Wrap Text
Naspers Limited - Financial Report
Naspers Limited
(Registration number 1925/001431/06)
ISIN ZAE000015889 JSE share code: NPN
("Naspers")
Highlights
Highlights over the past year include:
* Tencent, the real-time communications company which operates the QQ platform
in China, continued to show good growth. Tencent was listed on the Hong Kong
Stock Exchange in June this year.
* The pay-television operation in Greece made substantial progress after
upheaval in the previous period.
* M-Net and SuperSport entered choppy waters and were delisted following a
request by minority shareholders, especially the Phuthuma Futhi empowerment
scheme.
* Some newspaper titles, especially Daily Sun and Son, showed vibrant
circulation growth. New magazine titles included Bicycling SA, Heat, Seventeen
and Wegbreek.
* The book publishing business, Via Afrika, implemented its turnaround strategy
and was restored to profitability. The private education business, Educor, was
partly merged into Via Afrika and reported growth in profitability.
Abridged Income Statement
Year ended Year ended
31 March 2004 31 March 2003
R"m R"m
Revenue 12 804 12 204
Earnings before interest, tax, depreciation
and amortisation (Ebitda) 2 439 1 484
Depreciation (635) (747)
Operating profit before amortisation and
impairment 1 804 737
Amortisation (484) (356)
Impairment of programme rights (31) (155)
Operating profit 1 289 226
Finance costs (664) (246)
Share of equity-accounted results 3 2
Exceptional items 48 61
Profit before tax 676 43
Taxation (176) (162)
Minority interest (128) (158)
Net profit/(loss) from continuing operations 372 (277)
Loss from discontinuing operations - (141)
Profit arising on discontinuance of
operations - 751
Net profit attributable to shareholders 372 333
Earnings per N ordinary share (cents) 144 189
Headline earnings/(loss) per N ordinary
share (cents) 302 (13)
Headline earnings per N ordinary share
from continuing operations (cents) 302 7
Core headline earnings/(loss) per N ordinary
share (cents) 207 (57)
Fully diluted earnings per N ordinary
share (cents) 140 189
Proposed dividend per N ordinary share
(cents) 38 30
Proposed dividend per A ordinary share
(cents) 7 6
Number of shares issued (`000)
- at year-end 261 619 257 814
- weighted average for the period 257 814 176 528
- fully diluted weighted average 265 188 182 133
Abridged Balance Sheet
31 March 2004 31 March 2003
R"m R"m
ASSETS
Non-current assets 6 314 7 076
Property, plant and equipment 3 274 3 818
Goodwill and other intangibles 2 491 2 789
Investments and loans 52 68
Programme and film rights 40 230
Deferred taxation 457 171
Current assets 6 778 6 297
TOTAL ASSETS 13 092 13 373
EQUITY AND LIABILITIES
Share capital and reserves 3 183 3 504
Minority interest 235 305
Non-current liabilities 2 873 3 443
Capitalised finance leases 1 921 2 397
Liabilities - interest-bearing 572 422
- non-interest-bearing 129 242
Post-retirement medical liability 171 149
Deferred taxation 80 233
Current liabilities 6 801 6 121
TOTAL EQUITY AND LIABILITIES 13 092 13 373
Net asset value per N ordinary share
(cents) 1 216 1 359
Abridged Statement of Changes in Equity
Year ended Year ended
31 March 2004 31 March 2003
R"m R"m
Balance at beginning of year 3 511 1 386
Effect of adopting AC133 (366) -
Effect of adopting proportionate
consolidation (7) (24)
As restated 3 138 1 362
Movement in treasury shares 79 (738)
Share capital and premium issued - 3 395
Foreign currency translation (299) (811)
Movement in fair value reserve (9) -
Movement in cash flow hedging reserve (20) -
Net profit attributable to shareholders 372 333
Dividends (78) (37)
Balance at end of year 3 183 3 504
Abridged Cash Flow Statement
Year ended Year ended
31 March 2004 31 March 2003
R"m R"m
Cash generated by continuing operations 1 752 1 615
Cash utilised in discontinuing operations (6) (277)
Dividends paid (109) (66)
Cash flow from operating activities 1 637 1 272
Cash flow from investment activities (555) 163
Cash flow from financing activities (555) (650)
Net movement in cash and cash equivalents 527 785
Analysis of Exceptional Items
Year ended Year ended
31 March 2004 31 March 2003
R"m R"m
Profit on sale of investments 23 127
Profit/(loss) on dilution of interests in
investments 8 (1)
