Naspers warns of profit crash

 ·14 Jun 2023

Multimedia and technology group Naspers has warned shareholders to expect its headline earnings to drop between 75% and 82% in its coming financial results.

The group said it anticipates headline earnings per share to drop by between 420 and 459 US cents to 559 cents for the year ending 31 March 2023.

Naspers said that the main reason for the drop is that the operating environment in the fiscal year was characterised by significant geopolitical and macroeconomic uncertainty, which impacted its operations.

This led to reduced profit among critical segments, especially Tencent.

During the year, Naspers reduced its stake in Tencent from 29% to 26%, and the cash acquired from those sales was used to repurchase its shares.

In addition, the group is still working towards profitability in its e-commerce segment, which it envisages reaching in FY25.

“Our focus remains on building long-term sustainable value in local marketplaces with peer-leading growth and materially improving profitability.

“After years of investment and significant growth, our businesses have scaled meaningfully and each
segment now demonstrates a clear path to profitability. We are committed to achieving consolidated
e-commerce profitability during the first half of FY25,” it said.

During the period, Naspers said that its consolidated e-commerce portfolio showed good growth and improving profitability, however, overall earnings in the period were impacted primarily by a reduced profit contribution from its associates, particularly Tencent.

The decrease in earnings relates to:

  • Lower contributions from equity-accounted investments. Tencent is the Group’s largest equity-accounted associate and was impacted by Covid-19 lockdowns and regulations in China. Tencent has since reported its first quarter numbers for the financial year ending 31 December 2024, delivering earnings growth, as it benefits from China re-opening, a stable regulatory environment and cost reductions;

  • Higher impairment charges mainly relating to our equity-accounted investments driven by an increase in market interest rates and revised business outlooks; and

  • Lower gains from the sale of assets. In the prior financial year ended 31 March 2022 the group sold 2% of its Tencent shareholding in an accelerated book build to increase its financial flexibility at a time when internet valuations were elevated. In the current year, the Group sold Tencent shares to fund its open-ended share repurchase. This delivered a lower gain on sale than the prior year due to market correction in internet valuations.

Discontinued operation

Naspers said that it completed the disposal and received the proceeds from the exit of the Russian classifieds business, Avito, in October 2022. As such, the results of Avito are treated as discontinued operations for the entirety of the reported period.

The group previously communicated its decision to exit the OLX Autos (Autos) business. It said it is in the process of completing the exit.

“The results of Avito and those Autos businesses, where either a future sale is deemed probable or has
been closed down by 31 March 2023, will be presented as discontinued operations in the current and
prior reporting periods,” it said.

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