Alec Hogg
boardroom talk
In a week when Naspers kept faith with its spend-now-harvest-later philosophy, Johann Rupert’s Venfin progressed its claim to being the most astutely positioned media business of them all. It is also well positioned to move on Naspers itself should the country’s largest media group stumble in the most critical 12 months of its life.
Ironically, were it not for a fallout some years back over investments in Europe, Venfin and Naspers might already be part of the same enterprise. But the dispute that stemmed from once jointly owned foreign television assets killed off any chance of pugnacious Rupert and the existing Naspers executive team ever sitting around the same table.
The groups would make a perfect fit. Naspers has the country’s best-managed newspapers and magazines, dominates Pay TV and enjoys a strong (if currently costly) position in the online arena. Its obvious blind spot is a link to a cellular phone company. Apart from bringing its Vodacom stake to the party, Venfin’s association with free-to-air e.tv would add another powerful side to a combined media enterprise that would have no peer on the African continent.
Venfin’s latest financial results, released this week, emphasise the position of strength from which Rupert can progress his local media ambitions. It has three advantages other major players must envy: an unimpaired cash pile well into billions of rands; existing assets that generate more than enough revenue to fund an ambitious investment programme; and, best of all, a strong profit source through its 13,5% stake in successful cellular phone group Vodacom.
Even the well-documented troubles at e.tv look to be on the mend. Figures disclosed in the Venfin accounts show e.tv’s bleeding slowed enough last year to suggest the worst may be over. The television operation’s first half’s R155-million loss was trimmed to R145-million during the six months to end March, traditionally a more difficult period for all-important advertising revenue.
The sparkle in the results, though, came from the jewel in Venfin’s crown, its 13,5% share of Vodacom. Profits at the country’s leading cellphone company are accelerating smartly as the company’s 50% state-owned parent Telkom readies itself to go public next year. Helped by a half-on-half revenue improvement of 27%, Vodacom’s headline earnings surged from R684-million at the interim stage to R1,1-billion for the final six months of the financial year to end March.
Venfin’s picture of health is in stark contrast to the challenges that were all too apparent in last week’s financials from its media rival. In spite of CEO Koos Bekker’s astonishing ability to play it cool, Naspers’s financial results for the year to end March came as a jolt. Its record of maintaining operating profit while investing heavily came to an abrupt end. Last year’s modest R7-million profit at the earnings before interest, tax, depreciation and amortisation level deteriorated into a R295-million loss.
The real test of Bekker’s nerve, though, looms large. Unless the promised turnaround occurs in the next 12 months, the group will face a serious cash crunch. Although the Naspers balance sheet as at March 31 shows cash of R2-billion, almost half of it is now offset by interest-bearing debt. That’s not much of a cushion for a group that last year reported a net cash outflow of R765-million at the operating level, with R660-million more leaving the Naspers bank account through “investments”.
Bekker says this is nothing new for his group: “We’ve been through Pay TV [M-Net] and through building MTN, the cellphone company, and it’s a pattern you invest for a number of years and then you start reaping the benefit. There are two sides to the coin. While you are investing, you can expect very high growth, but you pay for it by way of losses. When the business starts turning profitable, of course, it becomes more mature and the growth slows down.”
Sceptics say there’s a world of difference between operating in a licence- protected environment at home and taking the higher risks associated with the fiercely competitive global environment where Naspers is now playing. The next 12 months promise to be the acid test for Bekker’s strategy. And if Mr Cool should slip, be assured Rupert’s Venfin is ready to pounce.