Prosus N : FY2024 Results call transcript

Naspers & Prosus Financial Results FY 31 March 2024

Speaker Key:

KB	Kaeleen Brown
ET	Ervin Tu
BS	Basil Sgourdos
FB	Fabricio Bloisi
WP	Will Packer
AR	Andrew Ross
CT	Cesar Tiron
JB	Joseph Barnet-Lamb
CJ	Christopher Johnen
SC	Silvia Cuneo
MD	Marcus Diebel
NM	Nadim Mohamed
JM	Joseph McNamara

1. Roman Reshetnev
   OP Operator

00:00:05

OP Good day, ladies and gentlemen, and welcome to the Naspers and Prosus Financial Results for the Year Ended 31 March 2024. At this time, all participants are in listen only mode. A question and answer session will follow the formal presentation. If you should require operator assistance during the conference, please press star and then zero on your telephone keypad. Please note that this conference is being recorded. I'd like now to turn the conference over to Investor Relations director, Kaeleen Brown. Please go ahead, ma'am.

00:00:42

KB Thanks, Judith. Welcome, everyone, and thank you for joining us on our earnings call today. With me, we have our interim CEO and soon to be Group President, Ervin, our CFO, Basil, and our incoming CEO, Fabricio.

Today, we are doing things slightly differently. You will find our usual extensive deck on our website. But for the purposes of this call, we are not going to go through every slide, but rather focus on some of the key slides that highlight our performance and recent developments. This will allow us to take more time to answer your questions. We do encourage you to study the full deck, and we will gladly address any questions you may have.

00:01:29
	After the presentation, we will, as usual, move to Q&A, where I will ask you to
	please limit yourselves to two questions each. If you have any additional
	questions, please do get back into the queue to ask them. And as always, please
	reach out to IR if you have any follow-up questions. And for now, I'll turn over to
	Ervin.
ET	Thanks very much, Kaeleen, and thanks to everyone for joining today. We have
	an important set of results to announce, and as Kaeleen has already alluded to,
	we're going to do things a little bit differently today. So I will highlight some of the

slides. Not every slide will be in order as you see it on the website. I will make sure you know which slide I'm on as I go through it.

Let's start with slide five. It has been a long road, and let's acknowledge that the work didn't just start in FY 24, and I'm very proud of our achievements this year. I have the privilege of sharing our results with you, but they are a reflection of the hard work, tough choices and contributions made by our team. And I want to highlight that.

We sustained industry-leading growth and achieved profitability in our Ecommerce businesses for the first time ever. This is a big milestone. We're not resting here, and we expect to continue this trajectory of improvement. Full year profitability and increased dividends from Tencent led to a 3x increase in free cash flow, a big achievement, underscoring the strength and cash generating abilities of our businesses at scale. Basil will delve deeper into the specifics shortly.

00:03:01

Moving on to slide six, you will see the strong execution from our operations, peer- leading revenue growth across our segments and significantly improved profit margins. We have several gems in our portfolio, and we see significant opportunity to scale them profitably by building out their growing ecosystems. Today, I'd like to focus on what good looks like by highlighting iFood and OLX.

First, iFood, on slide seven. Starting as an online food ordering marketplace, iFood added a first-party food delivery offering to its platform. 1P food delivery now accounts for more than 30% of iFood's GMV and led to rapid scaling and profitability. With its expanding customer base and exceptional brand recognition, iFood is now scaling the business to explore new areas like groceries, meal vouchers and credit. These initiatives are still in their early stages, but they are growing rapidly, and we are optimistic about their potential.

In classified, on slide eight, OLX continues to thrive, attracting over 14 million active users and featuring approximately 62 million active listings daily. We operate horizontal marketplaces for a broad range of categories, while specialised verticals like motors and real estate target predominantly professional sellers.

In combination, they operate as a strong traffic and inventory-sharing ecosystem. This approach not only enhances user engagement but also drives monetisation, with our verticals generating 4x the average revenue per user compared to our horizontal platforms.

