Wrap Text
Naspers - Reviewed interim results for the six months ended 30 September 2006
Naspers Limited
(Registration number: 1925/001431/06)
ISIN: ZAE000015889
JSE share code: NPN
("Naspers")
Interim Report
The reviewed results of the Naspers group for the six months ended 30
September 2006 are as follows:
Commentary
GROUP OVERVIEW
The group continues to record satisfactory growth. Trading conditions remain
favourable in most markets in which we operate, but will probably not remain
so indefinitely. Growth in the period under review came mostly from organic
expansion of existing businesses. Revenue grew by 22% to R9,1 billion and core
headline earnings expanded by 43% to R1,3 billion.
Investment activity accelerated during the period with acquisitions totalling
R3,7 billion, funded from existing resources. In addition, capital expenditure
of R376 million was incurred, mostly in the South African print media
business. A dividend of R378 million was paid to shareholders. These were the
main applications for the net cash outflow of R3,9 billion for the period.
In parallel with making investments, the group is also developing a number of
businesses organically. These are focused on broadband technologies
("Entriq"), the internet and mobile television. In total, these development
costs amounted to R449 million during the period under review (2005: R211
million). It is anticipated that this development spend will accelerate in the
second half of the year, negatively impacting earnings and cash flows.
Looking forward, indications are that the macro-economic environment in South
Africa may be changing, with increases in interest rates that may affect
consumer spending, and a weaker rand, which will make our foreign denominated
input costs more expensive. In our other markets like China, Brazil, Greece,
Nigeria and Angola, macro-economic conditions seem generally positive in the
short term.
FINANCIAL OVERVIEW
Revenue for the period increased by 22% to R9,1 billion. This growth was
largely derived from an increase of 62 000 in pay-television subscribers for
the period. The positive trading conditions experienced by the group are
reflected in advertising revenues, which grew by 21%.
The group generates a growing percentage of its consolidated revenue outside
of South Africa. In total, revenues generated outside of South Africa grew by
36% to R2,4 billion.
Operating profit before amortisation and other gains/losses increased by 33%
to R1,9 billion, with an improvement in margins.
Finance costs for the period of R466 million include interest income on net
cash deposits of R49 million, and imputed interest paid on finance leases of
R78 million. It also includes an aggregate amount of R437 million in respect
of foreign currency translation differences and fair value adjustments where
International Financial Reporting Standards (IFRS) requires us to "mark to
market" foreign assets and liabilities, and to reflect such adjustments as a
cost in the income statement.
Equity accounted earnings comprise mainly our interest in Tencent and Abril.
In China Tencent expanded its product offering to complement its instant-
messaging platform. New and enhanced lifestyle products like QQ Pets, QZone
and QHome continued to grow. The Tencent portal, QQ.com, is now ranked second
overall portal in China and fifth globally by Alexa (http://www.alexa.com).
The increased page views and market positioning of QQ.com has resulted in
increased advertising revenues.
In May 2006 the group acquired a 30% stake in a leading Brazilian media
company, Abril S.A., for a cash consideration of US$422 million. This
investment will be accounted for as an associate. Abril is the largest
magazine publisher in Brazil. Its flagship newsweekly, Veja, is the fourth
highest selling weekly globally. In addition, Abril is Brazil"s leading
educational book publisher. Subsequent to the interim reporting period, Abril
announced that it planned to dispose of its investment in TVA, its cable
network, for US$289 million. If completed, this transaction will strengthen
Abril"s balance sheet. In the period under review Abril traded in line with
the expectations.
The share price of Beijing Media Corporation Limited, a company listed on the
Hong Kong Stock Exchange, in which we have an interest of 9,9%, stands at a
level below which we acquired our interest. Whilst we are positive about long-
term prospects, we believe it prudent to record an impairment charge of R150
million against this investment.
