South Africa: Naspers reports flat earnings despite good revenue growth

Media giant Naspers reported largely flat earnings despite good revenue growth for the six months to September, but was bullish on its prospects. The group has been open about its plans to reduce staff in the print division, and it reiterated this last week.

Due to labour issues, it did not disclose the total number of jobs to be cut, but said it had already trimmed a "few hundred" employees since last year, according to a conference call with management.

Revenue grew 32% to R12.7bn from R9.6bn before. Core headline earnings were flat, showing a 3% increase to R1.76bn. Core headline earnings per share were down a marginal 4% to R4.76. Operating profit dropped to R1.9bn from R2bn previously. Headline earnings per share plunged to R3.43 from R4.61.

Naspers MD Koos Bekker said that with the economic slowdown, consumers spent more time at home, which meant they were more likely to consume Naspers products such as pay-TV, magazines and websites. The group operates in major emerging markets such as China, Brazil, Russia, India, Eastern Europe as well as Africa. Many of these markets were in better shape than first-world economies, said Bekker.

The costs associated with growing its pay-TV subscriber base, increased finance costs and new developments kept core headline earnings relatively constant, the group said. It said market turmoil was expected to slow consumer spending, but the markets in which Naspers operated would continue to grow, although at a slower pace.

Nevertheless, Naspers is on the acquisition trail. It said market conditions could present further opportunities and that it had a strong balance sheet. Only 16% of the group's revenue is derived from advertising, insulating it from the recent media slowdown. Revenue in the group's print media division grew by just 4%, although readership has held up.

Pay-TV is traditionally not sensitive to the interest rate cycle, so Multichoice was able to grow revenue by 28% to reach R7bn. But operating margins declined as the business signed up an additional 171000 subscribers.

Analyst Khulekani Dlamini of Renaissance Specialist Fund Managers said the extent of margin dilution in the pay-TV business had come as a surprise, but he was pleased with the "great growth" in the internet division.

Naspers' internet businesses, many of which are in emerging economies, brought in R1.8bn in revenue and an operating profit of R113m before amortisation. This segment was also boosted by the inclusion of e-commerce businesses Allegro and Ricardo, formerly known as Tradus.

After the end of the reporting period the group announced the disposal of MWeb Africa to Telkom for $63m. The sale of MWeb SA was terminated because of poor market conditions.

Business Day 27th Nov 2008

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