NPSN.L Regulatory News (NPSN)

Naspers Limited

Incorporated in the Republic of South Africa

(Registration number 1925/001431/06)

(Naspers)

JSE share code: NPN ISIN: ZAE000015889

LSE share code: NPSN ISIN: US 6315121003

Condensed consolidated interim report

for the six months ended

30 September 2016

COMMENTARY

Naspers had a strong six months to 30 September 2016. Operating performance, mainly driven by continued performance from the ecommerce businesses and Tencent, is encouraging. As part of regular portfolio reviews, four notable transactions were concluded by the date of this report. In Poland the agreed sale of the Allegro business for US$3.25bn realises a solid return on investment. The merger of the ibibo platform with MakeMyTrip creates a leading business in the Indian travel segment. The acquisition of Citrus Pay drives consolidation in the Indian online payments space, while the consolidation with Wallapop gives mobile-only classifieds platform, letgo, increased scale in the United States (US). The video-entertainment segment experienced weak African currencies. However, the team delivered a pleasing return to subscriber growth, with subscribers closing at 11m.

Currency has again had a significant impact. Unlike the earnings effect of falling currencies on the video-entertainment segment, in ecommerce this impact is diffused by the group's diverse geographic spread and the fact that costs are mainly incurred in local currencies. Where relevant in this report, we have adjusted amounts and percentages for the effects of foreign currency moves as well as acquisitions and disposals.

Such adjustments (pro forma financial information) are quoted in brackets after the equivalent metrics reported under International Financial Reporting Standards (IFRS). A reconciliation of pro forma financial information to the equivalent IFRS metrics is provided in note 15 of this condensed consolidated interim report.

Tencent and the ecommerce businesses, excluding currency impacts, accelerated our revenue growth. Revenues were US$6.8bn on an economic-interest basis, growing 16%. Excluding the impact of currency translation, and acquisitions and disposals, growth was 27%. In ecommerce, the classifieds operations, ibibo, Allegro and eMAG, all improved topline growth and earnings as a result of increased scale. PayU delivered good results across its portfolio in Eastern Europe, India and Latin America. Core headline earnings, which the board believes to be the best measure of sustainable operating performance, was US$914m - up 31% on the prior period.

The following financial commentary and segmental reviews were prepared on an economic-interest basis (including consolidated subsidiaries and a proportionate consolidation of associated companies and joint ventures) unless otherwise stated.

FINANCIAL REVIEW

On a consolidated basis, revenue declined marginally by 1% (up 11%), largely due to the effects of currency translation. Disposals concluded in the first six months of the year, notably the Czech ecommerce units, Netretail and Heureka, also reduced year-on-year revenue growth.

Consolidated development spend increased 38% (42%) year on year to US$387m as new growth initiatives were pursued. This includes letgo, predominantly operating in the US, building the hotel offering in the Indian travel business and our subscription video-on-demand unit, ShowMax, launched in August 2015. Development spend on these new initiatives totalled US$188m. Across the rest of the portfolio, development spend declined by US$40m, as the ecommerce businesses, particularly classifieds, increased scale and profitability.

Trading profit increased 21% (42%) to US$1.5bn, boosted by the group's share of Tencent's trading profit. Trading profit was further boosted by a contraction in losses of etail assets and increased profitability in Allegro. A lower opening subscriber base in sub-Saharan Africa, coupled with the effects of foreign exchange, saw video-entertainment trading profits decline some 43% (14%) to US$226m.

IFRS operating profit declined from a positive US$67m to a negative US$30m, mainly due to currency weakness in the video-entertainment segment and increased development spend to pursue growth initiatives.

The group's share of equity-accounted results increased 44% year on year to US$912m and includes once-off gains of US$206m and impairment losses of US$145m. Once-off gains relate primarily to dilutions of Tencent's interest in certain of its associates, and gains arising on disposals of other investees and impairment losses relate to writedowns by Tencent of certain of its investments. The contribution to core headline earnings by associates and joint ventures was up 47% to US$1.1bn after adjusting for these non-recurring items.

Net interest expense on borrowings was down 18% to US$74m after the repayment of the group's revolving credit facility. On 30 September 2016 net gearing stood at 13%.

