Prosus N.V.
Q4 2021 Earnings Call Transcript

Published: 21 Jun 2021

[Operator:]

Good day, ladies and gentlemen, and welcome to the Prosus and Naspers Full Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. While this is the FY2021 results call, there may be discussion of Prosus’ exchange offer for 45.4% of Naspers. As such, this presentation and discussion is not for release, publication or distribution directly or indirectly in or into the United States or any jurisdiction in which such release, publication or distribution will be prohibited by applicable law. .

[Eoin Ryan:]

Thank you, Chris. Hello, everyone, and welcome to the Naspers and Prosus full year 2021 results call. On the call with me today is our CEO, Bob van Dijk; and our CFO, Basil Sgourdos. Bob and Basil will walk through the operational and financial progress we made during the period, and then we'll open up the call for questions. During that section of the call, we'll have the broader management team available to answer questions. Before I hand over the call, a quick reminder and a few housekeeping items. As a reminder, Prosus is a subsidiary of Naspers and its financial results almost completely account for Naspers’ results. To ensure that shareholders of Prosus and Naspers are provided with the information simultaneously, we're having one results call focusing on Prosus results. But where necessary, we’ll highlight the impact on Naspers. We report revenue and trading profit on an economic interest basis, meaning they include our proportionate share of the results of our associates and joint ventures. The results of our associates Tencent, Mail.ru and Delivery Hero and others are reported on a three month like basis. Importantly, free cash flow is a consolidated number as associates and JVs are fully funded via M&A. And finally, growth is in local currency, excluding the impact of M&A. And with that, I will turn the call over to Bob. Bob?

[Bob van Dijk:]

Thanks, Eoin, and thanks, everyone, for joining the call today. So this has certainly been a busy period for the Group and for all of you who follow us. And today, I'm excited to share the progress that we've made and to take your questions. So I'll start by explaining our strategy paid off and the results for the 2021 financial year, which was truly an exceptional year from an operating perspective, and one in which we achieved a new level of scale, which sets us up for future growth and value creation. So let's start with the highlights of a very strong year on Slide 4. First, we delivered the strongest set of results since I’ve become CEO with revenue and trading profit growth accelerating meaningfully. This in turn has translated into a period of free -- positive free cash flow generation. This is an outstanding performance for the year. But importantly, it is the outcome of a trend that has been in place now for many years. Second, the results of 2021 further reinforced my faith in our strategy, which has created outstanding value in the Ecommerce segment, value which is becoming large and should continue to grow at some speed. We are disclosing the valuation of this portfolio for the first time today and I hope you find it helpful. More important than a static number is its future potential as our portfolio is very well positioned to benefit from shifting consumer trends to digital consumption.

[Basil Sgourdos:]

