26 Nov 2008 07:00
Naspers Limited
(Registration Number: 1925/001431/06)
ISIN: ZAE000015889 Share Code: NPN
ISIN: US 6315121003 LSE ADS code: NPSN
("Naspers" or "the group")
Interim Report
The reviewed results of the Naspers group for the six months ended 30 September 2008 are as follows:
Commentary
GROUP OVERVIEW
The group recorded robust revenue growth of 32% for the period. New developments coupled with the cost of growing the pay-television subscriber base and finance costs resulted in core headline earnings remaining relatively constant. A key area of growth was in the internet segment, where recent investments such as Allegro/Ricardo and Gadu-Gadu performed well. Our associates, mail.ru and Tencent, also reported good growth.
The pay-television businesses, traditionally not sensitive to the economic cycle, continued to grow with the equated subscriber base increasing by 171 000 households. Our technology business increased revenues by 51% as a result of organic growth and acquisitions.
Advertising revenues comprise 16% of our total revenue base, so the recent downward pressure on advertising revenues, which grew by 5% on a comparative basis, has a limited impact on the group.
Looking ahead, it is expected that the recent market turmoil will slow consumer spending. However, we expect the major emerging markets in which we operate to continue growing, albeit at a slower pace. Our businesses will adapt their strategies to this trend.
Strategic investments made over the past few years in internet and pay-television operations have positioned us well for the years ahead. Current market conditions may present us with further investment opportunities. The group has a strong balance sheet.
FINANCIAL REVIEW
Revenue growth of 32% in the aggregate was recorded over the period. The key driver came from existing operations, which increased by 19%, whilst new acquisitions added 13%. Growth in the internet segment was boosted by the inclusion of Allegro and Ricardo (forming part of Tradus). Pay-television revenues increased by 28% as a result of the expansion of its subscriber base by a net 171 000 households. Print media in South Africa remained subdued, with revenues growing by only 4%.
Our operating profit before amortisation and other gains/losses increased by 7% to R2,4 billion (2007: R2,2 billion). The reduction in certain margins arose from growing our pay-television subscriber base and developing new services. Total development costs were R638 million (2007: R551 million).
Net interest costs for the period were R133 million, compared with income of R268 million in the prior period. This arises from funding new acquisitions in the last quarter of the prior year with debt. Other finance income includes preference dividends of R191 million (2007: R160 million) and foreign exchange mark-to-market losses of R102 million compared with mark-to-market gains of R104 million in the prior period.
Our share of the equity-accounted results of our associates, mainly Tencent, mail.ru and Abril, increased to R405 million (2007: R126 million).
The impairment of equity-accounted investments refers mostly to our withdrawal from a German mobile TV project. A R2,6 billion profit arising on the discontinuance of operations relates to the sale of pay-television businesses in Greece and Cyprus. Proceeds of approximately R4,3 billion were used to reduce the group's long-term debt.
The net effect of the above is that core headline earnings for the period grew to R1,76 billion. A "Calculation of Headline and Core Headline Earnings" is detailed below.
ELECTRONIC MEDIA
Pay television
Overall, the pay-television segment expanded revenues by 28%, owing to excellent subscriber growth of 171 000 during the period. Operating margins diminished due to costs of growing the subscriber base and strengthening our products.
In South Africa the subscriber base grew by 79 000 net equated subscribers to 1 649 000. The mid-priced Compact bouquet delivered firm growth to 369 000. A slowdown in consumer spending impacted advertising revenues, which showed a marginal decline.
In sub-Saharan Africa a focus on local content and our coverage of the Olympics delivered exceptional growth of 92 000 net equated subscribers, taking the cumulative base to 630 000. The Compact bouquet stands at 247 000. More competition across the continent is reflected in higher prices for content and subsequently lower margins.
Mobile TV licences were obtained in Ghana, Kenya, Namibia and Nigeria. Construction of DVB-H networks in these markets continues.
Internet
The internet segment recorded revenue of R1,8 billion, which increased sharply owing to the inclusion of Allegro/Ricardo and Gadu-Gadu. An operating profit before amortisation and other gains/losses of R113 million was recorded.
The e-commerce operations of Allegro (Eastern Europe) and Ricardo (Western Europe) generated revenues of R887 million. Both of the largest markets, Poland and Switzerland, delivered sound growth. Ricardo launched new services in Austria and Greece, whilst Allegro concluded investments in the Czech Republic and Hungary.