Included in earnings for the current period is a foreign currency translation
loss of R260 million. This accounting loss arises from partly settling a net
investment in a foreign subsidiary and, as it is of a capital nature, is
reversed for the purpose of calculating headline earnings.
The net effect of the above is headline earnings for the period of R1,28
billion and core headline earnings of R1,31 billion. The "Calculation of Core
Headline Earnings" is detailed below.
As regularly reported to shareholders, the board is of the view that core
headline earnings is an appropriate measure of the sustainable operating
performance of the group, as it adjusts for non-recurring and non-operational
items.
ELECTRONIC MEDIA
Pay television
The total pay television base grew by 62 000 over the period to 2,07 million
subscribers under management. This was the principal driver behind the 24%
growth in pay-television revenues.
In South Africa the equated subscriber base grew by 60 000 to 1,3 million,
with strong support coming from the emerging black market. Both the lower-
priced Compact bouquet and the personal video recorder base passed 65 000
households. Several new channels were added to the bouquet. Following the
passing of the Electronic Communications Act new broadcast regulations are now
effective. The application process for issuing new pay-television licences has
commenced and several potential competitors have applied for licences.
In sub-Saharan Africa the base grew by 35 000 to 420 000, aided by the
introduction of the lower-priced Compact bouquet and encouraging growth from
niche language markets. More intrusive regulatory regimes came into being.
In Greece the subscriber base grew by 10 000 to 320 000 households. Improved
sports rights were acquired, as well as new media initiatives embarked upon.
MIH bought a further 12% in NetMed from minority partners. In Cyprus the
subscriber management services contract to administer the analogue base on
behalf of a third party, was terminated, resulting in the loss of some 43 000
analogue subscribers.
Internet
The internet segment, excluding Tencent which is equity accounted, grew
revenues by 14% and generated an operating profit before amortisation and
other gains/losses of R24 million.
In South Africa MWeb has 277 000 dial-up and 62 000 broadband customers. The
South African business remains profitable, but growth is ponderous due to the
lack of broadband connections and the slow establishment of the second network
operator. In the period South Africa slipped further behind many of its peers
in Africa and the rest of the world.
In Thailand our internet portal, Sanook!, entrenched its leading position,
helped by the roll-out of new services. The QQ service being offered in
Thailand by Sanook! performs above expectations. We are establishing an
internet business in India, targeting the youth market.
Conditional access
The conditional access business, Irdeto, improved revenues by 87% and
operating profit before amortisation and other gains/losses to R76 million.
This was achieved through a combination of organic growth from existing and
new customers, and acquisitions. Shipments of units to customers in the
various segments (digital TV, mobile TV and IPTV) grew by 32%. The Philips
CryptoTec business acquired in April 2006 has been successfully integrated
into Irdeto.
Broadband technologies
Entriq reported a growth in revenue of 78% and an operating loss before
amortisation and other gains/losses of R123 million. The roll-out of broadband
services and the distribution of video content online continue to grow
worldwide. In recognition of this trend, content owners and distributors are
seeking ways to provide content online using scaleable and reliable
technology. Entriq is investing in technologies to manage the online
distribution of video to broadband, mobile and IPTV. The aim is to enable
content owners to take full advantage of the distribution and syndication
capabilities offered by these new platforms.
PRINT MEDIA
Newspapers, magazines and printing
Revenue from this segment increased by 18% to R2,3 billion, and operating
profit before amortisation and other gains/losses increased to R314 million.
Newspapers and magazines both benefited from the continued strong advertising
market. Circulation growth is stable amidst competitive market conditions. A
few of our titles showed strong circulation growth, including Daily Sun, Son,
Soccer Laduuuuuma and Sunday Sun. Daily Sun"s circulation reached 493 000 in
September, entrenching its position as the largest daily in South Africa.
A variety of new titles were launched, including Maxpower, topMotor, True Love
Babe, Go!, MyWeek, Cape Son and People"s Post.