Thank you, Bob. Hello, everyone, and thanks for joining us today. As Bob mentioned, we delivered excellent results for the year in a world both with turmoil and challenges. Points Bob made about our strategy and its impact on our results underlines our confident ambitions for the future. So let's start turning to Slide 16. Our overall financial performance was very strong. We accelerated revenue growth and significantly improved profitability and cash generation, while continuing to grow our customer numbers. The full year results underscore the strength and resilience of our businesses and the opportunity ahead. Revenue for the period was $28.8 billion growing 33% year-over-year. Ecommerce revenues grew even faster at 54% year-over-year, supported by food delivery, etail, edtech and strong recoveries in the second half of the year by Classifieds and Payments & Fintech. Trading profit grew 44% driven by improved scale and unit economics in food delivery, for payments and by our etail business. Our share of Tencent revenue and trading profit grew 28% and 29% respectively, reflecting the strength of breadth of our portfolio of products, businesses and investments, and the leadership team's prompt and focused management in response to fast changing environment. Core headline earnings were $4.9 billion, growing 39% year-over-year, driven by improved profitability from our ecommerce segment and Tencent. We reported a cash inflow of $126 million, and that's a meaningful improvement from the prior year outflow of $338 million. Finally, we continue to diversify our sources of funding and deploy capital smartly across our businesses and in our shares. Turning to Slide 17, you'll see that ecommerce revenue accelerated 21 percentage points year-over-year. The chart on the right highlights the shape of the growth amid the COVID-19 pandemic. Classifieds being most impacted by the mandated shutdowns in the first half of the year, but then rebounding strongly in the second half of the year. All of our businesses are now benefiting from the acceleration in consumer Internet growth that Bob mentioned earlier. These are being delivered at scale, and in most cases, well ahead of our global peers. On Slide 18, we show the performance of the business from a half year perspective. Classifieds and Payments & Fintech made a strong recovery in the second half of the year. Food Delivery and Etail grew strongly throughout. Classifieds’ strong recovery in the second half of the year and in many cases ahead of global peers underlines the quality of our assets and the opportunity ahead. In the first half, traffic volumes dropped and inspection centers were largely closed. As you can see this reversed strongly in the second half of the year, and classifieds regained good momentum. We picked up investments in some key markets when others were cutting back and that will deliver benefits over the long-term. In payments, our global payment operations mainly in Europe and Latin America maintains the accelerated revenue growth that we saw in the first half of the year. In India, digital payments adoption is increasing quickly, and the business recovered strongly and the total payment value grew by 59% in the second half of the year. There is a significant opportunity ahead in that market. Etail continued to benefit from the tailwinds of the pandemic, but more importantly from the strength of the platform it has built over the years. eMAG reported 45% revenue growth in the second half of the year, which is still very impressive. For Naspers, Takealot in South Africa also had a stellar year, it grew revenue by 65%. Turning to Slide 19, you can see a healthy 11 percentage point improvement in trading margins versus the prior year, confirming the strength and resilience of our business model and the relevance of our market offerings. Aggregated trading losses reduced $353 million or 46% to $429 million. In Food Delivery revenue growth remained strong, customer acquisition remains lower and the business continues to benefit from the increased scale on the platform. In ecomm, eMAG performed exceptionally well and reported a trading profit of $68 million compared to a $20 million loss in the prior period, as it continued to provide customers with the best-in-class convenience, selection and value. For, Naspers Takealot improved profitability by 81% or $36 million to near breakeven position. In Classifieds, COVID-19 took its toll on trading profit. The team responded quickly to contain costs and keep the business profitable for the year, while at the same time continuing to invest in areas of the business that will drive growth into the future. We have defined a clear path for growth. And we continue to execute our vision, focusing on building deeper ecosystems. But still remain profitable at the core of the operations. Now let's dive a bit deeper into the segments. So let's kick off with classifieds on Slide 20. So classifieds had a stronger second half performance with good levels of revenue growth and user adoption across the portfolio. We accelerated adoption of our transaction capabilities and this will be a strategic priority ahead. Classifieds revenue grew 18% to $1.6 billion. This reflects the strong recovery in the second half of the year, where revenues in local currency excluding the impact of M&A grew 36%. Trading profit of $9 million, as I mentioned earlier, decreased from the prior year as the segment felt initial impacts of COVID-19 and continue to develop and invest in products and solutions and marketing that will drive longer term growth. This resulted in a 2% drop in trading margin compared to the prior year. In our all traditional classifieds business revenues grew 13% for the year, representing 23% growth in the second half. Russia and Europe remain the drivers of our classified business, Avito in particular was a standout performer and grew revenues 30% in the second half of the year. Similarly, the transaction business continued to see strong momentum despite major disruptions at inspection centers, as a result of the pandemic. Transaction revenues grew 28% to $626 million for the year, with the second half of the year growing even faster at 62%. Trading losses for the transactions business increased marginally to $97 million, reflecting both our acquisition of a confirming stake in Frontier Car Group as well as continued investment to facilitate end to end transaction with an ecosystem of online and offline solutions that enhance convenience and address trust and safety issues. Momentum in classifieds is strong in our focus markets, and we continue to outperform the peer group. Turning to food delivery on Slide 21, the pandemic corroborated the Group's investment thesis in food delivery and acted as an accelerant for the exponential increase in customer adoption. While the pandemic differed by region, the combination of iFood and our share in Delivery Hero and Swiggy yielded impressive revenue growth of 127% and a notable 60 percentage point reduction in trading margin as efficiency ratios improved meaningfully. Revenues almost doubled to $1.5 billion. iFood grew its revenues by an impressive 205% year-over-year driven by increased customer engagement and expanded