Asset impairment reversal/(loss) 17 (65)
48 61
Calculation of Headline Earnings
Year ended Year ended
31 March 2004 31 March 2003
R"m R"m
Net profit attributable to shareholders 372 333
Adjusted for :
- profit arising on discontinuance of
operations - (751)
- exceptional items after tax and minorities (44) 29
- impairment of programme rights 31 70
- amortisation of goodwill after minorities 420 297
Headline earnings/(loss) 779 (22)
Loss from discontinuing operations - 35
Headline profit from continuing operations 779 13
Adjusted for :
- currency translation differences (51) (86)
- creation of deferred tax assets (204) (58)
- amortisation of intangible assets 54 31
- AC133 fair value adjustments (44) -
Core headline earnings/(loss) 534 (100)
Supplementary Information
Year ended Year ended
31 March 2004 31 March 2003
R"m R"m
Finance costs 664 246
- net interest paid 154 185
- interest on finance leases 187 272
- net foreign exchange differences (63) (211)
- net fair value adjustments on derivatives
(AC133) 386 -
Investments and loans 476 221
- listed investments 137 153
- unlisted investments 339 68
Market value of listed investments 137 153
Director s" valuation of unlisted
investments 339 68
Commitments 1 743 2 235
- capital expenditure 394 138
- programme and film rights 995 1 898
- network and other services commitments 165 194
- decoder commitments 189 5
Operating lease commitments 631 629
GROUP OVERVIEW
The Naspers group is now reaping the rewards after some five years of
intensive investment and business development. This impetus, coupled with
unusually favourable trading conditions over the past year, and less
expenditure on new projects than usual, resulted in most business units
reporting satisfactory results. In particular, the offshore businesses have
shown excellent earnings growth.
While topline revenue increased by only 5%, operating profit grew to R1 289
million and core headline earnings to R534 million (R2,07 per share), compared
to a loss of R100 million (57 cents per share) in the previous period.
FINANCIAL REVIEW
A feature of the past year was the strength of the rand which had a mixed
impact on the group. On the positive side, our foreign currency input costs
were reduced by a robust rand. On the negative side, a strong rand diminishes
the value of our offshore revenues and earnings when these are translated and
reported in rand.
Revenue for the year grew by a modest 5%, largely because of the strengthening
of the rand over the year. Some 32% of the group"s revenue is now generated
from outside of South Africa.
A tight focus on costs saw operating profits before amortisation and
impairment charges increase to R1 804 million.
Net finance costs of R664 million (2003: R247 million) were substantially
higher than last year, mainly because of fair value adjustments of derivative
instruments of R386 million required by the introduction of AC133. Net
interest paid on borrowings and imputed interest on finance leases declined to
R154 million (2003: R185 million) and R187 million (2003: R272 million)
respectively.
Net currency gains totalled R63 million.
The taxation charge of R176 million includes net credits of R204 million
relating to the creation of deferred tax assets (refer below).
The net effect of the above was headline earnings from continuing operations of
R779 million.
However, as reported to you in the past, these headline earnings
include several items prescribed by South African Generally Accepted Accounting
Practice ("SA GAAP"), which undermines the credibility of `headline earnings"
as a measure of true operating performance. Our best estimate of such
distorting items are:
R"m
Currency translation gains 51
Creation of deferred tax assets 204
Amortisation of intangible assets (54)
AC133 fair value adjustments 44
245
The group leases satellite capacity, which is mainly denominated in US dollars.
SA GAAP requires that the future liabilities on these leases be aggregated
and translated to the rand equivalent at year end. The translation of these
leases and other items resulted in an unrealised currency gain of R51 million
this year. As this `profit" is not realised, we do not believe it is in
principle prudent to include it in headline earnings.