Lower profitability of the sub-Saharan Africa video-entertainment business and higher consolidated development spend were the main causes of a marginal US$1m consolidated free cash outflow.

The company's external auditor has not reviewed or reported on forecasts included in this condensed consolidated interim report.

SEGMENTAL REVIEW

Internet

Ecommerce businesses and Tencent contributed to strong growth in the internet segment with revenues of US$4.9bn - up 30% (40%) year on year. After adjusting for the impact of currency translation and acquisitions and disposals, it is 12% better than last year's growth. Trading profits increased 54% (71%) on the back of Tencent's performance as well as contraction of losses in many of the ecommerce businesses. The internet segment now contributes 72% of group revenues measured on an economic-interest basis, up from 64% a year ago.

Tencent

Tencent continues to expand its ecosystem with excellent revenue and user growth recorded in the social network, online games, digital content, advertising as well as payment platforms. Revenues were RMB67.7bn for the period, up 48% year on year.

Tencent's social networks business grew revenues through growth in mobile games and payments, and a solid 24% increase in subscribers to its digital content subscription services. Online media platform traffic and advertising revenue continue to lift with most traffic, representing about 80% of revenue, now generated on mobile platforms.

Tencent implemented several strategic initiatives to advance its ecosystem and improve entertainment content for users. Tencent invested in Supercell, the Finnish-based mobile game studio, thereby expanding its upstream presence in the global game industry. QQ Music was merged with China Music Corporation to create a more useful online music platform. Tencent also boosted its online video offerings via investments in content.

During the reporting period, Tencent made good progress in building its mobile ecosystem by growing monthly active Weixin/WeChat users by 34%. It also improved Weixin/WeChat's enterprise communications products, expanded its cloud services capabilities and simplified its payment solutions for merchant transactions.

Mail.ru

Despite continued challenges to the Russian economy, Mail.ru revenues grew 11% year on year to RUB18.8bn. Advertising revenue, especially that of mobile, grew as a result of higher mobile audiences and advertising inventory as well as the implementation of new advertising technologies. The social network VK grew engagement and audiences, however, online games and internet value-added services revenues were weaker.

Ecommerce

Volatility of emerging-market currencies reduced performance when translated to US dollars. Ecommerce businesses are growing rapidly, with revenues increasing 14% (24%) to US$1.4bn. Trading losses declined to US$292m, a 1% (14%) improvement on the prior year. Higher development spend on new opportunities was offset by growth in established businesses. Within this portfolio, the group now has 23 profitable businesses - up from 18 a year ago.

Classifieds revenue grew 115% (76%) year on year, driven by strong performances across the portfolio and boosted in particular by Avito. Excluding the investments in letgo, trading losses (and thus development spend) reduced across the classifieds portfolio as we grew and gained market share. Solid results were evident, particularly in monetising markets.

Avito performed ahead of expectations and improved its presence in Russian ecommerce.

In May 2016 the US operations of letgo merged with the local component of Wallapop. Shareholders collectively injected US$100m into the merged business to accelerate growth. Results to date are encouraging and further substantial investment will follow.

Growth in car, and in some markets, real estate verticals, coupled with the launch of mobile apps, combined to strengthen classifieds.

Etail revenues grew 3% (16%), powered by assets in Central and Eastern Europe (CEE), where online penetration is rising. Growth was lower in etail associates, as third-party sales (where we book a take rate only) continued to grow faster than first-party sales. There was also a reduction in subsidies and a focus on improving gross margins.

In CEE, the consolidated etail platform eMAG performed well, growing revenues year on year by 33%. Romania is approaching sustained profitability.

Amazon, on the back of heavy investment, closed the gap on Flipkart by taking significant share from Snapdeal in the Indian etail segment. Flipkart nevertheless maintains its firm lead on the mobile app. Recent strategic initiatives delivered healthy numbers over the peak Diwali sales period. In the Middle East, Souq continued to gain share in Saudi Arabia and Egypt, while remaining the market leader in the United Arab Emirates.