Gadu-Gadu in Poland now has 14 million unique users. A casual gaming portal was recently added and further expansion is planned.
In China Tencent performed ahead of expectations with growth on all platforms. The Olympics increased traffic to almost one billion page views per day and peak concurrent users exceeded 45 million. The total number of active users now exceeds 350 million. The addition of several new games contributed to steady growth. Tencent's contribution to core headline earnings increased to R504 million (2007: R226 million).
In India ibibo continues to develop its internet business, focussing on social media, search and advertising. An agreement was concluded with Tencent whereby the two companies will jointly develop the Indian business.
In Russia mail.ru grew its base to 45 million active e-mail users. This business contributed R38 million (2007: R20 million) to our core headline earnings.
Technology
Irdeto continued to build its conditional access business, delivering over 8,3 million units in the period. Overall revenue increased by 51%, thanks to organic growth and the inclusion of acquisitions. The Entriq business was integrated into the Irdeto group, now bringing all our technology businesses under one umbrella. The inclusion of new acquisitions and development costs in the Entriq and BSS businesses have seen operating profit before amortisation and other gains/losses decrease by 29%.
PRINT MEDIA
The print media operations in South Africa generated marginal revenue growth of 4%. In light of depressed macro-economic conditions, costs are being cut and headcount reduced. Prudent capital expenditure disciplines are also in place.
Circulation and readership of newspaper and magazine publications mostly held up particularly in the emerging markets. Advertising feels the pinch of the recession more directly.
Our printing business, Paarl Media, achieved revenue growth of 7%, although margins were affected by lower print volumes and exchange rates. The book publishing business is operating satisfactorily, but reflects a decline in revenue because of the sale of some businesses in the prior year.
In Brazil Abril continues to steam ahead. Revenues in local currency grew by 27% and Abril's contribution to our core headline earnings increased to R71 million.
BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Condensed interim financial statements for the six months ended 30 September 2008 have been prepared in accordance with IAS 34 ("Interim Financial Reporting"), and in compliance with the Listings Requirements of the JSE Limited. The accounting policies used to prepare the interim results are consistent with those applied in the previous period and IFRS. These condensed interim financial statements have been reviewed by the company's auditor, PricewaterhouseCoopers Inc., whose unqualified report is available for inspection at the registered office of the company.
Preference dividend income was previously included in interest received, but has been reclassified to other finance income to better reflect its nature.
SUBSEQUENT EVENTS
The group announced on 2 June 2008 that it had initiated an auction process to dispose of its internet service provider (ISP) business, MWEB. On 10 November 2008 the group announced that an agreement had been concluded for the sale of MWEB's sub-Saharan Africa business excluding South Africa ("MWEB Africa"). The purchase price places a value of approximately R610 million on the MWEB Africa group.
As regards MWEB's operations in South Africa, the group decided to terminate the auction process for this unit. A better price will probably be obtainable once the contraction in credit markets clears.
FINANCIAL DIRECTOR
Steve Pacak, the financial director of Naspers, has been with the group for over 20 years. The board has granted him a three-month sabbatical from 1 January 2009 until he resumes his duties on 1 April 2009. Steve will accordingly resign all his group directorships for the duration of his sabbatical. Steve Ward, currently CFO of MIH, will act as chief financial officer of Naspers in Steve Pacak's absence.