00:04:34

We see a lot of potential in expanding and monetising these ecosystems, building moats through additional value-added services and products. As you can see on the right-hand side of the chart, when we do this well, we create a lot of value for our customers and ourselves.

A key enabler of our current and future success is our investment in AI, as you can see on slide nine. Since 2018, we've increased our AI and data science teams by 8x. We've empowered our entire organisation to explore gen AI for daily tasks by creating Toqan, our AI assistant. Toqan is now used by 13,000 employees across 24 portfolio companies and has boosted productivity by 5% to 10%, effectively adding the equivalent of 3,000 employees at no additional cost.

AI has also driven significant tangible financial improvements across our portfolio. For example, OLX has deployed our AI capabilities to improve marketing effectiveness by 15%, and iFood saves tens of millions of dollars per year by automating customer support and optimising promotional strategies through AI. These are just two small examples, but the total impact of AI-driven initiatives across the group is substantially larger.

AI will also continue to be an important theme for our investing efforts. So far, for example, our Ventures team has looked at over 900 opportunities in AI and made nine investments in the space. To highlight this, two examples. Martian is a model router that dynamically routes each query to the optimal LLM in real time and Corti is an AI copilot for health care professionals.

00:06:10

Beyond Ventures, our entire investing team will continue to look for exceptional AI-related opportunities. We will do so with the benefit of our AI team and the knowledge of implementing AI in practice throughout our operating portfolio.

Moving to slide 11, while our operational performance has improved, we are also focused on enhancing our returns. We've streamlined our organisation, refined our investment processes and engage more actively with our major operating companies. We see early positive results, but a recovery will continue to take time. We have more work to do here.

Similarly, while we continue our work to grow our NAV, we are also focused on maximising NAV per share. As you can see here on slide 12, our open-ended share repurchase programme continues to create tremendous value, 32 billion to date, while shrinking the Prosus free float by 22% and improving NAV per share by 8%.

In fact, as you can see on slide 13, the programme represents the largest buyback programme globally in the tech sector on a relative basis. Reducing the discount remains a big opportunity and key priority for the group. We plan to operate the buyback programme for as long as the discount remains elevated, compounding value over time, while at the same time increasing our per share exposure to our Ecommerce portfolio and to Tencent.

To close, this was a very strong year for the group, and I'm immensely proud of our achievements. We've reached Ecommerce profitability, revitalised our culture, made substantial progress improving our processes, and we have paved the path

	for continued profitable growth and value creation. Let me now hand it over to
	Basil. Basil?
00:07:57
BS	Thank you, Ervin. Hello, everyone, and thanks for joining the call today. I hope
	you're all very well. The financial year ended 2024 was a very strong year for the
	group, and I'm pleased to be able to highlight the progress on our financial

commitments and performance to you, our shareholders. Like Ervin, my comments will be briefer than in the past calls so that we can use more of the time to answer your questions.

Let's start with slide 19, and you see the group's outpaced its peers in growth and also accelerated growth by 3% versus the first half of the year and 2% year on year. This peer-leading and accelerating growth shows the potential of our businesses. Our ambition is to continue to outgrow our peers and expand profit margins significantly.

The effects of the accelerated revenue growth and the efficiency drives are visible on slide 20. Ecommerce profitability improved by $451 million. So that's a very large turnaround from the $413 million loss in the previous financial year. The second half of the financial year ended 2024 is the first time Ecommerce has been profitable, and that is more than six months ahead of our commitment to the market.

00:09:29

The strong second half performance also means Ecommerce was profitable for the full financial year, a further milestone for the group. This is a significant accomplishment. But, folks, this is not victory. We aim to continue expanding our margins meaningfully to reach those of our peers.

You will see in the next slide that some of our businesses are there or close, and in some others, we have more work to do. Slide 21 shows the profitability improvement in each of the key consolidated businesses. You see strong improvements across all the consolidated businesses. iFood and OLX are the standout performers. iFood is evolving into a global leader in growth and profitability. Classifieds are growing considerably faster than their peers and are marching convincingly to peer-level margins.