Allegro, the marketplace platform in Poland, grew revenue by 30% to US$193m. In October 2016 the group announced the sale of Allegro and Ceneo for US$3.25bn. The transaction is subject to regulatory approval and is expected to close in 2017.

ibibo, the Indian travel business, had an excellent six months with revenue increasing 68% (75%) to US$67m. This was fuelled by growth in hotel room nights and a profitable air-travel business. After the reporting period the group entered into a transaction to merge ibibo with MakeMyTrip Limited. The merger will result in a combined business that provides a one-stop shop for Indian travellers. Through a jointly owned holding company (91% held by Naspers and 9% by Tencent), the group will have a 40% stake in the merged business as its single largest shareholder.

The group's payments business, PayU, performed well across all operating regions. Revenue grew 22% (29%) year on year to US$83m on the same cost base. This was achieved through improved operating leverage which, in turn, was driven by transaction volumes and ticket-size improvements. In India, PayU acquired a controlling interest in Citrus Pay after the reporting period. This will see PayU becoming a leading payment service provider in India.

We are now identifying new pockets of long-term growth for the group in one entity, Naspers Ventures. Ventures invested in three early-stage educational technology companies: Udemy, an online marketplace for learning; Codecademy, a leading online interactive coding platform; and Brainly, a social learning network. Each company focuses on a different section of the education market and has an innovative approach to increasing the utility and value of education.

Movile, the leading Latin American mobile services platform, continues to grow its offline-to-online businesses. Brazilian online food-delivery business, iFood, expanded successfully into Mexico, Brazil and Colombia. After growing revenues by some 211% year on year, the business turned profitable during this reporting period.

Video entertainment

Action taken in response to a weaker macroeconomic backdrop yielded positive results with the direct-to-home (DTH) business recording positive growth, adding some 591 968 subscribers. This is an improvement on the decline of 164 300 subscribers for the same period in the previous year. The DTT business also added 149 875 subscribers. The total customer base closed at 11m on 30 September 2016.

The segment reported revenues of US$1.6bn, down 8% (up 6%) on the prior year. Trading profit declined by 43% year on year to US$226m. As the group bills in local currencies, the continued weakness of currencies and economies in many African countries resulted in lower US dollar revenues. A sizeable portion of content costs are US dollar-denominated which, coupled with the reduction in revenues and our investment in ShowMax, impacted trading profit. Constrictions in foreign exchange availability in Nigeria, Angola and Mozambique have resulted in cash balances of US$202m being trapped in these countries. These balances remain exposed to further currency depreciation.

Development spend was US$40m, down marginally year on year. This was attributable to the decrease in spend as a result of the completion of the digital terrestrial television (DTT) rollout, offset by new investments to scale ShowMax.

ShowMax is growing steadily in a very competitive environment. It is available on all major platforms and can now be accessed through connected Explora devices. ShowMax was also launched in a number of sub-Saharan markets.

Our focus remains on providing the best quality local and international content while managing costs, improving customer service and retaining subscribers in an environment where there is intensifying competition from global players such as Amazon, Netflix, Apple and Google. DStv Catch Up was made available to Compact customers, as well as a decoder payment plan, which boosted the uptake of our personal video recorders (PVRs). Connecting the PVR to the internet delivers a better user experience. The 'TV everywhere' product, DStv Now, is showing good levels of adoption across all platforms.

Management continues to engage regulators and participate in a number of regulatory reviews in various markets.

Media

Revenue in the media segment declined 13% (1%), with trading profit down 25% (31%). Although Media24 continues to face the effects of structural declines in its traditional print business, revenue performance of its ecommerce initiatives was positive, benefiting from fresh product offerings.

Prospects

In the second half of the financial year we hope to deliver revenue growth and scale the more established ecommerce businesses. The group will continue to invest in long-term opportunities such as letgo, and seek further promising models within the internet segment. We expect to accelerate letgo's development spend to further strengthen its position in the US classifieds market. In African video entertainment, a tough environment at present, we aim to grow DTH customers by offering increased value and reducing costs to counter the impact of falling currencies. Earnings and cash flows in this segment will continue to be constrained in the foreseeable future.

Preparation of the condensed consolidated interim report

The preparation of the condensed consolidated interim report was supervised by the financial director, Basil Sgourdos CA(SA). These results were made public on 25 November 2016.