restaurant base, higher order frequencies and the expansion to loyalty programs. Strong order and revenue growth led to meaningful improvement in trading losses which decreased by $204 million or 81% to just $43 million for the year. Delivery Hero also contributed to the strong results and executed very well. Our share of the revenue grew 99% for the year, and our share of trading losses were $195 million for the period and account for more than half of the losses recognized in the statement. While the pandemic accelerated the shift to online across the board, lockdowns and restrictions in India led to some different dynamics resulting in Swiggy experiencing some setbacks. Swiggy’s revenue contribution grew a modest 3%. However, due to various proactive initiatives, our share of Swiggy’s trading losses for the period improved by meaningful 58%. Since then, we know that a new variant of infection affected India and new lock-down restrictions have been imposed. However, the impact has not been as extensive as at the onset of the pandemic. Looking forward, we will drive growth by expanding our ecosystem further into last-mile logistic opportunities. You will have seen we have already started to invest behind these opportunities. Given the high frequency usage patterns, promising engagement metrics, and growing importance of convenience in customers’ everyday lives, we see the opportunity set now in broader sense than we had originally imagined. Finally to Payments & Fintech on Slide 22, where the accelerated consumer adoption of digital payment methods has positioned us very well for continued long-term growth. Our Payments & Fintech segment reported strong financial results, despite an initial setback in India in the early months of the pandemic. Revenue grew 36% to $577 million and trading losses reduced from the prior year to $68 million, with increased profitability from the payment service provider business, which was partially offset by continued investment into the credit business. Trading profit in the core PSP business grew to $15 million. Our European and LatAm business grew strongly throughout the pandemic and maintained revenue growth. In India, we had a tough start to the year, but recovered very strongly growing total payment value by 59% in the second half of the year. We expect to see continued strong growth in digital adoption across our core payment markets and to benefit from the associated increasing transaction volume. Additionally, we'll continue to invest in the broader fintech space, credit in particular. To that end, in the last financial year we stepped up our investments to a controlling stake in PaySense. And in so doing, we increased our percentage ownership of the business, and of course, absorbed higher losses. We remain cautions following the pandemic’s negative impact on the Indian economy, and have prudently held back on originating new loans. But we know we're all going to recover from the pandemic, and then we see an exciting opportunity ahead. Turning now to Slide 23, where we unpack the increased contribution to central cash flows from our profitable ecommerce businesses. We're seeing the same acceleration in revenue and profitability in our profitable ecommerce businesses. Revenue from these profitable businesses increased $977 million or 59% to $3.6 billion. More and more of our ecommerce businesses are profitable. From just 38% of ecommerce revenues five years ago, now over 60% of our ecommerce revenues come from profitable businesses. With this good momentum, we'll continue to push the broader portfolio to towards profitability and you will see continued progress here. However, we will be mindful not to stop future growth. Consolidated trading profit from the businesses increased 37% year-over-year, driven by ecomm and Payments & Fintech. This was partially offset by a lower contribution from classifieds due to effects of the pandemic. That said, classifieds still manage to pay to the holding company a $229 million during the period, mainly from Avito and the Polish business. Now, let’s spend some time looking at the cash flow drivers on Slide 24. Free cash flow for the year was an inflow of $126 million, a significant improvement compared to the $338 million in the prior year. The progress was driven by ecommerce profitability due to lower losses from iFood, totaling $184 million, excellent working capital management and $81 million increase in dividends from Tencent. Dividends from Tencent grew 21% to a sizable $458 million. And in the new financial year, we already received our dividend from Tencent, and that's increased by further 33% to $577 million. Naspers’ free cash flow was however an outflow of $4 million, this was largely due to the 1 billion rand donation we made in response to the COVID-19 crisis. Now, Slide 25, I'll talk you through the dividend and how it will work this year. The Board has recommended a 14 euro cent distribution for Prosus shareholders. The ultimate dividend flow will depend on the outcome of the exchange offer. If exchange offer proceeds the distribution will be under the proposed cross-holding agreement between Naspers and Prosus which sees Prosus free float receiving 59.7% of the distribution and the Naspers shareholders receiving 40.3%. Prosus shareholders will receive a capital repayment and a Dutch tax effect which will be free of withholding taxes. Of course, shareholders may also elect to receive a dividend instead. Naspers holders will receive a dividend and a requisite withholding taxes will be withheld and paid in South Africa. The exact amount of the Naspers dividend can of course only be determined once the exchange offer is completed. The timing of the payment will be the same as last year, and will happen in November. Moving now to the funding of the business on Slide 26, where you can see that we have significantly strengthened our capital base. During the year, we raised $5.7 billion on the debt markets, improving the term structure of our bond portfolio at the point in time when interest rates seem to have reached their bottom. Our balance sheet was further strengthened by the proceeds received from the disposal of a 2% stake on Tencent, which raised $14.6 billion in April of 2021. While we strengthened our balance sheet, we have also been very active deploying capital. As Bob mentioned, we've invested $7 billion in the last 16 months across our portfolio of core assets. We see great opportunities ahead and have the flexibility to chase those. We will continue to work hard to increase our financial flexibility by building a portfolio of ecommerce assets with significant cash flow generating capabilities, increasing leverage responsibly and remaining disciplined in capital allocation. To conclude, I'm very pleased with the performance of the Group for the last financial year. It's been a year unlike any that we've seen before. Our businesses are performing exceptionally well, and the value of our portfolio grew strongly. We continue to allocate capital well through the assets and investments and I'm confident we'll continue to deliver strong returns for the Group over the long-term. With that, I will hand the floor back over to Bob for closing remarks.