The printing business recorded strong growth due to favourable market
conditions and increased capacity from the implementation of the new printing
press in Gauteng.
Book publishing and private education
Marketing expenses in our school-book business increased significantly during
the period due to the accelerated implementation of the new curriculum,
causing operating losses to be larger than in the comparative period. Unlike
last year, material school- book orders are this year only expected in the
second half of the financial year, confirming the seasonal nature of this
business. The general book publishers are trading positively, although the
book retail market remains tough. The private education segment results were
static due to restructuring and selling of certain entities. Progress was made
on creating a sustainable base for future profitability.
BLACK ECONOMIC EMPOWERMENT ("BEE")
In September 2006 Naspers launched a broadbased BEE ownership initiative,
which included a public offer of ordinary shares to qualifying Black Persons
and Black Groups in the issued share capital of Welkom Yizani Investments
Limited ("Welkom Yizani"), which will hold ordinary shares in Media24 Holdings
(Proprietary) Limited. In parallel, Phuthuma Nathi Investments Limited
("Phuthuma Nathi"), will hold ordinary shares in MultiChoice South Africa
Holdings (Proprietary) Limited.
The Welkom Yizani and Phuthuma Nathi public offers closed on 3 November and
were both over-subscribed. Particularly pleasing was the extent of investments
made by individuals, many investing for the first time. It is estimated that
Phuthuma Nathi and Welkom Yizani will both have more than 100 000 individual
investors. The accounting impact of the BEE initiative will be reflected in
the full year results.
BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Condensed interim financial statements for the six months ended 30 September
2006 were prepared in accordance with IAS 34 "Interim Financial Reporting" and
in compliance with the Listings Requirements of JSE Limited. The accounting
policies used to prepare the interim results are consistent with those applied
in the previous period, except where there were changes in accounting
treatment as indicated below. These condensed interim financial statements
have been reviewed by the company"s auditors, PricewaterhouseCoopers Inc.,
whose report is available for inspection at the registered offices of the
company.
CHANGES IN ACCOUNTING TREATMENT
IAS 28 "Investments in Associates"
The group changed its accounting policy for associated companies with December
financial year-ends by adopting a three-month lag period in reporting their
results. The decision to account for these investments for the twelve months
to 31 December rather than to 31 March is a change in accounting policy and
the group has accordingly restated its comparative information at 31 March
2006 and 30 September 2005 in accordance with IAS 8 "Accounting Policies,
Changes in Accounting Estimates and Errors". The effect of the change on the
group"s reported results is a net decrease in its share of equity accounted
results of R56 million for the year ended 31 March 2006. The impact on the
interim period ended 30 September 2005 was not material.
Amendment to IAS 21 "The Effects of Changes in Foreign Exchange Rates"
The group has adjusted its reported results to reflect the amended accounting
treatment for monetary items in terms of IAS 21 as it relates to its net
investment in foreign operations. The effect of the amendment on the group"s
reported results is a net decrease in its finance costs of R27 million for the
year ended 31 March 2006 and a net increase in finance costs of R21 million
for the interim period ended 30 September 2005. The group has restated its
results accordingly. The effect on equity on 1 April 2005 was a net decrease
of R25 million.
IAS 39 "Financial Instruments: Recognition and Measurement"
The group regularly enters into long-term US dollar-based contracts that
relate to the purchase of film and television programme content. At 31 March
2006 the group recorded approximately R162 million as US dollar foreign
currency embedded derivative assets.
Subsequent to the year-end, IFRS interpretation in South Africa concluded that
the US dollar is currently "commonly used" by South African entities in the
import and export environment. Accordingly, the group re-assessed its
contracts under these changed circumstances and has ceased to separate these
embedded derivatives as from 1 April 2006. This has resulted in the de-
recognition of US dollar embedded derivative assets in the 2007 financial
year.
