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Naspers internet businesses turn a corner

Cape Town - Naspers [JSE:NPN] has reached the strategic milestone of revenue from its internet businesses exceeding that of pay television for the first time.

Results for its year-end until the end of March 2013 was reported on Friday.

A gross dividend of 385c per Naspers N-ordinary and 77c per Naspers A-ordinary share was approved.

The group’s strategy remained to focus on the organic growth of existing businesses and limited acquisitions that add value to the group.

In his address at the annual general meeting, chairperson Ton Vosloo said the group posted a solid performance.

"During a somewhat bumpy period, Naspers grew revenues, including our share of associates' results, at a compound annual rate of some 25% over the past five years," said Vosloo.
 
"Globally, economic growth remained variable over the past year, but we played the field as we found it."

Mobile on the up

He said the growth of mobile devices is an important technology trend for the group.

With over 1 billion smartphones now accounting for 20% of all mobile devices worldwide, internet use is shifting steadily from PC to mobile and tablets.

"In some of our businesses, as much as a third of total traffic now stems from mobile applications," Vosloo said.

"While this trend disrupts existing business models, it also creates opportunities for our talented engineers and committed people in some 130 countries around the globe."

Strategy

He said although the group's strategy will reduce earnings and cash flows in the short term, shareholders have nonetheless enjoyed steady growth in dividends over the past five years.

The group generated consolidated revenue growth of 27% to over R50bn. The main contribution came from the internet segment, which recorded robust revenue growth across most platforms.

However, not all internet units are profitable yet, specifically those in development stages.

In line with strategy, the group increased its development spend to R4.3bn, up from R2.8bn in 2012.

"We are aiming at growing our e-commerce businesses and rolling out digital terrestrial pay-TV services across sub-Saharan Africa," said Vosloo.

The group's consolidated trading profits for the year were flat at R57bn.

Despite the increased spend, core headline earnings per N-ordinary share grew 20% to R22.16.

Growth came mainly from organic expansion of existing businesses and acquisitions during the year.

It was supplemented by the depreciation of the rand, which had a positive effect when foreign revenues were translated into rand. It was somewhat tempered by the payments to studios for movies and series.

Managed internet revenues expanded 80% to almost R35bn, while trading profits were up 44% at over R6bn.

Given the growth of the internet in China, Tencent continues to record strong results. Equally, in the Russian market Mail.ru had another good year.

E-commerce

E-commerce revenues doubled to R11bn. During the year the group expanded these operations through organic growth and selective acquisitions.

"We believe online shopping is a global consumer trend and anticipate that the proliferation of tablets and smartphones will accelerate the uptake of services," said Vosloo.

"As we are in the building phase, this segment is loss-making and we do not expect aggregate profits for several more years."

Pay-TV

Pay-TV reported 20% growth in revenues to over R30bn, while trading profits grew 18% to well over R7bn. Growth came largely from an increased net subscriber base, which now reaches around 7 million households across 49 countries in Africa.
 
In South Africa, the group closed the year with some 4.5 million subscriber homes. In the rest of sub-Saharan Africa, it reached 2.3 million households.

During the financial year the group produced 6 000 hours of local programming in South Africa, Nigeria and Kenya.

Seven local general entertainment channels launched, the Africa Magic portfolio of channels was reformatted, and two local community channels were added.

Stingy advertisers

"It was a tough year for print media operations globally," said Vosloo. "Revenues were flat as advertisers proved stingy."

Circulation revenues were also under pressure, and Media24 was no exception. However, trading profits rose marginally as costs were cut.

In Brazil, Abril suffered a decline in profitability, and cost-cutting initiatives are implemented there.

Regulations

"The broader regulatory environment is evolving. In Africa, countries are increasing broadcasting regulation and new competition legislation is toughening," said Vosloo.

"Internet regulation is also increasing. Equally, our newspaper and magazine businesses are subject to some regulatory risks."

In essence, the sustainability of the group is determined by its ability to inform, entertain and connect people, distribute media products, support ecommerce, sell advertising, develop related technologies and sell these to other media operators, according to Vosloo.

- Fin24
 
* Fin24 is part of Media24, a subsidiary of Naspers.

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