Payments and Fintech reported healthy growth and a meaningful six percentage point improvement in trading margin. Growth would have been higher had it not been for the embargo on adding new merchants in PayU India while it worked to secure its new license. An in-principle license was secured in April of this year. There is a significant growth potential in India fintech and the opportunity to meaningfully improve profit margins in our PayU India business. This is the group's focus.

Iyzico had a strong year of growth, is profitable and expanded margins. Turkey's fintech and Iyzico business, which is not part of the ongoing sale of the GPO business, are high potential opportunities for the group. In Etail, I'll focus my comments on eBay and highlight that it has returned to growth. Romania Etail is growing well and meaningfully ahead of its peers and improving profitability.

eMAG's ambition is to replicate this performance in the other countries and is also focused on driving profitability improvements in the remaining Romania verticals.

00:11:59

So let's turn to slide 22, and I'd like to highlight what good looks like in Prosus and what we aim for in each of our businesses. iFood continues to deliver exceptional results, growing strongly, expanding its margins and achieving profitability for the year. These results underline iFood's position as a top food delivery business globally. Contributions came from the core restaurant business and its growth extensions, which grew revenue by more than 20% and improved profitability in the second half of the year.

As Ervin mentioned, and I'm sure Fabricio will speak about during the call, iFood is expanding its ecosystem to bring more value to Brazilian consumers and restaurants. The ecosystem now delivers groceries, is innovating in the Brazilian meal voucher sector, and its credit business is growing well and showing a promising financial trajectory.

During the period, the core restaurant business continued to grow strongly off an increasingly larger base, increasing revenue by 24% while delivering a 70% margin and a $260 million trading profit. IFood illustrates what good looks like in food delivery. Speed, strong culture and execution, innovation and strong brand are central to the success.

00:13:33

OLX is another exceptional business. OLX delivered strong growth, considerably outperforming peers while significantly expanding margins and cash flow generation. Trading profit grew more than three times, with margins expanding sharply to 24%, from 11% in the previous financial year, driven by strong growth, balanced investment and strategic optimisation across the technology hubs. Pay & Ship revenue grew 69%, driven by improved monetisation and product.

So on slide 28, we show you core headline earnings, the group's after-tax profitability measure, which almost doubled during the period to $5 billion. There were two core drivers. First, demand profitability gains in both our consolidated and our equity account and Ecommerce investments. Second, Tencent's focus on high quality revenue, which drove substantial profit improvements.

And then I will underline that the share repurchase programme further amplified these results. Our core headline earnings rose by 84%, and with the share repurchase programme, the headline earnings per share increased by 96%. So that's a 12% boost from the buyback.

So turning to slide 29, our push for enhanced profitability, coupled with higher dividends from Tencent, led to a three times increase in free cash flow to $524 million. Folks, that's a $773 million improvement year over year. The group has demonstrated a positive free cash flow trajectory over the last three years. Our focus is on improving profitability further, and we want to drive further improvements in free cash flow. Free cash flow generation is the ultimate driver of value creation.

00:15:42
	Moving to slide 30, you'll see that the group's balance sheet remained strong, with
	$14.6 billion of cash on hand. This is a firm position to be in during the current
	environment. Not all this cash is available for investment as some needs to be
	retained to support our investment grade rating.
	In time, as we continue to improve cash generation and grow the value of our
	businesses, this will release more cash. Of course, the open ended share
	repurchase pulls in the other direction as we sell Tencent and reduce NAV in order
	to increase NAV per share.
	I will close with these key messages. First, we aim to create value through
	profitable growth, effectively building and growing scaled ecosystems. This will
	highlight the value of our strategy and our businesses. Secondly, we intend to
	keep an upward profit and cash flow margin trajectory and to meaningfully expand
	both in the years to come. Thirdly, we are well capitalised, and we know that that
	comes with great responsibility. Ervin has spoken about this before. We remain
	focused and disciplined in our capital allocation.
	Fourthly, we remain committed to reducing the discount and better reflecting our
	portfolio's value in our share price. And finally, we are committed to managing our
	balance sheet within its investment grade rating. I'd like to thank our shareholders
	for their continued support, and I will now hand over to Fabricio.
00:17:31
FB	Hello, everyone. Nice to talk to you again. We talked one month ago, and it's a
	pleasure to be here. I'm very happy with the current results. I think Prosus