IAS 14 "Segment Reporting"
The group decided to report the results of its mobile television and MediaZone
operations as part of the pay-television segment, as this reflects the true
nature of these businesses. These were initially reported as part of the
internet segment. The impact of this change on the period ended 30 September
2005 was not material.
SIGNIFICANT ACQUISITIONS
The group acquired the CryptoTec conditional access business in April 2006 for
a cash consideration of approximately R252 million. Based upon a preliminary
appraisal the total purchase consideration was allocated to net assets.
In May 2006 the group acquired a 30% interest in Abril S.A. for a cash
consideration of R2,6 billion. The group is currently finalising the purchase
price allocation and any adjustment to the provisional purchase price
allocation will be recorded by the group prior to 31 March 2007.
In July 2006 MIH bought an additional 12% interest in NetMed for a cash
consideration of approximately R612 million. NetMed is now owned 87,2% by MIH
and 12,8% by Teletypos.
In August 2006 the group acquired a 20% interest in Titan for a cash
consideration of approximately R114 million. The total purchase consideration
was allocated based upon an appraisal, as follows: net assets (R108,9 million)
and the remaining balance to goodwill. It is anticipated that an additional
shareholding for approximately $13,5 million will be acquired in Titan,
increasing the group"s investment to 37%. This amount has been reflected as a
commitment.
On 14 November 2006 it was announced that an agreement had been concluded with
Johnnic Communications Limited ("Johncom") in terms of which Naspers will
acquire Johncom"s entire 38,56% interest in M-Net/SuperSport. In consideration
for this acquisition, Naspers will issue 20 886 667 Naspers N ordinary shares
and pay R250 million in cash. This transaction is subject to a number of
conditions precedent, inter alia the approval of the Johncom shareholders and
the appropriate regulatory authorities.
CHIEF EXECUTIVE
Koos Bekker, the chief executive of the group, will be 54 years of age and the
applicable policy is retirement at 60. Koos has been head of a major media
company for 21 years and of a listed entity for 16. The board has granted a
request for an unpaid sabbatical of one financial year, from 1 April 2007,
until he resumes his duties on 1 April 2008. Cobus Stofberg, currently CEO of
MIH, and with 21 years" service with the group, will act as chief executive of
Naspers for that year.
On behalf of the board
Ton Vosloo Koos Bekker
Chairman Managing director
Cape Town
29 November 2006
Segmental Review
Revenue
Six months ended
30 September
2006 2005
R"m R"m %
Electronic media 6 206 4 934 26
- pay television 5 268 4 248 24
- internet 538 471 14
- conditional access 359 192 87
- broadband technologies 41 23 78
Print media 2 869 2 494 15
- newspapers, magazines and 2 255 1 910 18
printing
- book publishing and private 614 584 5
education
Corporate services (3) 1 -
9 072 7 429 22
Ebitda
Six months ended
30 September
2006 2005
R"m R"m %
Electronic media 1 941 1 433 35
- pay television 1 924 1 477 30
- internet 48 (21) +100
- conditional access 83 20 +100
- broadband technologies (114) (43) +100
Print media 355 334 6
- newspapers, magazines and 392 344 14
printing
- book publishing and private (37) (10) +100
education
Corporate services (34) (32) 6
2 262 1 735 30
Operating profit before
amortisation and other
gains/losses
Six months ended
30 September
2006 2005
R"m R"m %
Electronic media 1 715 1 231 39
- pay television 1 738 1 322 31
- internet 24 (56) +100
- conditional access 76 14 +100
- broadband technologies (123) (49) +100