SA GAAP also compels us to create net deferred tax assets in the year of R204
million. This is mainly a non-recurring, artificial boost to headline
earnings, which we believe is imprudent.
The inclusion in headline earnings of a R54 million charge relating to the
amortisation of intangible assets reflects an accounting convention that has
no commercial relevance.
Finally, accounting standard AC133 compels us to `mar k to market" forward
exchange contracts that the group entered into in terms of its policy of
hedging foreign currency liabilities. Accounting for the foreign exchange
contracts as they mature would have yielded an additional realised headline
loss of R44 million. We believe it imprudent to exclude such realised amounts
from headline earnings.
None of the above items had any impact on our cash flows this year.
We have no choice in applying these accounting standards, even when they
distort reality. The net effect is that the reported headline earnings are
inflated
by R245 million. Adjusting for these items would result in `core" headline
earnings of R534 million, compared to a loss of R100 million in the previous
year.
Regarding cash flows, the group generated R1 637 million of cash from operating
activities compared to R1 272 million in the previous year. On 31 March 2004,
the group had net consolidated cash of R2,6 billion and interest-bearing
liabilities of R692 million, excluding capitalised satellite and other leases.
SEGMENTAL REVIEW
Revenues and operating profits of the key business segments were as follows:
Revenue
2004 2003
R"m R"m %
Subscriber platforms 8 661 8 516 2
- pay television 7 299 7 225 1
- technology 315 378 (17)
- internet 1 047 913 15
Print media 2 820 2 469 14
Book publishing and private
education 1 321 1 218 8
- books 785 665 18
- education 536 553 (3)
Corporate services 2 1 -
12 804 12 204 5
Ebitda
2004 2003
R"m R"m %
Subscriber platforms 1 865 1 087 72
- pay television 1 713 1 118 53
- technology (9) 65 -
- internet 161 (96) -
Print media 505 401 26
Book publishing and private
education 97 13 +100
- books 37 (28) -
- education 60 41 46
Corporate services (28) (17) (65)
2 439 1 484 64
Operating profit before
amortisation and impairment
2004 2003
R"m R"m %
Subscriber platforms 1 385 487 184
- pay television 1 336 658 103
- technology (23) 49 -
- internet 72 (220) -
Print media 388 290 34
Book publishing and private
education 61 (20) -
- books 21 (42) -
- education 40 22 82
Corporate services (30) (20) (50)
1 804 737 145
Operating profit
2004 2003
R"m R"m %
Subscriber platforms 919 21 +100
- pay television 1 063 435 144
- technology (63) 14 -
- internet (81) (428) 81
Print media 373 279 34
Book publishing and private
education 27 (54) -
- books 15 (47) -
- education 12 (7) -
Corporate services (30) (20) (50)
1 289 226 470
SUBSCRIBER PLATFORMS
Pay television
The total pay television subscriber base grew by only 100 000 over the past
year, mostly offshore. The group manages 2,1 million pay-television subscribers,
71% of whom subscribe to digital ser v- ices. Pay-television revenues grew a
meagre 1%, a consequence of the strong rand and a mature South African
subscriber base, which had only a nominal price increase in the year. Due to
good cost control, operating profit before amortisation and impairment charges
grew to R1 336 million.
In South Africa, the subscriber base is fully mature and reflected only
marginal growth of 3% to 1 075 000. To improve operational efficiencies, the
subscriber management platforms of MultiChoice and M-Web were merged.
In sub-Saharan Africa, the subscriber base grew by 30 000 to 291 000. Most of
the analogue services in this market have been shut down as subscribers
migrated to digital services.
M-Net and SuperSport experienced a challenging year. Both were delisted on 15
April 2004 following a request by minority shareholders, especially the
Phuthuma Futhi share scheme participants.
NetMed"s Greek pay-television business made substantial progress after last
year"s upheavals. The operations in Cyprus are profitable. Overall the
Mediterranean region grew by 40 000 subscribers to 350 000. The operating loss
before amortisation and impairment of R69 million was a significant
improvement on the R269 million reported last year. It is, however, too early
to predict a return to sustained profitability as the future of local football,
a key driver in that market, is still uncertain.