delivered are 19% growth, much ahead of the peers that are growing 7%. Prosus delivered more than $700 million of additional, better cash flow, what is very, very good. So I haven't started yet, but I want to congratulate everyone, Ervin, Basil and the whole team, because the results, I think, are very good.

As I said, I'm going to start more or less in two weeks, but I have not been in vacation over the last month. I've been talking to everyone, participated in meetings and really learned how the company works. And I want to share with you briefly, I just have one slide here, to tell you that I'm much more excited today than one month ago. I'm really confident we have a lot of assets to enable us to keep growing, and growing profitably, over the next years.

First, some good and bad things. The good, we have amazing potential. I have visited many companies, and I see things that will, for sure, enable the group to grow more. Obviously, I already know about iFood and iFood's capacity of doing artificial intelligence or marketing.

But I saw, for example, how strong we are in India, and we have an ecosystem in India, not only with credit [?] and PayU, but many, many investments with a lot of potential. I saw how eMAG, our investment in Romania has, firstly, an ecosystem with many, many businesses that help each other.

I saw how OLX is innovating in customer experience, using AI in creating a new interface for their products. But more than that, I saw how we have so many, and I think that's the bad news, but at the same time, it is the opportunity.

00:19:48

We are not leveraging this ecosystem enough today. We have all those good assets, but we are not making sure that we are sharing this knowledge and making sure that what we do in AI in one part is available to everyone, or what we are doing in an ecosystem in one country is available to all other investments.

I'm quite confident that improving this communication, sharing this knowledge will make the group keep growing, and keep growing more profitably. So I will start in July, therefore, but with, how can I say, moving very fast. I already know everything I could learn of the group, and I'm really excited about July and August.

What are going to be my priorities? First, renew the culture of innovation and entrepreneurship. One thing that's always inspired me in Prosus and in Naspers' story is we always have been a company that invested a lot in entrepreneurship, in innovating, in change or in creating new business and reinventing itself. I'm really confident that pushing more on the innovation, the innovation capability of Prosus, will create a lot of benefit for us.

So entrepreneurship, innovation, culture is my biggest priority, and the result of that will make the Prosus ecosystem our competitive advantage. It means that all those assets I told you that I have seen now are going to be available to help the group grow more. I'm talking about sharing management models, sharing AI.

00:21:32

In the last call, I talked about customer support as an area that we should be sharing and leveraging our assets, but also customer experience, fraud, cross-sell of customers. We have so many assets that we can leverage to help our business. I really believe that in the short term, the ecosystem of the 100 investments of Prosus will be our most important competitive advantage. And that's my biggest priority. I expect results in the short term.

Besides that, we are going to keep increasing our focus on profitable growth. In the last call, I talked a lot about how this was a priority on iFood. We need to grow, we need to innovate, but also keep a high profile in terms of profitability margins. And that's going to be the priority for Prosus. I'm more confident now. You saw how much the numbers improved, with $450 million in trading profit improvement. And I can tell you, without talking too much, that we are going to keep on this trend, and the numbers keep improving.

We are going to keep working to highlight the value of our portfolio. And again, after this first month, it's not officially the first month, but after walking around over the last month, I can tell you that the value of our portfolio is not only what is written in the reports, the consensus reports, but I really believe we have more value in our portfolio. And my job will be to make sure that everyone sees it, as I see now.

