The directors present their integrated annual report, which forms part of the audited annual financial statements of the company and the group for the year ended 31 March 2011.
NATURE OF BUSINESS
Naspers Limited was incorporated in 1915 under the laws of the Republic of South Africa. The principal activities of Naspers and its operating subsidiaries, joint ventures and associated companies (collectively “the group”) are the operation of pay television and the provision of related technologies, the operation of internet and instant messaging subscriber platforms, e-commerce platforms and the publishing, distribution and printing of magazines, newspapers and books. These activities are conducted primarily in South Africa, sub-Saharan Africa, China, Central and Eastern Europe, Russia, India and Latin America.
OPERATING REVIEW
The group achieved a solid performance over the past year. Consolidated revenues grew by 18%. These results were underpinned by a diversified portfolio and a strong balance sheet.
Major areas of growth were the internet and pay-television businesses. Worldwide the internet industry continued its expansion from which most of our internet businesses benefited. The resilience of our pay-television operations in an increasingly competitive environment underscores the benefit of quality content, although rising costs place margins under pressure. Our print media business experienced a limited recovery in advertising revenues, whilst the technology business was able to improve margins.
Over the past year the group continued to expand, as evidenced by growth in revenues. Although nuances shift gradually, the growth strategy continues to have three legs: organic growth of existing businesses, pursuing acquisitions and developing new technologies.
Recent experience is that internet valuations, in our opinion, have become inflated and good value is difficult to find these days. As a consequence, we are focusing somewhat more on growing our businesses organically and on developing new technologies. This may dampen earnings in the year ahead as the cost of developing these businesses are expensed through the income statement. However, we believe this strategy is sound and will stimulate long-term growth prospects.
SEGMENTAL REVIEW
This segmental review includes our consolidated subsidiaries, plus the proportional consolidation of associated companies. Refer to note 37 for our segmental reporting.
Internet
Overall the internet segment reported revenue growth of 47% and trading profits rose 48%.
In China, Tencent recorded another strong set of results in an increasingly competitive market. Rapid growth of the internet industry in China enabled Tencent, through its focus on user experience, to further expand the usefulness of its core platforms. The QQ platforms now manage 674 million active instant messaging (IM) user accounts and 137 million peak simultaneous users. The social service, Qzone, also grew well with current user accounts of 504 million.
The Russian internet market remains lively and Mail.ru Group maintained market share in most segments. They are the leading provider of services to internet consumers in Russian-speaking markets.
In aggregate, the other internet businesses reported revenue growth of 37% and a marginal trading loss of R6m, the result of increased development costs. The e-commerce operations of Allegro (Eastern Europe) and Ricardo (Western Europe) continued expanding healthily. Both businesses broadened their product offerings through organic growth and smaller bolt-on acquisitions.
In Latin America, our e-commerce business, BuscaPé, continued to deepen its services and broaden its revenue base. The acquisition of the classified platform, OLX, strengthened our product range in this market.
Pay television
The past year was characterised by lively subscriber growth, with 977 000 subscribers added to the base. This was largely driven by the Fifa 2010 World Cup, coupled with decoder subsidies and marketing. As a consequence, revenue increased 19% to R21bn. Trading margins were lower due to cost pressures from growing the subscriber base, higher sport content costs and competition. Good progress was made in increasing local content and skills.
In South Africa, the gross base expanded by 637 000 to 3,5 million subscribers. The lower-priced Compact bouquet accounted for 59% of the growth. Television advertising revenues rebounded, growing 32%.
In the rest of sub-Saharan Africa our base grew by 340 000 to 1,4 million subscribers. The lower-priced Compact and Family bouquets now reach 602 000 families. Trading margins were reduced by a higher investment in decoder subsidies, local and sport content and additional satellite capacity.
Competition is expected to intensify across the continent and the regulatory environment remains uncertain.
After a period of uncertainty, the Southern Africa Development Community selected the latest version of the digital video broadcast standard (DVB-T2) to migrate analogue terrestrial services to digital terrestrial television (DTT).
Technology
Consolidated revenues in local currency grew 10% and operating performance improved as Irdeto benefited from efficient management of its products and structure. Over 18 million conditional access units were delivered, a 17% increase on the previous year. In most product categories new clients were added and new offerings introduced, which positions Irdeto to secure internet distributed digital assets and content.
Print media
Our operations in South Africa showed revenue growth of 9%, with advertising improving only modestly. Trading profits declined in part due to the troublesome implementation of a new enterprise resource planning system. In Brazil, Abril’s revenue and operating profit, excluding the educational business sold during the prior year, grew 14% on the back of a buoyant economy.