In Thailand, the UBC subscriber base remained stable at 436 000. This business,
which is now proportionately consolidated, reported revenues of R1,3 billion
and an operating profit before amortisation of R151 million. The local
economy is buoyant, but cable and copyright piracy remains a deterrent to
growth.
Technology
Our technology businesses are strategic assets as they ensure the security of
our pay-television subscriber base. The encryption technology market is
intensely competitive. Coupled to this is strong pricing pressure from direct
competitors as well as a decline in the price of hardware. This has increased
the need for differentiation through added value services and we have been
investing in new generation technology. This combination of lower prices and
investment in product development has led to reduced profitability. Going
forward we will continue to invest in research and development.
In addition, we are developing Entriq, a business providing security, billing
and customer care service for broadcast and online media. Growth in the global
consumer broadband market (outside of South Africa) has resulted in both
content owners and service provider s increasingly looking to the internet for
complementary value-added services and products. Entriq is in a development
phase and will consume cash as we launch several new initiatives.
Internet
Tencent"s QQ services enjoyed strong growth over the past year. QQ has one of
the most visited internet portals in China. Registered subscriptions for the
fee-based internet value-added services ended the year on 7,3 million. In
addition, the mobile and telecommunications value-added services reached 12,7
million registered subscriptions.
A number of new consumer services have been launched, including a popular QQ
game portal that features a selection of multiplayer online games, integrated
with the QQ instant-messaging service.
Tencent"s contribution to our group revenues was a robust R457 million and
operating profit before amortisation and impairment was R220 million.
In June, Tencent listed on the main board of the Hong Kong Stock Exchange. Net
proceeds from the offering, prior to the exercise of any over-allotment option,
were approximately HK$1 418,3 million, which will be used to fund new strategic
initiatives and organic growth.
In China, SportsCN"s businesses continue to grow, achieving almost one million
average daily visitors. SportsCN is consolidating its position as the leading
sports portal in China and more investment is expected.
In Africa, M-Web maintains its leading position with 242 000 subscribers.
However, growth in South Africa has stalled, largely because of the continuing
Telkom legal monopoly. Dial-up costs and over seas calls are more expensive
here than in comparable markets. Broadband services are still at negligible
levels. Regulation seems unable to break the impasse, and South Africa is
falling behind its peers in internet innovation.
In Thailand, the group is a leading online media company offering a broad range
of internet services. The latest version of QQ is being introduced.
PRINT MEDIA
Our newspaper and magazine businesses in South Africa operate in a mature
market, but succeeded in achieving better top-line growth than pay TV over the
past year. Most notable was the growth of the Daily Sun, a tabloid aimed at
people who, beforehand, did not regularly read a newspaper. The four regional
Daily Sun titles have achieved aggregate circulation of close to 300 000 daily.
Sunday Sun and Son have also experienced good circulation growth.
On the magazine front, new titles such as Bicycling SA, Heat, Seventeen and
Wegbreek were launched to cater for niches in the magazine market.
We have either implemented or initiated upgrades to our printing plants to
provide additional capacity for coping with growth.
In total, the print media business grew revenues by 14% and operating profits
before amortisation by 34%.
BOOK PUBLISHING AND PRIVATE EDUCATION
The book publishing business (Via Afrika) experienced a satisfactory year, with
revenues growing by 18% to R785 million. This business was restored to
profitability after last year"s losses, recording an operating profit before
amortisation and impairment of R21 million.
The private education business, Educor, had static turnover but solid growth in
operating profits before amortisation of 82%.
DIVIDEND
The board has recommended that the annual dividend be increased to 38 cents
(previously 30 cents), per N ordinary share and 7 cents (previously 6 cents)
per unlisted A ordinary share. The dividends are payable to shareholders
recorded in the books on 17 September 2004, and will be paid on 20 September
2004. The last date to trade cum dividend will be on 10 September 2004.
PROSPECTS
Shareholders will deduce from the above that, with respect to profitability,
virtually all our businesses fired on all cylinder s over the past year. This
is a rare occurrence for a group that spans multiple media platforms across
many different economies. It is unrealistic to expect that such an alignment
can be repeated next year. Coupled with this, expenditure on new developments
over the past year was lower than usual, which provided a further lift to
short-term earnings.