On behalf of the board
| Ton Vosloo | Koos Bekker |
| Chairman | Managing director |
Cape Town
26 November 2008
Segmental Review
| Revenue | |||
| Six months ended 30 September | |||
| 2008 | 2007 | % | |
| R'm | R'm | Change | |
| Pay television | 6 981 | 5 447 | 28 |
| Internet | 1 831 | 654 | +100 |
| Technology | 725 | 481 | 51 |
| | 3 108 | 2 998 | 4 |
| Corporate services | 7 | 7 | - |
| 12 652 | 9 587 | 32 | |
| Ebitda | |||
| Six months ended 30 September | |||
| 2008 | 2007 | % | |
| R'm | R'm | Change | |
| Pay television | 2 309 | 2 200 | 5 |
| Internet | 195 | (20) | +100 |
| Technology | (24) | (17) | (41) |
| | 418 | 375 | 11 |
| Corporate services | (103) | (24) | - |
| 2 795 | 2 514 | 11 | |
| Operating profit before amortisation and other gains/(losses) | |||
| Six months ended 30 September | |||
| 2008 | 2007 | % | |
| R'm | R'm | Change | |
| Pay television | 2 099 | 2 044 | 3 |
| Internet | 113 | (49) | +100 |
| Technology | (49) | (38) | (29) |
| | 303 | 276 | 10 |
| Corporate services | (104) | (25) | - |
| 2 362 | 2 208 | 7 | |
| Operating profit | |||
| Six months ended 30 September | |||
| 2008 | 2007 | % | |
| R'm | R'm | Change | |
| Pay television | 1 887 | 2 034 | (7) |
| Internet | (43) | (79) | 46 |
| Technology | (127) | (69) | (84) |
| | 283 | 234 | 21 |
| Corporate services | (102) | (26) | - |
| 1 898 | 2 094 | (9) | |
Consolidated Income Statement
| Six months | Six months | Year | |
| ended | ended | ended | |
| 30 September | 30 September | 31 March | |
| 2008 | 2007 | 2008 | |
| Reviewed | Reviewed | Audited | |
| R'm | R'm | R'm | |
| Revenue | 12 652 | 9 587 | 20 518 |
| Cost of providing services and sale of goods | (6 703) | (4 787) | (10 778) |
| Selling, general and administration expenses | (4 034) | (2 683) | (5 877) |
| Other (losses)/gains - net | (17) | (23) | 15 |
| Operating profit | 1 898 | 2 094 | 3 878 |
| Interest received | 321 | 402 | 826 |
| Interest paid | (454) | (134) | (324) |
| Other finance income - net | 38 | 286 | 503 |
| Share of equity-accounted results | 405 | 126 | 654 |
| Profit on sale of investments | 34 | - | 16 |
| Impairment of equity-accounted investments | (216) | (68) | (279) |
| Profit before taxation | 2 026 | 2 706 | 5 274 |
| Taxation | (837) | (883) | (1 378) |
| Profit after taxation | 1 189 | 1 823 | 3 896 |
| Profit from discontinued operations | 127 | 39 | 243 |
| Profit/(loss) arising on discontinuance of operations | 2 568 | (81) | (82) |
| Profit for the period | 3 884 | 1 781 | 4 057 |
| Attributable to: | |||
| Naspers shareholders | 3 560 | 1 454 | 3 418 |
| Minority shareholders | 324 | 327 | 639 |
| 3 884 | 1 781 | 4 057 | |
| Core headline earnings for the period (R'm) | 1 763 | 1 706 | 3 996 |
| Core headline earnings per N ordinary share (cents) | 476 | 495 | 1 130 |
| Fully diluted core headline earnings per N ordinary share (cents) | 470 | 482 | 1 104 |
| Headline earnings for the period (R'm) | 1 272 | 1 588 | 3 806 |
| Headline earnings per N ordinary share (cents) | 343 | 461 | 1 076 |
| Fully diluted headline earnings per N ordinary share (cents) | 339 | 448 | 1 051 |
| Earnings per N ordinary share (cents) | 961 | 422 | 967 |
| Fully diluted earnings per N ordinary share (cents) | 948 | 411 | 944 |
| Net number of shares issued ('000) | |||
| - At period-end | 371 449 | 348 527 | 370 558 |
| - Weighted average for the period | 370 558 | 344 632 | 353 622 |
| - Fully diluted weighted average | 375 517 | 354 111 | 362 106 |
Condensed Consolidated Balance Sheet
| 30 September | 30 September | 31 March | |
| 2008 | 2007 | 2008 | |
| Reviewed | Reviewed | Audited | |
| R'm | R'm | R'm | |
| ASSETS | |||
| Non-current assets | 40 194 | 16 041 | 41 822 |
| Property, plant and equipment | 4 529 | 4 077 | 4 541 |
| Goodwill and other intangible assets | 22 311 | 1 596 | 24 183 |
| Investments and loans | 12 773 | 9 894 | 12 507 |
| Deferred taxation | 482 | 474 | 466 |
| Other non-current assets | 99 | - | 125 |
| Current assets | 12 601 | 16 620 | 12 940 |
