 million in trading profit," says CEO Bob van Dijk.

"Classifieds performed well, boosted by Avito and accelerated growth in our European markets led by Poland, Ukraine, Romania and Portugal. Our B2C, travel and payments businesses all generated strong revenue growth and were further strengthened by additional investments to drive scale."

Naspers chairman Koos Bekker.
Naspers chairman Koos Bekker.

Excluding acquisitions, disposals and currency movements, growth was 29%. Businesses outside SA contributed 80% of revenue, compared to 77% a year ago.

Core headline earnings grew 41% to $1.8 billion. "Naspers produced satisfactory results for the year," says Naspers chairman Koos Bekker. "Tencent continued its growth, while we scaled various e-commerce businesses. Video entertainment is facing new competition from international players based in the US."

Foreign currencies affect the group's segments to varying degrees. The group says in video entertainment, weakened currencies have a large impact on earnings (given pricing in local currencies, but a high US dollar cost base).

In the Internet segment, the effect is lessened by a diverse geographic spread and a cost base generally denominated in local currencies, the company notes.

Acquisition spree

Naspers continued to optimise its portfolio during the year. The group acquired Citrus Pay in the Indian online payments market and merged its Indian online travel platform, ibibo, with Nasdaq-listed MakeMyTrip.

The US operations of mobile app-only classifieds platform letgo were merged with Wallapop and results to date are encouraging, says Naspers. In January 2017, the group disposed of Allegro and Ceneo in Poland, generating net proceeds of $3.2 billion.

The group also expanded its footprint in the online food delivery segment, while Naspers Ventures made a number of investments in earlier-stage technology companies.

Last year, Naspers said tough economic conditions led to significant subscriber churn in the video entertainment segment. However, 2017 saw some return to growth, with the group adding 935 000 direct-to-home homes to bring the subscriber base to 11.9 million households.

The digital terrestrial television business added a total of 597 000 homes. A value strategy, which focused on bouquet restructuring, better customer retention and cost reduction, is improving the business for the long term, says Naspers.

At a macro level, continued currency weakness (the segment bills in local currencies) resulted in revenue declining marginally to $3.4 billion (but increasing 7% if the currency impact is excluded).

Content costs increased due to competition, the company says, adding these factors resulted in a trading profit of $287 million, a decline of 53% (32%) year-on-year. The group is responding by removing or renegotiating non-essential content. Intensifying international competition from global players such as Netflix, Amazon, Apple and Google is foreseen, it notes.

Although substantial growth of 14% (16%) was recorded in the e-commerce and digital segments of Naspers' media businesses, overall revenue declined marginally to $588 million. Besides ongoing challenges from structural industry changes, the segment also faced harsh macro-economic conditions, it explains.

The group's share of equity-accounted results was $1.8 billion and their contribution to core headline earnings increased 50% year-on-year. The combination of higher development spend (up 22% (13%) on a consolidated basis to US$861 million) and a lower profit contribution from the video entertainment business resulted in consolidated free cash outflow of $125 million.

"In the year ahead, we will keep scaling the e-commerce businesses to drive profitability and cash generation. In our more mature businesses, such as media and video entertainment, the focus will be on managing macro-economic and sectoral headwinds through cost containment," says CFO Basil Sgourdos.

"We will continue to drive innovation and transformation of existing businesses, while investing to fuel the next wave of growth," he adds.

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