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Naspers earns R57bn from e-media

Port Elizabeth - Shareholders and market watchers should have been pleased with Naspers' [JSE:NPN] final results, published on Monday.

Results for the year to March were actually surprisingly good, considering the warning by management six months ago that high capital expenditure to build a big presence in e-commerce would impact on earnings.

Earnings for the last financial year were just about unchanged from the previous year with core headline earnings per share at R21.81, only 2% lower than in the previous financial year. But investors were apparently not impressed and the share price dropped more than R47 – some 3.7% - by 15:00.

One could argue that the earnings figures in this set of results are of secondary importance. Of much more interest was the indication in the figures of the exceptional growth in Naspers’ internet-based businesses and how large the group as a whole has become.

Total revenue increased by 26% to R62.7bn compared to just below R50bn in the previous year, and core headline earnings were a not insignificant R8.6bn. The lion’s share of the revenue – R57bn – was earned in electronic media such as email services, online gaming, e-commerce and the like. Naspers’ television services also produced sterling results.

It is sometimes difficult to comprehend that so much money can be earned by providing largely intangible leisure products. Management points out in their commentary that its star investment, the Chinese Tencent, has performed very well as it produced six out of the 10 most popular online games in China during the past year.

Tencent’s revenue increased to R34.2bn and trading profit to nearly R11bn. That translates into a lot of Chinese youngsters logging on to read their email and play computer games.

Pay television earned trading profit of R8.5bn from revenue of nearly R3bn and the Russian mail.ru earned R1.1bn on revenue of R2.4bn.

The one to watch is Naspers’ e-commerce businesses. Naspers has identified e-commerce as a fast-growing segment in the internet industry and has invested heavily in several businesses. New CEO Bob van Dijk has been touted as one of the world’s leading experts in the industry and tasked with unlocking the expected promise of e-commerce.

During the year to end March, revenue from the e-commerce segment increased by 64% to an impressive R20bn, but operating losses from the division more than doubled from R2.1bn to nearly R5bn.

The potential for e-commerce can be seen in that Naspers has grown to the likes of eBay and Amazon in terms of visits to its e-commerce offerings. To convert visits and revenue to profit, Naspers started to focus on online classified advertising, of which the results will become evident during the next 24 months.

The only really negative figures in the results were bundled together in the cash flow statement. Cash flow from operating activities decreased from more than R10bn in the 2013 year to R3.3bn in financial 2014.

Large investment spending of R8bn (up from R6.4bn in 2013) resulted in an increase in debt and lower net cash flow, but cash reserves are still adequate at R12.5bn.

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