On behalf of the board

Koos Bekker Bob van Dijk

Chair Chief executive

Cape Town

25 November 2016

Condensed consolidated income statement

Condensed consolidated statement of comprehensive income

Notes

(1) These components of other comprehensive income may subsequently be reclassified to profit or loss, except for gains of US$141m (2015: US$58m and 31 March 2016: US$387m) included in the "Share of other comprehensive income and reserves of equity-accounted investments" as well as losses of US$nil (2015: US$1m and 31 March 2016: US$nil) included in "Net fair-value gains" relating to remeasurements on the group's post-employment benefit plans.

(2) The movement on the foreign currency translation reserve relates primarily to the effects of foreign exchange rate fluctuations related to the translation of the group's investments in its foreign operations.

Condensed consolidated statement of financial position

Condensed consolidated statement of changes in equity

Condensed consolidated statement of cash flows

Segmental review

Note

(1) EBITDA refers to earnings before interest, taxation, depreciation and amortisation.

Reconciliation of trading profit to operating (loss)/profit

Note: For a reconciliation of operating (loss)/profit to profit before taxation, refer to the condensed consolidated income statement.

Notes to the condensed consolidated interim report

1. General information

Naspers Limited (Naspers) is a global internet and entertainment group and one of the largest technology investors in the world. Founded in 1915, we now operate in more than 130 countries and markets with long-term growth potential. Naspers builds leading companies that empower people and enrich communities. It runs some of the world's leading platforms in internet, video entertainment and media.

2. Basis of presentation and accounting policies

The condensed consolidated interim report for the six months ended 30 September 2016 is prepared in accordance with International Financial Reporting Standards (IFRS), IAS 34: Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, and Financial Pronouncements as issued by the Financial Reporting Standards Council as well as the requirements of the Companies Act of South Africa and the JSE Limited Listings Requirements.

The condensed consolidated interim report does not include all the disclosures required for complete annual financial statements prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB). The accounting policies used in preparing the condensed consolidated interim report are consistent with those applied in the previous annual financial statements.

The group has adopted all new and amended accounting pronouncements issued by the IASB that are effective for financial years commencing 1 April 2016. None of the new or amended accounting pronouncements that are effective for the financial year commencing 1 April 2016 are expected to have a material impact on the group.

Trading profit excludes amortisation of intangible assets (other than software), equity-settled share-based payment expenses relating to transactions to be settled through the issuance of treasury shares, retention option expenses and other gains/losses, but includes the finance cost on transponder leases.

Core headline earnings exclude once-off and non-operating items. We believe it is a useful measure of the group's sustainable operating performance. However, this is not a defined term under IFRS and may not be comparable with similarly titled measures reported by other companies.

3. Review by the independent auditor

This condensed consolidated interim report has been reviewed by the company's auditor, PricewaterhouseCoopers Inc., whose unqualified report appears at the end of the condensed consolidated interim report.

4. Calculation of headline and core headline earnings

The diluted earnings, headline earnings and core headline earnings per share figures presented on the face of the condensed consolidated income statement include a decrease of US$11m (2015: US$8m and 31 March 2016: US$20m) relating to the future dilutive impact of potential ordinary shares issued by equity-accounted investees.

5. Interest received/(paid)

6. Profit before taxation

In addition to the items already detailed, profit before taxation has been determined after taking into account, inter alia, the following:

Note

(1)Net realisable value writedowns relate primarily to set-top box subsidies in the video-entertainment segment.

7. Equity-accounted results

The group's equity-accounted investments contributed to the condensed consolidated interim financial results as follows:

8. Goodwill

Goodwill is subject to an annual impairment assessment. Movements in the group's goodwill for the period are detailed below:

9. Investments and loans

The following relates to the group's investments and loans as at the end of the reporting period:

10. Commitments and contingent liabilities

Commitments relate to amounts for which the group has contracted, but that have not yet been recognised as obligations in the statement of financial position.

The group operates a number of businesses in jurisdictions where withholding taxes are payable on certain transactions or payments. In some circumstances, transactions could potentially lead to withholding taxes being payable. Our current assessment of possible withholding tax exposures, including interest and potential penalties, amounts to approximately US$243.8m (2015: US$224.2m and 31 March 2016: US$216.8m).

11. Disposal groups classified as held for sale

The group classified the assets and liabilities of INET BFA Proprietary Limited, a leading provider of financial data feeds and analysis tools, as well as the assets and liabilities of various other smaller units, as held for sale during the period ended 30 September 2016.