[Bob van Dijk:]

Yes, thanks a lot, Basil. And while we focus on creating value, we will also continue to take steps to ensure that value is being realized and Slide 28 illustrates that. So while the transaction that we announced is quite complex but the structure post transaction is a relatively simple. So, there will be two separate companies with distinct ownership of a very large and fast growing set of Internet assets. So this portfolio today is worth more than $250 billion, and investors will have access to this portfolio through two stocks, and the split and economic ownership is codified by agreement. So Naspers will be entitled to 40% of the economics and Prosus will be entitled to 60%. And as you can see from the NAV per share of each stock, there remains significant upside at both Prosus and Naspers level, and we're committed to ensure that, that is realized. So, before we head to questions, I'll summarize on Slide 29 our key priorities. So first, the fundamentals of our businesses are strong and are clearly strengthening. Second, we will continue to invest in the growth of our core segments and ventures organically and through M&A. Third, we've put forward a share exchange offer that we believe better positions Naspers, and Prosus for the future. Fourth, as we deploy capital, we will remain very disciplined and focused on continuing to generate strong risk-adjusted returns, well ahead of the market. And fifth, we remain committed to taking the right actions to unlock value for all our shareowners. So with that, I want to thank you for listening. Thanks for your time so far, and I think we can open up for questions.

[Operator:]

Thank you very much, sir. . Our first question is from Cesar Tiron of Bank of America. Please go ahead.

[Cesar Tiron:]

Hi, everyone. Thanks for the question, and thanks for the call as well. I just have four questions. Sorry about that. The first one is on online education. Can you please explain, if there are any synergies across some of the businesses in which you invested and if the end goal could see them being consolidated together? Second question is on the cash burn of ecommerce. It was reduced very significant in 2H. So, wanted to understand if this trend will continue or the investments in edtech, for example, will offset for the reduction of losses in ecommerce going forward? And then I have, just a question for Bob and for Basil on the interviews you've done this morning. So for Basil, I think Basil said in an interview that Prosus might consider to increase leverage if it sees investment opportunities. Just wanted to check if this means there is more appetite on leverage from your side or nothing has changed? And also to understand if investment opportunities include your own stock in the Prosus or the Naspers stock? And then a question from Bob's interview, sorry about that. I think Bob you said that the proposed exchange offer does not preclude other actions to help reduce the discounts in the future. Would you be able to share some of these measures or the timeline for their implementation? Thank you so much.

[Bob van Dijk:]

Yes. Thanks Cesar for your four questions. And I will ask Larry to answer the question on edtech. I know he is on the call. And then I'll ask Basil to obviously answer the question around leverage and the use of that leverage. And I can speak to the cash burn on ecommerce and finally I'll answer the question on other value creating opportunities. So let me start and I’ll give Larry a chance after on ecommerce cash burn reduction. So I think what you will have seen is, indeed, it is a very significant reduction and we're proud of it. And I think it's the result fundamentally of operating leverage in the business, right? So these businesses have scalable technology. And the fixed cost that goes with that technology basically is fairly stable. And that means that with that very significantly accelerated growth, we basically had to invest less, because the fixed cost base stayed relatively stable. So I think that same dynamic is going to hold through going forward, right? So that operating leverage dynamic that we’ve now clearly proven is one that will continue. But the aggregate of ecommerce cash burn is really hard to predict Cesar because there's also new investments that we do. Actually, the edtech businesses are generally not very cash consuming, but we are investing, for example, in food, in inconvenience, delivery and in other things. So where exactly it will net out, that remains to be seen, it depends on the business mix. But I think that trend of operating leverage that reduces burden in the businesses that are becoming more established, that we should expect to continue. And maybe Larry you want to take the edtech question.

[Larry Illg:]

Yes. Happy to. So on synergies in the edtech space, I think if you look across the portfolio of assets that we've assembled, especially some of the ones that we've added in the last several weeks, our user base, we touch north of 0.5 billion users globally. So I mean we started with strength on the consumer side. And on the enterprise side where the money is made, we touch over 70% of the Global Fortune 1000. So when it comes to synergies among the portfolio, it is really just a matter of introducing the companies to each other. And they find ways to work together, be it on content, products, enterprise relationships, you name it. And it takes no more than the initial PR announcement of an investment from us to get the companies connected and then they're off to the races.

[Basil Sgourdos:]

Hi, Cesar. It’s Basil. Let me go with your balance sheet question. So indeed, as our financial performance strengthens, we will continue to add leverage to the balance sheet. But we want to do so responsibly. As you can see, we're a business that not only wants the build large and profitable ecommerce business, but we also want to invest in new opportunities into the future and we need a balance sheet that can support that. In terms of capital allocation, Bob has mentioned earlier that if you just look at the money we took from the initial Tencent trim that we did back in 2018, that has yielded an IRR north of 34%. So that's a very strong return. So it's quite clear what we need to prioritize in terms of capital allocation. It's more opportunities like that, that deliver return. Now, if we can execute on the opportunities on the table, and do well with them, and we have stated capital, of course, it makes sense to invest in our stock too and particularly when you trade at a discount. But we can't do that at the expense of the long-term strategy. So our ambition is to continue to drive the core businesses to find new opportunities, to improve our financial flexibility, so that we can do these things at scale over the long-term.

[Bob van Dijk:]

Yes. And Cesar maybe I can answer your last question which is around the share exchange and what is next. And maybe I think the -- to take a step back, right, the results that we just announced were really strong and the value of our ecommerce portfolio doubled in size. And we've seen very strong revenue growth. And I think as a result of that continued growth and our very significant outperformance versus the Johannesburg Stock Exchange as a whole, it is really clear that we need to do this transaction, right? So post the transaction Prosus will double in size and will become a top €20 stocks company, right, and it's underpinned with a portfolio of some of the fastest growing assets and that the Prosus free float going 60% of the underlying net asset value. And what is great is that the AEX doesn't have the same challenges as the JSE poses for us, right? So that's both positive for Prosus shareholders, also for Naspers shareholders. And I think maybe one comment also is that, like the status quo maintaining that is actually not an option, right? So, it is, -- as a result of where we are and it has nothing to do with what index you follow, but basically we are so big, that basically we have the phenomena for selling where the stock doesn't get its fair share in the South African market and it is actually a negative dynamic we need to do something about. In terms of next steps, without getting into the detail I think we thought through very carefully that what we are proposing here doesn't in any way stop us from taking further next steps. So we think this step is the right one, it's one that is necessary and actually going forward it doesn't preclude us from any other further grading steps.

[Operator:]

The next question is from Will Packer of Exane.

[Will Packer:]

Just to kick off on the exchange offer, there’s a backdrop where there’s some caution based on the complexity of the new cross-holding structure and new share class, and you've argued is the best structure to reduce the size of Naspers without crystallizing tax issues. Could you confirm the size of the tax bill if you reduce the Naspers stake to create a similar 40% economic ownership via a less complex means? Just try to get a flavor of how big the tax savings are from the post structure? Secondly, your release mentioned some progress in new products for the generative segment for pay and ship in Poland and Brazil. Could you share any initial thoughts on the progress and in particular, how you're overcoming some of the trust issues of characterized ecommerce like services for use goods? And then finally, the transaction side of your classifieds segment is scaling very nicely. My understanding is it's a blend of a C2B style we buy any car and then a car buying to sell digital retailing business, along the lines of . Could you provide some more details on the relative size and growth of these two segments? Thanks very much.

[Bob van Dijk:]

Yes, thanks Will for your questions. I'm actually happy to take a start on all three of them and Basil I'm sure you can chime in. We also have Romain on the call who is the new leader for our classifieds business. He's still relatively new. So I’ll let them to comment. But I'll answer initially on his behalf. So, I think when we talk about the exchange offer, I think the important thing to say is, we're not saving tax with this, right? We're maintaining our tax structure as it is, that we're staying within the South African tax remits, and we maintain the tax grouping. If we would have looked at other ways to reduce Naspers size on the JSE, depending on how that would have been done, that would have resulted in a meaningful tax bill, which will be an additional tax bill. But it's hard to say what the tax bill would be without specifying exactly what it is that you were thinking about as an alternative. So maybe as a follow on, you can be a bit more specific on what it is you have in mind. And then we look at the tax impacts of a variety of alternatives we may be specifically be able to answer that question. And so should we do it now, or should we do it at when we're done? We can go either way with that Will?

[Will Packer:]

Let's take it offline. I don’t want to take a lot of time talking about very specific structures. But obviously, if the deal -- the structure is repeating what you did at by distributing that way. Those are the kind of things I had in mind. And obviously, those savings are a key characteristic for the advantage of the structure. So I just wondered, if you have any specific numbers you can share?

[Bob van Dijk:]

Yes. We do, Will. And actually probably best to indeed take those offline with the team. If you would say, hey, if you would have distributed another 20 odd percent of post shares to Naspers, I think that is in the order of billions of additional backstep would have -- that would have occurred. And I think the exact number is in the order of magnitude of 5. But Basil maybe you can chime in there.

[Basil Sgourdos:]

Yes. Bob indeed it’s -- that's the right order of magnitude. I think there's some other important points to make about that Will. First of all, Naspers can’t unbundle up to 40%, right? That would not comply with the approvals. The approvals required, if Naspers maintains a majority holding -- majority voting shares in the structure. That's what creates the thesis and the control structure. Secondly, if we just did a straight unbundling like that, we would be straight at where we are within the next 18 months. So the difference between your idea -- not your idea -- the difference between the idea that you put on the table and the one that we want to execute is that, in the proposal that we've taken to our shareholders, we need to create $225 billion of value to get right back up. So in short, we couldn't go as far, because of the regulatory approvals in a straight unbundling. Two, there's a sizable tax bill. But three, we would climb right back up very quickly, and that doesn't happen with this proposal.

[Bob van Dijk:]

Yes. Thanks, Basil. And Thanks for the question. Well then, when it comes to pay and ship, I think what we have designed in a number of cases, it's fundamentally an escrow model, right? Where you basically -- we hold the payment until the buyer is satisfied, that the seller is indeed ships what was agreed upon. And we found that particularly with more implementation of technology and actually a fair bit of machine learning, we get really, really quite good at figuring out whether a seller is actually not sending what they're supposed to send, or maybe a buyer would be returning items that are not the same as that he or she has received. So, it's a combination of escrow plus machine learning that actually makes that pay and ship a much, much better experience to compare to what or maybe wasn't in other businesses a decade ago. And then in terms of the difference sort of submodels of car transaction business, indeed we have different models where I think the starting point in many cases has been that we offer consumers to add to that we can actually buy their car off them, that’s a more convenient option to the simple classified selling process. But we also are increasingly then giving consumers the options to buy those cars as well. So in some cases, they go into the dealer, the dealer model; in other cases they go back directly to consumer. And we -- so we are engaged in both models, and we actually don't separately disclose the numbers on both of them at this point in time. And the consumer is smaller, and it is growing faster.

[Operator:]

Thank you. The next question is from John Kim of UBS. Please go ahead.

[John Kim:]

Hi, everybody. Two questions, please. First, when you think about value creation and the portfolio and getting the market to ascribe credit to the share price through the discounted NAV, is it more of a focus on building critical mass? Are you looking to scale these businesses to a certain quantum or balance of the NAV? Or is it more about catalysts and driving realization of value? Effectively, you have kind of two measures that you're working against but I'm trying to figure out what's more important as you invest into new areas? Secondly, unrelated question, when you think about being too big for the JSE, what do your advisors tell you in terms of how much of the AUM still benchmark to Swiss versus Cap Swiss?

[Bob van Dijk:]

I don't know if it was just me. But I had real trouble understanding the questions. Is it my connection? Or was that the connection…?

[John Kim:]

Bob, is it better?

[Bob van Dijk:]

Now I can hear. Yes.

[John Kim:]

Okay, to rehash. When you think about value creation in the controlled portfolio, are you looking to scale the businesses to a certain number, whether it's billions of dollars, or percentage in the portfolio? Or you’re rather focused on crystallizing value over time, whether it be through merger or sub IPOs, what have you? Because it's kind of a dual focus you have. I'm trying to figure out what is the bigger lever in your approach to building the portfolio and closing the discount to the NAV? A second question unrelated, with your advisors, do you have a sense of how much of the AUM in South Africa is still benchmark to Swiss versus Cap Swiss? Thanks.

[Bob van Dijk:]

So, I hope you heard the second question because I only heard the first. Did you hear the second?

[Basil Sgourdos:]

Yes, indeed.

[Bob van Dijk:]

Okay, then I'll leave you to answer the second question, I'll answer the first which I did hear. So, I think the answer to your question is, is really we want to do both, right? I think when you look at the results that we presented today, it's clear that getting this business to scale is something we're well on our way to do. And if we continue at this pace, that will be huge helpful in getting the full value ascribed to these businesses. But I think the second question is also a fair one around crystallization, right? And I think we’ve shown in the past that required willing when we think it's the best solution for a business to stand on its own feet or bring into the market separately, that we're willing to do that. And I think we are going to do that again in the future, if the time is right and things are better off standing on their own. So the short answer to your question is, both. Which of the one is the bigger lever? I think it's hard to say, but they're both I think really tools in the toolbox that we will absolutely use.

[Basil Sgourdos:]

Hi, John. It's Basil here. I hope you're being well. So, look, it's clear that the majority of asset under management benchmark to the Cap Swiss. But I think that's an important point to be made here. These are side issues, but nothing to do with what benchmark you choose to measure your performance against. And yes, a simple example that Bob has discussed, we’ve been doing, and that I think is important that everyone understand. So today, if you're an investor on the JSE, if you have a 100,000 and you say, well, look, I don't know how to pick these stocks. I want to apportion according to each company's contribution on the exchange. So on that a 100,000 we should get 25,000. Probably we should argue we should get more than 25,000 because we outperformed the JSE. The JSE over the last five years, excluding us, delivered minus 11%, including us delivered 16%. So we should probably get more than 25,000, but we don't get more than 25,000 for a couple of reasons. The first and most important is most times can’t own 25% of the company in the portfolio. Secondly, as your question implies, many benchmark to the Swiss. So what they do, instead of us getting 25,000, we get 10,000. So we’re underinvested, under indexed on the Johannesburg Stock Exchange, and that's incredibly important when of late as we have seen over the last couple of years, it's local money that's driving that exchange. Now, we take the step and we reduced our size. Our size goes from 25% to 13%. Now the difference is different. So, instead of -- so we still get paid grand, but it's not measured against 13,000, not 25,000, and that's a 60% improvement. And that's an important dynamic for everyone to understand. And then of course, when people are selling and it isn't in their mind, that adds to the pressure. So that's the problem we solved, and whether you benchmark to Swiss or some other index, it’s neither here or there.

[Bob van Dijk:]

Now that’s well put Basil. And I think maybe just to reiterate a bit. If our fair share is 25, you get 10, you basically get 60% less than your fair share. But if you're 13% of the market you got 10, instead of instead of 13, that's 20% less than your fair share. So, that pressure really goes down very, very materially, because of the transaction and it has nothing to do with whatever benchmark people use.

[Operator:]

Thank you. And next question is from Ravi Jain of HSBC. Please go ahead.

[Ravi Jain:]

So, two from me. The first one is just on the overall pace of investment. Obviously picked up a lot in the 12 to 15 months. The question I had is, do you see that as more opportunistic what you found in the last few months? Or can we expect the pace going forward in the next two, three years to be much stronger than 1 billion to 2 billion that you used to do, given what's happening to the consumer tech landscape? The second question is on food delivery. I mean, we're seeing obviously an increase in competitive intensity in Europe and some other developed markets. So like to -- share your thoughts on in your Korean markets, which are actually even lower penetrated today. So that probably you can, add that to the point of the evolution of the trading losses in your food delivery segment? That would be fairly helpful. Thank you.

[Bob van Dijk:]

Thanks, Ravi. And let me answer the first question and I can make a quick start on the second. And I'm sure Larry will actually correct me and say much wider things. So indeed you're right, I think the pace of M&A has increased. And I think that basically stems from two reasons. One, indeed, I think, ecommerce as technology, as a sector has gone through tremendous growth. So bigger businesses tend to come in at higher price tags. I think you mentioned that in your question and I think that is correct. I think the other dimension is that we've -- actually in our core segments have -- also have built really exceptional leadership teams that are able to distinguish between good opportunities and less good opportunities really, really well by now. And I think that also enables us to be decisive, and when we see opportunities to go after them. So I think both of those are structural. On the other hand -- and I hope you will have observed us doing that. We are very diligent when it comes to investing. And if we don't like the valuation, we think that there is a competitive pressure that leads to an unhealthy price and we'll walk away, because in the end, we don't do these investments for fun, but we do them because they drive a great return for shareholders. And actually, that good and improving track record is absolutely essential for us. So what it certainly doesn't mean is that we're becoming less critical. And we are more comfortable and/or relaxing our objectives on returns, that is certainly not what's driving it. So some factors are indeed supporting a strong pace in M&A, but our diligence, and our discipline most certainly has not changed and will not change. Then in terms of competition -- and again, Larry you can add, but I would say like our most important food markets, which are probably Brazil and India have been very competitive for many years and I think our teams have demonstrated, I think to be able to compete well and deliver great customer visit and that's why they've done well. I think iFood in particular in Brazil has seen lots and lots and lots of competition. But it's still managed to outgrow and actually gain market share rather than suffer from it. And I think because we have great operating expertise and great talent there. But Larry, you may want to add?

[Larry Illg:]

No, I think you've covered it well. I think the only part that I would add is just sector continues to grow and expand into adjacencies. It just attracts more and more entrance. And it requires that we and our teams focus more and more on consumer experience but the competitive pressures if anything just intensify over time as the space gets bigger.

[Ravi Jain:]

So how would you put that in the evolution of the trading losses for your food delivery segment? Historically, you had said that the watermark was FY '20. Do you still think that's the case? Do you see increasing competition may be changing your thoughts on that?

[Bob van Dijk:]

Yes. I can comment on it or Larry can. I think the -- if I look at the core food business, I think the same answer I think applies to what -- to what Cesar asked, right? I think we see operating leverage in the business and I don't expect that operating leverage to change but this competition has been there all along, right? So the business model is a super healthy one. And as you grow, you can make money simply put, and that dynamic I really don't think is going to change. I think what doesn't happen is that we are investing in adjacencies, like groceries, right, which we see to be extremely promising. And that will require a certain level of investments. But you could almost see that as a separate new business that we're building, but I think on the core there is a really healthy operating leverage dynamic.

[Operator:]

The next question is from Andrew Ross of Barclays.

[Andrew Ross:]

I've got three. The first one is just a follow-up on a question on food and just want to dive in a bit too, dark stores which is obviously an area that is getting a lot of VC money and some of your own money. Can you just help us understand how you think about the economics of those dark store businesses in a steady state when compared to the cost of delivery platform? And I'm interested both in how users are retained and how the frequency trends, but also how you think about the contribution margin? That's first topic. Second one is, I guess across your portfolio versus -- some of your businesses sort of had big tailwinds from the pandemic, but are now starting to cycle up against that tough comp. So can you tell us what you're learning in terms of how your profiles are trending, customer acquisition costs are trending, et cetera? I guess I am simply thinking on food but also in etail with eMAG and then Takealot? And then the third question is a quick one. Is there any update on the latest position on the ownership of iFood and how you may get to 100% over time?