In addition, as indicated earlier in this report, our headline earnings have
been artificially boosted by prescribed accounting entries. Shareholders
should note that many of these are unlikely to recur, and should bear this in
mind when projecting expectations of headline earnings. In any event, we believe
that at present, `core" headline earnings is a fairer reflection of the
true earnings of the group.
Our balance sheet and cash flows are generally sound.
In the year ahead, the group will focus on developing new opportunities with a
view to delivering future value to shareholders. In particular, we will
concentrate on the development of our interests across the African continent
and in Asia, specifically in China.
We are mindful that the rapid rate at which the Chinese economy has expanded
over the past decade will probably have to slow in the near future. In general,
other economies where we have major businesses have a stable outlook for the
year ahead.
BLACK ECONOMIC EMPOWERMENT
Naspers supports the drive to incorporate our previously disadvantaged
communities into the South African economy. Over the past ten years the group
initiated numerous empowerment schemes. Most recently, the Welkom economic
empowerment scheme was extended for a further three years, benefiting the
17 000 individuals who participate in this empowerment drive. It is now `in the
money". Recently we also assisted Phuthuma Futhi shareholders with the
delisting of M-Net/SuperSport.
However, it is clear that we will have to develop further initiatives in
future. The ICT sector charter, which will apply to our South African
broadcast and telecommunication businesses, is close to finalisation. Once
completed, we will study its impact and determine our approach going forward.
WITHDRAWAL OF CAUTIONARY
Shareholders are referred to the trading update and cautionary announcement
dated 20 February 2004. In view of the publication of the provisional report,
the cautionary is now withdrawn.
ACCOUNTING POLICIES
The accounting policies used in this report comply with South African
Statements of Generally Accepted Accounting Practices and are consistent with
those applied in the prior year, except for :
- the adoption of AC133 - Financial Instruments: Recognition and Measurement,
as from 1 April; and
- the adoption of the benchmark treatment in terms of AC119. Joint ventures
are proportionately consolidated from the current year. Prior year figures
have been restated to provide comparative information.
The internet operations of Media24 and Via Afrika are now reported as par t of
the print media and book publishing segments respectively, whereas in prior
periods their results were shown as par t of the internet segment. This change
reflects the increasing integration of these operations within the print media
and book publishing segments.
The group"s interest in Tencent was consolidated until July 2003; thereafter it
was proportionately consolidated as a joint venture. In the next financial
year, it will be proportionately consolidated until the recent IPO date,
whereafter it will be equity accounted as an associated company.
A copy of the unqualified audit opinion of the auditor s,
PricewaterhouseCoopers Inc., is available for inspection at the registered
office of the company.
On behalf of the board:
Ton Vosloo Koos Bekker
Chairman Managing director
Directors
T Vosloo (chair man), JP Bekker (managing director), JJM van Zyl, E Botha,
LN Jonker, NP van Heerden, SJZ Pacak, BJ van der Ross, GJ Gerwel, HSS Willemse,
F du Plessis, FTM Phaswana, RCC Jafta
Company secretary
GM Coetzee
Registered Office
40 Heerengracht, Cape Town 8001
(PO Box 2271, Cape Town 8000)
Transfer Secretaries
Ultra Registrars (Proprietary) Limited
Fifth Floor, 11 Diagonal Street, Johannesburg 2001
(PO Box 4844, Johannesburg 2000)
ADR Programme
The Bank of New York maintains a Global BuyDIRECT(TM) plan for Naspers
Limited. For additional information, please visit The Bank of New York"s
website 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 Shareholder
Relations Department - Global BuyDIRECT(TM) Church Street Station, PO Box
112588, New York, NY 10286-1258 USA.
Naspers"s mission is to build shareholder value by operating subscriber
platforms that provide content, services and the means of communication to
paying users; to sell related technologies and services and to be useful to the
communities we serve.
Date: 29/06/2004 09:00:17 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department