Two local media groups, Naspers and Johnnic Communications (Johncom), are looking for growth beyond South Africa’s borders.
Afrikaans media and pay TV behemoth Naspers is poised for good growth through acquisitions in the Far East and Africa. Its English-medium peer, Johncom, will need to bed down problem areas while keeping one eye on growth in Africa, says John Slettevold, media analyst at UBS Warburg.
Unveiling Johncom’s results recently, CEO Connie Molusi was upbeat about film and other interests in Nigeria, Ghana, Kenya and other African countries.
The results of both groups were in line with analysts’ expectations, showing a modest rise in profits, but underlined the groups’ needs to pursue growth vigorously.
Naspers, which reported this week, lifted its profit before tax from R43-million to R676-million, driven by a jump in operating profit that the group attributes to ‘a tight focus on costs”. Johnnic lifted profit before tax from R244-million to R288-million.
Print media, the only roughly comparable business segment of the two groups, benefited from a recovery in advertising spending, yet is a contributor with declining influence.
At Naspers, the print division includes not only the publication of newspapers and magazines, but also printing and distribution. Print media yielded revenue of R2,8-billion to a total of R12,8-billion, a contribution of 22%.
Yet Slettevold points out the 14% revenue growth and 34% profit growth to R388-million as a reflection of buoyant adspend, an area Johnnic could aspire to match. Naspers has successfully launched new titles: Daily Sun, now selling 280 000 copies a day, and Son, its Afrikaans stablemate.
Johncom’s print media segment contributed R1-billion to R2,6-billion revenue, just under 40%, with R77-million of R132-million in profits coming from operations (58%). Yet print revenue grew by only 7%, half that of Naspers.
Johncom’s printing and distribution functions are outsourced. Its highlights have been the launch of Soccer Life, a glossy, up-market black men’s magazine, and the purchase of the ailing Sowetan — both endeavours that will drain resources.
An analyst who declined to be named said an interesting feature of the results was that, with revenue depressed, the success of both companies lay in their ability to rein in costs. In the year ahead, with little scope for cost-cutting, it would be interesting to see how both drove revenue growth.
Naspers conceded that in South Africa its pay-television subscriber platform was ‘fully mature”.
The company runs pay-TV subscriber platforms through Multichoice and M-Web Africa, M-Web Thailand and Netmed, which operates in Greece and has interests in M-Net and Supersport, the latter co-owned with Johncom.
In April the two had to be delisted following pressure from minorities. M-Net now faces a rethink on its open-time window, forced by the Independent Communications Authority of South Africa (Icasa), especially since the advent of free-to-air channel e.tv.
Naspers now derives 32% of its revenue from outside South Africa. This financial year total pay-TV subscribers grew by a paltry 100 000 to 2,1 million worldwide. Yet pay-TV’s profit contribution increased 103% to R1,3-billion, aided by the stronger rand. Where it has enjoyed success is in Hong Kong where Tencent, its real-time communications joint venture, was successfully listed on the Hong Kong Stock Exchange to raise R 1,3-billion.
Slettevold expects Naspers’s growth drive to be bolstered by its good cash position. This financial year for instance, cash from continuing operations stood at R1,7-billion.
Apart from its pay-TV, internet and print-media division, Naspers runs a publishing outfit, Via Afrika, and private education arm, Educor.
Slettevold argued that Naspers’s subscriber platform makes it far less susceptible to cyclical fluctuations in adspend than Johncom.
He noted that both groups would rely on a continued healthy consumer spending environment in South Africa to boost advertising revenue, and for Johncom to beef up retail operations and luxury goods purchases from Exclusive Books.
Molusi complained that piracy was killing Johncom’s music, DVD and games businesses. Slettevold was also dismayed by the phenomenon.
‘I don’t know where it is all going to end,” he commented.
It has six divisions ranging from media to retail, music and home entertainment, books and maps, as well as interests in Africa, about which Molusi is most upbeat.
The continental division is now anchored by Nu Metro cinemas in Kenya and Ghana and film distribution to nine African countries.
Molusi is eyeing Nigeria for growth. Plans for that country include print title acquisition and the opening of multiplex cinemas in major cities. Last year, Johncom formed a consortium with Kagiso to purchase New Africa Investment Limited. Slettevold points out that opportunities in Africa are not easy to identify.
Molusi is keen to enter the radio market. Current ownership restrictions prohibit Johncom from entering the ‘theatre of the mind”, but these are expected to be amended by Icasa in the near future.
Johncom’s totals assets are valued at R2,7-billion, while Naspers’s stand at R13-billion.
The former declared a dividend of 40c, up 33% from 30c last year, while the latter disbursed 38c to holders of N ordinary shares and 7c to A ordinary shareholders.