| Assets classified as held for sale | 537 | 411 | 2 030 |
| TOTAL ASSETS | 53 332 | 33 072 | 56 792 |
| EQUITY AND LIABILITIES | |||
| Share capital and reserves | 34 884 | 21 809 | 31 909 |
| Minority shareholders' interest | 1 298 | 516 | 1 238 |
| Total equity | 36 182 | 22 325 | 33 147 |
| Non-current liabilities | 7 904 | 2 543 | 13 053 |
| Capitalised finance leases | 924 | 1 107 | 1 112 |
| Liabilities - interest-bearing | 5 640 | 658 | 10 629 |
| - non-interest-bearing | 434 | 423 | 189 |
| Post-retirement medical liability | 149 | 183 | 142 |
| Deferred taxation | 757 | 172 | 981 |
| Current liabilities | 9 057 | 7 933 | 8 935 |
| Liabilities classified as held for sale | 189 | 271 | 1 657 |
| TOTAL EQUITY AND LIABILITIES | 53 332 | 33 072 | 56 792 |
| Net asset value per N ordinary share (cents) | 9 391 | 6 257 | 8 611 |
Condensed Consolidated Statement of Changes in Equity
| Six months | Six months | Year | |
| ended | ended | ended | |
| 30 September | 30 September | 31 March | |
| 2008 | 2007 | 2008 | |
| Reviewed | Reviewed | Audited | |
| R'm | R'm | R'm | |
| Balance at beginning of period | 33 147 | 21 570 | 21 570 |
| Movement in treasury shares | (9) | (148) | (2 180) |
| Share capital and premium issued | 46 | 213 | 4 752 |
| Foreign currency translations | (828) | (354) | 3 529 |
| Movement in fair value reserve | - | - | 1 849 |
| Movement in cash flow hedging reserve | (95) | (51) | 218 |
| Movement in share-based compensation reserve | (12) | 78 | 155 |
| Transactions with minority shareholders | 940 | (16) | 24 |
| Net profit for the period | 3 884 | 1 781 | 4 057 |
| Dividends | (891) | (748) | (827) |
| Balance at end of period | 36 182 | 22 325 | 33 147 |
Condensed Consolidated Cash Flow Statement
| Six months | Six months | Year | |
| ended | ended | ended | |
| 30 September | 30 September | 31 March | |
| 2008 | 2007 | 2008 | |
| Reviewed | Reviewed | Audited | |
| R'm | R'm | R'm | |
| Cash flow from operating activities | 1 449 | 1 949 | 4 411 |
| Cash flow generated from/(utilised) in investment activities | 3 313 | (1 010) | (18 331) |
| Cash flow (utilised in)/from financing activities | (6 259) | (922) | 8 856 |
| Net movement in cash and cash equivalents | (1 497) | 17 | (5 064) |
| Foreign exchange translation adjustments | (64) | (256) | 908 |
| Cash and cash equivalents at beginning of period | 7 325 | 11 481 | 11 481 |
| Cash and cash equivalents at end of period | 5 764 | 11 242 | 7 325 |
| Included in: | |||
| - Cash and cash equivalents | 5 728 | 11 199 | 6 690 |
| - Assets classified as held for sale | 36 | 43 | 635 |
| 5 764 | 11 242 | 7 325 |
Calculation of Headline and Core Headline Earnings
| Six months | Six months | Year | |
| ended | ended | ended | |
| 30 September | 30 September | 31 March | |
| 2008 | 2007 | 2008 | |
| Reviewed | Reviewed | Audited | |
| R'm | R'm | R'm | |
| Net profit attributable to shareholders | 3 560 | 1 454 | 3 418 |
| Adjusted for: | |||
| - impairment of goodwill and other assets | 19 | 10 | 48 |
| - profit on sale of assets | (20) | (14) | (15) |
| - discontinuance of operations | (2 568) | 79 | 82 |
| - gain on loan settlement | - | - | (87) |
| - loss on sale of investments | 46 | - | 512 |
| - impairment of equity-accounted investments | 216 | 68 | 348 |
| 1 253 | 1 597 | 4 306 | |
| Total tax effects of adjustments | 9 | 3 | (486) |
| Total minority interest of adjustments | 10 | (12) | (14) |
| Headline earnings | 1 272 | 1 588 | 3 806 |
| Adjusted for: | |||
| - (profit)/loss from discontinued operations | (121) | (3) | 48 |
| - treasury-settled share scheme charges | 124 | 33 | 47 |
| - creation of deferred tax assets | - | - | (244) |
| - amortisation of intangible assets | 363 | 159 | 410 |
| - fair value adjustments and currency translation differences | 125 | (71) | (71) |
| Core headline earnings | 1 763 | 1 706 | 3 996 |
Supplementary Information
| Six months | Six months | Year | |
| ended | ended | ended | |
| 30 September | 30 September | 31 March | |
| 2008 | 2007 | 2008 | |
| Reviewed | Reviewed | Audited | |
| R'm | R'm | R'm | |
| Depreciation of property, plant and equipment | 433 | 306 | 662 |
| Amortisation of intangible assets | 448 | 91 | 375 |
| Share-based payment expenses (IFRS 2) | 168 | 111 | 184 |
| Other (losses)/gains - net | (17) | (23) | 15 |
| - profit on sale of property, plant and equipment | 3 | 4 | 8 |
| - impairments of goodwill and intangible assets | - | - | (20) |
| - impairments of tangible assets | (19) | (7) | (28) |
| - dividends received | 1 | 1 | 1 |
| - gain on loan settlement | - | - | 87 |
| - fair value adjustment on shareholders' liabilities | (2) | (21) | (33) |
| Net finance costs/(income) | 95 | (554) | (1 005) |
| - interest received | (321) | (402) | (826) |
| - interest paid | 404 | 82 | 224 |
| - interest on finance leases | 50 | 52 | 100 |
| - net foreign exchange differences | 102 | (104) | (91) |
| - net fair value adjustments on derivative instruments | 51 | (22) | (76) |
| - preference dividends received | (191) | (160) | (336) |
| Investments and loans | 12 773 | 9 894 | 12 507 |
| - listed investments | 2 701 | 1 533 | 2 282 |
| - unlisted investments | 10 072 | 8 361 | 10 225 |
| Market value of listed investments | 37 527 | 28 147 | 29 306 |
| Directors' valuation of unlisted investments | 10 072 | 8 361 | 10 225 |
| Commitments | 10 098 | 5 777 | 8 682 |
| - capital expenditure | 357 | 603 | 642 |
| - programme and film rights | 6 791 | 2 713 | 4 804 |
| - network and other services commitments | 2 187 | 1 746 | 2 138 |
| - operating lease commitments | 664 | 568 | 802 |
| - set-top box commitments | 99 | 147 | 296 |
| Analysis of equity-accounted results | |||
| Tencent | 504 | 226 | 615 |
| Abril | 71 | 40 | 150 |
| mail.ru | 38 | 20 | 49 |
| Other | (29) | (5) | (42) |
| Contribution to core headline earnings | 584 | 281 | 772 |
| Intangible amortisation | (88) | (115) | (214) |
| Deferred tax assets created | - | - | 244 |
| Discontinued operations | - | (33) | (62) |
| Contribution to headline earnings | 496 | 133 | 740 |
| Impairment of assets | (10) | (6) | (18) |
| Sale of investments | (81) | (1) | (68) |
| Share of equity-accounted results | 405 | 126 | 654 |
Directors
T Vosloo (chairman), J P Bekker (managing director), F-A du Plessis, G J Gerwel, R C C Jafta,
L N Jonker, S J Z Pacak, T M F Phaswana, L P Retief, B J van der Ross, N P van Heerden,
J J M van Zyl, H S S Willemse
Company secretary
G Kisbey-Green
| Registered office | Transfer secretaries |
| 40 Heerengracht, Cape Town 8001 | Link Market Services South Africa (Proprietary) Limited |
| (P O Box 2271, Cape Town 8000) | 11 Diagonal Street, Johannesburg, 2001 |
| (P O Box 4844, Johannesburg 2000) |
ADR programme
The Bank of New York Mellon maintains a GlobalBuyDIRECT TM plan for Naspers Limited. For additional information, please visit the Bank of New York Mellon's web site at www.globalbuydirect.com or call Shareholder Relations at 1-888-BNY-ADRS or 1-800-345-1612 or write to: The Bank of New York Mellon, Shareholder Relations Department - GlobalBuyDIRECT TM, Church Street Station, P O Box 11258, New York, NY 10286-1258, USA.
Important information
The report contains forward-looking statements as defined in the United States Private Securities Litigation Reform Act of 1995. Words such as "believe", "anticipate", "intend", "seek", "will", "plan", "could", "may", "endeavour" and similar expressions are intended to identify such forward-looking statements, but are not the exclusive means of identifying such statements. While these forward-looking statements represent our judgements and future expectations, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These include key factors that could adversely affect our businesses and financial performance. We are not under any obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise. Investors are cautioned not to place undue reliance on any forward-looking statements contained herein.
For a more detailed exposition, visit the Naspers website at www.naspers.com