Naspers Limited, the parent company of DSTV, OLX and Konga Core headline earnings, released its Q1 2016 earnings showing a growth of 21% (49% in Rand) USD1.2 billion.
Revenues as measured on an economic interest basis, including the proportionate contribution from associates and joint ventures, grew 6% (22% in local currency) to US$12.2bn.
According to its statement, “this was driven by growth from Tencent, as well as the classifieds, travel and etail segments within eCommerce. Some 77% of revenues were generated outside of South Africa. Development spend was stable at USD961m and trading profit increased a healthy 18% (38% in local currency) to USD2.2bn. The board has proposed, for approval by our shareholders, a dividend of 520 South African cents per share, up 11% year on year.”
The company also disclosed that it “Naspers is now reporting in United States dollar (US dollar). The financial performances of the businesses were consolidated in their respective functional currencies and translated into US dollar. The weakness in emerging-market currencies over the past year means year on year performance was dampened by the translation impact. Where relevant, the performance in local currencies is quoted in brackets after the equivalent International Financial Reporting Standards metrics. Unlike the severe earnings impact of falling currencies on the video-entertainment segment, in ecommerce this impact is less of a concern given the group’s diverse geographic spread, plus the fact that (unlike in video-entertainment) costs are largely incurred in local currencies.”
The company added that ““Overall the group delivered a satisfactory performance,” said Naspers chair Koos Bekker. “While we will continue seeking new growth opportunities, in some sectors of ecommerce we are starting to benefit from scale. Deteriorating currencies mean that the video entertainment business is under considerable pressure.”
Naspers’s Internet segment recorded a healthy year, benefiting from growth in Tencent and eCommerce. Revenues were up 18% (31% in Rand) year on year to USD8.2bn, while trading profit increased 38% to USD1.6 billion. This segment now accounts for 68% of group turnover.
Naspers disclosed its plans to start monetising its classified sites such as OLX saying “Our ecommerce businesses benefit both from the continued growth of existing businesses and investments in new models,” said CEO Bob van Dijk. “In classifieds, monetisation plans are on track and resulted in a reduction in trading losses for the core portfolio, whilst Avito is delivering ahead of plan. In etail, eMAG expanded with improved operating leverage.”
The video-entertainment segment generated revenues of US$3.4bn, down 11% year on year. As customers are billed in local currencies, the rapid weakening of currencies in many African markets, driven by a rout in commodity prices, resulted in lower US dollar revenues. As a significant portion of costs are US dollar-denominated, the combination of lower revenues and a higher cost base (partly due to increased competition), saw trading profit decreasing by 17% to USD610 million.
The South African video-entertainment customer base grew by 325,000 homes, but the weakened South African rand and a poor macroeconomic outlook could reduce growth and profitability in the future. In sub-Saharan Africa, substantial price increases to offset the impact of currency declines plus weaker consumer sentiment resulted in a loss of 288 000 direct-to-home (DTH) customers. To reinvigorate growth, the focus is now on managing and absorbing costs ourselves where possible, to minimise further price increases to the consumer.
“We are also strengthening content in the mid- and lower segments. At year-end, the digital terrestrial television (DTT) customer base reached 2.4m homes and development spend has declined. Our new subscription video-on demand service, ShowMax, had a good start in South Africa with a deeper and more customised content offering than competitors and a focus on service delivery”, the company added.
Consolidated free cash outflow of US$38m was recorded, marginally higher than last year, as lower capital expenditure, a reduction in development spend and higher dividends from associates were offset by weaker cash flow from the sub-Saharan video-entertainment business. “In the year ahead, the focus will be on continuing to deliver topline growth while scaling the more established ecommerce businesses,” said Naspers CFO, Basil Sgourdos.
“We’ll invest further in long-term growth opportunities such as ShowMax, letgo and ibibo. In video entertainment, the loss of DTH subscribers and the effects of weakening currencies in subSaharan Africa will have a significant downward impact on earnings and cash flows in the year ahead. It could take some time before the plans to reposition this business will have a positive impact.” he concluded.
Naspers influence in DTH has come under competition in Nigeria and other markets. Konga its eCommerce brand in Nigeria faces tough competition with Rocket Internet’s Jumia. The group would require strong strategy to ensure its growth outlook is managed.
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