And just to finish, we're going to keep on our buyback programme. We created $32 billion in value over the last two years. It's a lot of money, to create $32 billion. Congratulations to the Prosus team for delivering that. An opportunity is that we have more, I would say, $40 to $50 billion in discount, to leverage, to create value, reducing the discount. And we are going to get there.

00:23:45
	At the same time, I am very passionate about the Tencent case. We have been
	supporting them for a long time, and we are going to keep working together with
	them, but also keep committed, with collaboration, working with our Chinese
	partners. So that's some of the highlights for the next month. I'm really excited
	about the next steps. I hope we can answer all your questions. So, let's go for that.
KB	Thanks, Judith, if we can open the call to questions.
OP	Thank you. Ladies and gentlemen, if you'd like to ask a question, you're welcome
	to press star then one on your telephone keypad. A confirmation tone will indicate
	that your line is in the question queue. You may press star and then two to leave
	the question queue. For participants making use of speaker equipment, it may be
	necessary to pick up your handset before making your selection. Our first question
	comes from Will Packer of BNP. Please go ahead.
WP	Hi there. Many, many thanks for taking my questions. Just a couple from me,
	please. Firstly, could you help us through the quantum of expected buybacks for
	Prosus, fiscal year 2025, in US dollars? The buyback slowed as the available
	volumes dwindled.
	I could see two things that would help us. Firstly, think through the potential
	accretion tailwind for 2025 and also the volume of sell down at Tencent. Tencent
	has obviously started its own substantial buyback. So any quantification of the
	Prosus sell down versus the Tencent buyback would also be helpful.
00:25:30
	And then secondly, whilst very tempting to ask about Fabricio's initial views on
	where to allocate capital, I suspect he would be relatively cautious in giving us too
	much detail. Perhaps you could share when you plan to come back to us with more
	detail of thinking. Should we expect a Capital Markets Day? Is it the November
	results? Any colour there would be helpful. Thank you.
ET	Thanks, Will. It's Ervin. Let's ask Basil to cover question one. And if question two
	is directed to Fabricio, you should share what you can share.
BS	Will, hi. Good to hear your voice again. And so for me to give you an accurate
	number, I'd have to be able to predict the trading volumes of our stock for the next
	year. And if I can do that, I'm going to make the discount and many other things
	disappear very quickly.
	But more specifically, we are buying at the upper end of what we can buy in terms
	of the MAR regulation in Europe. That's what drives the pace of the buyback. And
	we will sustain that, as we've previously said, for as long as the discount remains
	wide. So that's the intention, and we're going to keep going. But, of course, that is
	funded at the Prosus level by selling down a little bit of Tencent each time.
ET	Fabricio?
FB	Moving on, first of all, I think I'm very happy with the results of the $32 billion results
	of the of the buyback And my intention is to avoid big change in our current capital
	allocation strategy. The first thing is to test on new ideas. So we are going to start

small on new ideas and invest more as soon as we are confident that we know enough about the segment and the business.