During the current reporting period, the group concluded the disposal of Heureka and Netretail, following the receipt of regulatory approval during May and July 2016 respectively. These businesses were classified as held for sale as at 31 March 2016. Refer to note 12 for further details.

Significant classes of assets and liabilities, classified as held for sale as at 30 September 2016, are detailed in the table below:

The group recognised a loss of US$1.6m (2015: US$nil and 31 March 2016: US$87.7m) on remeasuring the net assets of businesses classified as held for sale to their fair value less costs of disposal during the period. The fair value of the businesses was determined based on third-party sales prices. This represents a level 3 fair-value measurement.

12. Business combinations, other acquisitions and disposals

As part of its strategy to consolidate the growing US online classifieds market, the US operations of Wallapop S.L. (Wallapop) were absorbed into the group's letgo business during July 2016. As consideration for the contribution of Wallapop's business and cash of US$45m, Wallapop was issued with a 45% interest in a newly formed entity, with the group holding the remaining 55% interest. The transaction was accounted for as a business combination. The total deemed purchase consideration amounted to US$126m, representing the fair value of the equity interest issued to Wallapop. Given the early-stage nature of the business model, the transaction gave rise to the recognition of goodwill of US$126m. A non-controlling interest of US$45m was recognised following the business combination.

Various acquisitions were made within the Movile group during the reporting period. Most notably the acquisition by iFood of a controlling interest in Brazilian food-ordering business Hellofood Brazil and the acquisition by LBS Global Holdings of controlling interests in Optilogistics S.A.S., a major French specialist in transportation issues and logistics and Systems Teamwork S.R.L., a provider of software solutions and consulting in supply chain management. The aggregate purchase consideration in these business combinations amounted to US$8m. The purchase price allocation: intangible assets US$1m, trade and other payables US$1m and with resulting goodwill of US$8m.

The main factor contributing to the goodwill recognised in these acquisitions is the acquiree's market presence. The goodwill that arose is not expected to be deductible for income tax purposes. Total acquisition-related costs of US$2m were recorded in "Gains on acquisitions and disposals" in the income statement regarding the above acquisitions.

Had the revenue and net results of the businesses acquired been included from 1 April 2016, it would not have had a significant effect on the group's consolidated revenue or net results.

The following relates to the group's investments in its equity-accounted investees:

In May 2016 the group, through Naspers Ventures, announced its first investment targeting the education technology market by investing US$13m (23.6% fully diluted interest) in Brainly, a social learning network. Over 60m students in 35 countries interact with Brainly every month. In line with this strategy, the group also invested US$60m (8.9% fully diluted interest) in Udemy, an online education marketplace with over 7m students enrolled, and US$22m (19.2% fully diluted interest) in Codecademy, a leading global platform focused on online coding education, both during June 2016. The group accounts for these interests as investments in associates.

In July 2016 the group acquired a 49% interest in El Cocinero a Cuerda, S.R.L., the owner and operator of online food-ordering platforms including Just Eat, Do Eat, and SinDelantal in Latin America for US$15m. The group accounts for its interest as an investment in a joint venture.

The following relates to significant disposals by the group during the reporting period:

In May 2016 the group disposed of its Czech online comparison-shopping platform Heureka for a cash consideration of US$67m, following the receipt of regulatory approval. A gain on disposal of US$61m has been recognised in "Gains on acquisitions and disposals" in the income statement following the transaction.

During July 2016 the group disposed of its Czech online retail and ecommerce platform Netretail for a cash consideration of US$102m. A loss on disposal of US$28m has been recognised in "Gains on acquisitions and disposals" in the income statement following the transaction.

13. Financial instruments

The group's activities expose it to a variety of financial risks such as market risk (including currency risk, fair-value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

The condensed consolidated interim report does not include all financial risk management information and disclosures required in the annual financial statements and should be read in conjunction with the group's annual financial statements as at 31 March 2016. There have been no material changes in the group's credit, liquidity or market risks or in key inputs used in measuring fair value since 31 March 2016.

The fair values of the group's financial instruments that are measured at fair value at each reporting period are categorised as follows:

A reconciliation of the movements in the carrying values of level 3 fair-value measurements is provided below: