E-commerce, Tencent drive Naspers' revenue

E-commerce reduced trading losses materially, says Naspers.

Naspers says it executed well in the first half of the 2019 financial year, generating group revenue, measured on an economic-interest basis, of $11 billion.

Driven by e-commerce and Tencent, this represents growth of 23% (or 29% in local currency and adjusted for acquisitions and disposals).

On a similar basis, group trading profit of $2 billion reflects growth of 22% (or 34% in local currency and adjusted for acquisitions and disposals), the company says.

According to Naspers, profitability in e-commerce improved on the back of strong contributions from the classifieds and business-to-consumer units.

It notes that Tencent's contribution further boosted trading profit growth. Core headline earnings, the board's measure of operating performance, was up a healthy 39% at $1.7 billion.

E-commerce reduced trading losses materially, says Naspers, adding that the classifieds business (excluding letgo), which turned profitable in the 2018 financial year, continued to show strong profit growth and is now profitable, including letgo.

It notes that trading-loss margins in e-tail (online retail) and payments narrowed considerably as the businesses accelerated revenue growth and continued to scale.

"Acquisitions in the period totalled over $700 million as we continued to invest in existing and new businesses in classifieds, payments and food-delivery verticals, as well as progressing our growth strategy through Naspers Ventures," the company says.

It adds that the acquisition spend includes: solidifying Naspars' presence in online food-delivery services with an additional investment in Swiggy of $79 million; further expanding the company's global merchant capabilities in PayU through a $60 million investment in Zooz; additional investments totalling $379 million in letgo and Dubizzle to acquire minority interests, thereby increasing stakes; and an investment of $89 million in Frontier Car Group to support classifieds' focus on the opportunities created by convenient transaction models.

"Following a $2.2 billion offer from US-based Walmart, we sold our 12% interest in Indian e-commerce company Flipkart in August 2018, realising an internal annual rate of return of approximately 29%," says Naspers.

"In September 2018, we reached an important milestone in our evolution into a global consumer Internet company by announcing our intention to separately list our video-entertainment business on the JSE and simultaneously distribute our shares in this business (to be called MultiChoice Group) to our shareholders.

"We believe this will unlock value for our shareholders and, at the same time, create an empowered, top 40 JSE-listed African entertainment company, comprising MultiChoice South Africa, MultiChoice Africa, Showmax Africa and Irdeto. We believe the transaction will create further value for Phuthuma Nathi shareholders, who have participated in one of the most successful empowerment schemes in South Africa."

On unbundling, Naspers will transfer 5% of its stake in MultiChoice South Africa to Phuthuma Nathi shareholders, for no consideration, to increase MultiChoice South Africa's broad-based black economic empowerment participation.

This significant step reinforces Naspers's transformation credentials, the company notes.

"Our earnings are significantly affected by foreign exchange volatility as our operations span over 120 countries and markets globally."

The company explains that this volatility has the most pronounced impact in the video-entertainment business where revenues are generated in local currencies while costs are predominantly US dollar-denominated.

In the Internet businesses, revenues and costs are typically in the same currency, which softens this impact, it notes.

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