[Bob van Dijk:]

Yes. Thanks for those questions. And maybe, if okay, then I'll ask Larry to answer the first one. I will start on the second one. Then, on the third one, the short answer is no, there is no update. So on sort of the tailwinds that came out of COVID, and how have they developed as we're getting into more normalized territory? I think basically, what happened because of COVID is that many people started trialing service like food delivery or etail for the first time that either have never used it or didn't really get fully known with the concept. So we acquired lots of new customers. And based on what we see in places where things are normalizing, those new customers are certainly not going to go away, right? So we see what when people like to serve as they use it a few times they actually become loyal customers and quite good retention levels and actually the retention curves are still looking extremely healthy in food delivery and etail. And we see the people who started using these services during the pandemic, they are very similarly, as people who joined them before the pandemic, which is encouraging. You wouldn't necessarily know that in advance. But the retention curves actually look very healthy, very similar. So I would say that, obviously there was a boost that led to very high growth numbers in the spaces and to get into more normalized territory. But we see that existing customers that became more frequent, retain their frequency and new customer stay. So we expect that, actually most of what was triggered by COVID to be sustainable, and will drive forward in growth in the future. And maybe Larry would you mind talking to Andrew's first question around dark stores?

[Larry Illg:]

Yes, happy too and actually ties nicely into that last question, the one prior. I think if you think about the root of the core consumer of not just our online food delivery, but even our etail transaction, all centers around convenience. And these are users that while we're seeing them now in dark stores, we would have gone through the hard work of marketing to them, acquiring them, retaining them often in other contexts, right? If we're on this call a couple of years back, we would have been talking about a market place, food delivery consumer. Will they consume first party food delivery? It turns out that it's the same -- largely the same consumer. So we've acquired those core users of food delivery that naturally just translated into dark stores. Many of them are the same consumer set. It's just a different use case. And to Bob's point earlier, you end up -- because you don't have to go through leading out the consumers, your effectiveness of marketing retention goes up. And so you -- we feel like you're going to see much better margin from these users over time because you're just pushing more merchandise through the same channels.

[Operator:]

And the next question is from Catherine O'Neill of Citi. Please go ahead.

[Catherine O'Neill:]

I had a question on Stack Overflow which was a very thoughtful investment. I just wondered, if you could give us more details on the asset, what the is. How the monetization works? And what the longer term margin potential would be? And then actually back on edtech, I know you initially set some incentive goals to edtech focused on compound growth and organic trading losses at target. Are you able to give any sense of how we should think about sort of the revenue and losses as this is split down into sort of separate vertical?

[Bob van Dijk:]

Yes. So maybe, Larry has been driving the Stack Overflow acquisition together with Pat Kolek and I'm sure they can comment on our plan and our ideas around monetization. I just want to make sure I fully understand the question, Catherine. I think the way we’ve positioned it today, edtech from this financial year on, we will really start treating as a new segment. So it will have its objectives, its goals on revenue and bottom line like we set that for other segments. Was that what you were asking about or did I not fully get it?

[Catherine O'Neill:]

Yes, partly. I could see the annual sort of planned incentive goals is separated. I just wondered if you could give any more sense of how we should think about forecasting the revenue and the trading loss for FY '20 going forward, given I guess, multiple sort of assets are going to be pulled into that?

[Bob van Dijk:]

Yes. So -- and maybe we can take that last one offline, because indeed, it is a new segment that consists of new assets and new ones are coming in and depending on when they close exactly, that will have quite a bit of an impact, right, on how that will develop. And I think, to give very specific input, I think, would probably be a bit too detailed for here. But we can get you the information, we can get you through our IR team. But maybe Larry, you can talk to the first point.

[Larry Illg:]

Yes, happy to. So on Stack, the company over its history has been really focused on building out its community and driving engagement. And it's done just a really phenomenal job at that. This is one of the most utilized properties on the global Internet, and that it sits squarely in the developer workflow. And what they've done historically, like many community sites that we've all seen over the years is monetized through advertising. And that continued to grow strongly. But the opportunities that we see for this business go beyond advertising. Specifically, they've rolled out a corporate enterprise solution that they call teams. It's rolled out very nicely. And we think part of the reason why it sits within our edtech portfolio is we think that there's a meaningful opportunity to connect software developers to more formal learning opportunities. So, as a result it's early in its monetization journey, but it's growing very nicely. Revenue growth upwards of 50% and we think, at scale, it'll -- the monetization will be commensurate with the user reach that it has today.

[Operator:]

Thank you. So, we have no further questions in the queue.

[Bob van Dijk:]

Alright. Well, then I basically just wanted to thank everybody for joining us here today. We are really excited about the momentum we have with the business. I hope you are as well. And for any questions going forward, you know how to find our IR team and thanks IR team and thanks for the time today.

[Operator:]

Thank you very much. Ladies and gentlemen, that then concludes this event. And you may now disconnect.