Print media 261 262 -
- newspapers, magazines and 314 284 11
printing
- book publishing and private (53) (22) +100
education
Corporate services (35) (34) 3
1 941 1 459 33
Operating profit
Six months ended
30 September
2006 2005
R"m R"m %
Electronic media 1 761 1 198 47
- pay television 1 844 1 319 40
- internet (5) (83) 94
- conditional access 45 11 +100
- broadband technologies (123) (49) +100
Print media 246 260 5
- newspapers, magazines and 305 290 5
printing
- book publishing and private (59) (30) 97
education
Corporate services (38) (34) 12
1 969 1 424 38
Condensed Consolidated Income Statement
Six months Six months
ended ended Year
ended
30 30 31 March
September September
2006 2005 2006
Reviewed Reviewed Audited
R"m R"m R"m
Revenue 9 072 7 429 15 706
Cost of providing (4 649) (4 153) (8 754)
services and sale of
goods
Selling, general and (2 570) (1 865) (3 948)
administration expenses
Other gains - net 116 13 -
Operating profit 1 969 1 424 3 004
Net finance (466) (25) 16
(costs)/income
Share of equity-accounted 93 82 95
results
Profit on sale of - 16 74
investments
Impairment of equity (150) - -
accounted investment
Profit before taxation 1 446 1 497 3 189
Taxation (571) (430) (935)
Profit after taxation 875 1 067 2 254
Profit from discontinued - 43 32
operations
Profit arising on - - 1 032
discontinuance of
operations
Profit for the year 875 1 110 3 318
Attributable to:
Naspers shareholders 824 1 048 3 161
Minority shareholders 51 62 157
875 1 110 3 318
Core headline earnings 1 308 914 2 027
for the period (R"m)
Core headline earnings 450 323 714
per N ordinary share
(cents)
Headline earnings for the 1 276 1 024 2 168
period (R"m)
Headline earnings per N 439 361 764
ordinary share (cents)
Fully diluted headline 415 337 722
earnings per N ordinary
share (cents)
Earnings per N ordinary 284 370 1 114
share (cents)
Fully diluted earnings 268 345 1 053
per N ordinary share
(cents)
Net number of shares
issued ("000)
- At period-end 291 355 284 848 290 555
- Weighted average for 290 555 283 154 283 719
the period
- Fully diluted 307 394 303 265 300 243
weighted average
Condensed Consolidated Balance Sheet
30 30 31
September September March
2006 2005 2006
Reviewed Reviewed Audited
R"m R"m R"m
ASSETS
Non-current assets 11 345 7 097 7 186
Property, plant and 3 991 3 697 3 689
equipment
Goodwill and other 1 495 1 204 1 159
intangible assets
Investments and loans 5 006 1 264 1 297
Programme and film rights 212 50 171
Derivative financial 27 29 33
instruments
Deferred taxation 614 853 837
Current assets 8 099 7 748 10 067
TOTAL ASSETS 19 444 14 845 17
253
EQUITY AND LIABILITIES
Share capital and premium 5 433 5 481 5 561
Other reserves (1 688) (2 489) (3 344)
Retained earnings 5 287 2 701 4 815
Naspers shareholders" 9 032 5 693 7 032
interest
Minority shareholders" 192 158 172
interest
Total shareholders" 9 224 5 851 7 204
equity
Non-current liabilities 2 782 3 137 3 372
Capitalised finance 1 628 1 689 1 444
leases
Liabilities - interest- 241 589 722
bearing
- non-interest-bearing 496 186 551
Post-retirement medical 150 150 153
liability
Deferred taxation 267 523 502
Current liabilities 7 438 5 857 6 677
TOTAL EQUITY AND 19 444 14 845 17 253
LIABILITIES
Net asset value per N 3 100 1 999 2 420
ordinary share (cents)
Condensed Consolidated Cash Flow Statement
Six months Six months
ended ended Year
ended
30 30 31 March
September September
2006 2005 2006
Reviewed Reviewed Audited
R"m R"m R"m
Cash flow from operating 1 598 1 295 3 166
activities
Cash flow utilised in (4 083) (624) (335)
investment activities
Cash flow (utilised (1 416) (183) 25
in)/from financing
activities