00:27:34
	For sure, I will have more thoughts to share about that. I don't think it's appropriate
	today, since I start in two weeks officially in the new position. But I can tell you that
	we will have a bigger session on thinking about the future this year. I don't know if
	we have planned any Capital Days for this year. I think no. However, I hope to do
	that with you, so hope to change that and schedule something to talk more around
	the second half.
BS	So a few points. Will, of course, we need to work on it, but initially, we're certainly
	going to have the results coming out in November. There will also be opportunities
	between now and November for Fabricio to talk to shareholders and talk to folks
	and talk about our progress. And yes, indeed, we have to pick a date, but at some
	point, we will have to get back to you with a CMD.
ET	So let me just add a little bit more on capital allocation. It's a topic that you can
	imagine we, the three of us, have spent a lot of time on already. You should not
	anticipate any significant changes. We are constitutionally about growth and value
	creation, building the numerator of the NAV per share formula as high and as large
	as we can make it. And at the same time, we appreciate always that we also need
	to consider how to share some of the value we create with our shareholders.
	Therefore, the share buyback programme, the $32 billion that Fabricio alluded to.
00:29:03
	You may have seen slide 15 of the deck, we didn't talk about it on the call, which
	shows the relative proportion of capital return versus investment in recent years,
	and it's primarily capital return. So we understand well that we need to share value.
	And this topic is one of balance. We will always think about whether there's
	opportunities to invest behind growth in our operating businesses and
	investments, new investments, and relative to returning value and sharing it with
	our shareholders. Next question, please.
OP	The next question comes from Andrew Ross of Barclays. Please go ahead.
AR	Great. Good afternoon, everyone, and thank you for taking my questions. My first
	one is actually for ET, and I guess to ask you a bit about your new role as CIO and
	President, and what you see to be the main priorities in that seat over the next
	couple of years. That would be very helpful. Just an open-ended question.
	And then the second one is about Delivery Hero specifically. You obviously had
	an AGM recently. You guys have got a new representative on the board, alongside
	some other people. It is one of the companies that has a negative IRR. I assume
	it fits into the group of companies that you have talked about being a little bit more
	hands on with. Can you just tell us directionally what you think needs to change
	for that asset to get to a more acceptable IRR? Thank you.
ET	Thanks very much, Andrew. Let me address the first and the second. Let me ask
	Fabricio, actually, to provide some comment on Delivery Hero. He happens to
	know a thing or two about food delivery, and I think his perspectives will be quite
	additive.

00:30:48
	On the new role, what I'd say to you is I look very much forward to continuing what
	I've been doing for the last few years here at the group, which is to contribute
	across a broad set of issues and helping to lead this great group to, we hope,
	create tremendous value together.
	And the ask that will be on the investing side in M&A, capital allocation topics,
	capital markets topics, consistent with the CIO title but also the President title, I
	think, is emblematic of what we all anticipate, which is, I will be able to contribute
	on a number of other topics as well. I'll leave it there and invite Fabricio to comment
	on the Delivery Hero topic.
FB	Everything I said in the introduction connects to Delivery Hero. I think it's our
	obligation to understand how we can leverage our investments, sharing best
	practice and making sure that they have exceptional performance. I really believe
	we can share more best practice between our food delivery businesses. Therefore,
	our priority is to support Delivery Hero to increase its performance.
	We are engaging and sharing. We are already doing that, and we are going to
	increase that substantially, with the goal too to improve their performance. So
	that's how it connects to Delivery Hero. We want them to deliver more, and we
	think the Prosus ecosystem can help that.
ET	Next question, please, Judith.
00:32:26
OP	Next question comes from Cesar Tiron of Bank of America. Please go ahead.
CT	Yes. Hi, everyone. Thanks for the call and the opportunity to ask questions. I have
	two. So the first one is really operational. So you've made much faster progress
	than we expected on bringing the Ecommerce assets to profitability. Can you give
	us some outlook for cash flow or profitability going forward? I know you don't really
	provide specific guidance, but just if you can help us to understand the trajectory.
	Is there still much upside in improving the profitability of some of the businesses?
	And can you please say which ones? That that would help.
	Second question, going back to the capital allocation. Ervin, you've mentioned
	many times that there was an aspect of potential crystallisation exiting businesses.
	Is that still on the table? And if you do exit businesses or sell assets, would you
	consider returning some of the proceeds to shareholders, and in what form? Thank
	you so much.
ET	Thanks, Cesar. Let me invite Basil to address the topic, number one, and I'll come
	in on capital allocation and highlighting value, number two.
BS	Yes. Thanks, Cesar. Of course, a very important question for the CFO and one
	that I focus on too. So a few things you will have picked up from my comments
	around the presentation. I noted that classifieds is growing incredibly fast. Yes, it's
	improved its margins meaningfully, but it hasn't reached peer-level margins. So
	we expect that business to continue to grow and expand its margins.