Net movement in cash and (3 901) 488 2 856
cash equivalents
Calculation of Core Headline Earnings
Six months Six months
ended ended Year
ended
30 30 31 March
September September
2006 2005 2006
Reviewed Reviewed Audited
R"m R"m R"m
Net profit attributable 824 1 048 3 161
to shareholders
Adjusted for:
- impairment of - - 69
goodwill and other assets
- profit on sale of
property, plant
and equipment (6) (7) (17)
- discontinuance of - - (1 032)
operations
- loss/(profit) on sale 308 (17) (13)
of investments
- impairment of equity
accounted
investments 150 - -
Headline earnings 1 276 1 024 2 168
Adjusted for:
- profit from - (43) (32)
discontinued operations
- creation of deferred (35) (10) (42)
tax assets
- amortisation of 51 34 51
intangible assets
- fair value
adjustments and currency
translation differences 16 (91) (118)
Core headline earnings 1 308 914 2 027
Supplementary Information
Six months Six months
ended ended Year
ended
30 30 31 March
September September
2006 2005 2006
Reviewed Reviewed Audited
R"m R"m R"m
Depreciation of property, 323 276 596
plant and equipment
Amortisation of 87 48 96
intangible assets
Share-based payment 82 80 135
expenses (IFRS 2)
Other gains - net 116 13 -
- profit on sale of 7 12 17
property, plant and
equipment
- impairments of - - (69)
goodwill and intangible
assets
- impairments of (1) - -
tangible assets
- dividends received 3 1 2
- fair value adjustment 107 - 50
on shareholders"
liabilities
Finance costs 466 25 (16)
- interest received (128) (117) (279)
- interest paid 79 64 98
- interest on finance 78 87 177
leases
- net foreign exchange 337 (14) (5)
differences
- net fair value 100 5 (7)
adjustments on derivative
instruments
Investments and loans 5 006 1 264 1 297
- listed investments 1 407 1 143 1 163
- unlisted investments 3 599 121 134
Market value of listed 11 384 4 862 6 506
investments
Directors" valuation of 3 599 121 134
unlisted investments
Commitments 3 394 3 699 2 860
- capital expenditure 382 343 445
- programme and film 2 070 1 574 1 426
rights
- network and other 339 304 364
services commitments
- operating lease 472 1 335 359
commitments
- set-top box 131 143 266
commitments
Condensed Consolidated Statement of Changes in Equity
Six months Six months
ended ended Year
ended
30 30 31 March
September September
2006 2005 2006
Reviewed Reviewed Audited
R"m R"m R"m
Balance at beginning of 7 204 5 068 5 068
period
Movement in treasury 9 60 65
shares
Share capital and premium (137) - 106
issued
Foreign currency 1 562 3 (14)
translations
Movement in fair value - (24) (24)
reserve
Movement in cash flow 65 6 (1)
hedging reserve
Movement in share-based 60 101 135
compensation reserve
Transactions with (30) (213) (1 113)
minority shareholders
Net profit for the period 875 1 110 3 318
Dividends (384) (260) (336)
Balance at end of period 9 224 5 851 7 204
Directors
T Vosloo (chairman), JP Bekker (managing director), F-A du Plessis, GJ
Gerwel, RCC Jafta, LN Jonker, SJZ Pacak, FTM Phaswana, BJ van der Ross, NP
van Heerden, JJM van Zyl, HSS Willemse
Company secretary
GM Coetzee
Registered office Transfer secretaries
40 Heerengracht, Link Market Services South Africa
Cape Town 8001 (Proprietary) Limited
(P O Box 2271, 11 Diagonal Street,
Cape Town 8000) Johannesburg 2001
(PO Box 4844, Johannesburg 2000)
ADR programme
The Bank of New York maintains a Global BuyDIRECTTM 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 BuyDIRECTTM, Church Street Station, P O Box 11258, New
York, NY 10286-1258, USA.
For a more detailed exposition, visit the Naspers website at www.naspers.com
Date: 28/11/2006 09:00:19 AM Supplied by www.sharenet.co.za
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