Naspers Limited (NPN.JO) Earnings Call Transcript & Summary

Folks, kindly allow me to briefly touch on 3 topics: our role in society, then how society regulates us and, lastly, the recent exchange offer. You will hear from Bob and Basil how we fair as a company. Now you're a shareholder, so you share for better, worse in our fortunes, both up and down. But apart from that, we also fulfill a role in society. We give employment to tens of thousands of people who, in their turn, support families and communities. We pay billions in taxes directly and indirectly to many countries and to towns. We also help to digitize economies. Just a few examples. When we reduce the wasted pollution, when a classified service persuades you to sell that old bicycle in your garage and the kid next door does not have to buy a new one. We also bring meals and parcels to your door, which proved invaluable during COVID. And so many countries, we helped millions of people to pay electronically. This suddenly includes them in the online financial world that it gives them access to services they never had. More components will be explored in our annual report and on our website. Debra Meyer will expand shortly. Now perhaps a word about regulation. You know when an industry is young and small, society generally regulates it very lightly. But as it grows in importance, both economically and socially, rules emerge. For example, a century ago, the first cars on the roads required no driving licenses, no brake lights, no safety belts. That came only gradually as cars multiplied and got faster. The same happened with banking, with telecoms, pharmaceuticals, every major industry. In our sector, regulation is now increasing everywhere. You'll hear later how we're sharpening our own governance in the fields of compensation, disclosure and environment and many other things. Now recently, there was a tightening of Internet rules in China, and that caused quite a bit of stock market turbulence. This is part of a global pattern. For example, those of you that may be invested in Facebook, you'll recall 18 months ago, then the twin effects of regulatory threats and COVID dropped their share price by 1/3. Today, it's trading back at double the trough. So fluctuations are expected in a fast-moving turbulent industry like ours still finding its feet. China is absolutely no exception. So we're interesting how societies across the world mostly agree on what to regulate, take money laundering. But sometimes they're [ deferring ] what is regarded is important. For example, Europe seems to regard or place a higher value on privacy than the U.S. I mean Brits and Americans don't even pronounce the word the same. In China recently, after-school tutoring was restructured. So one can expect that Chinese regulation sometimes will resemble what's happening in the west and sometimes will differ. Each country will have its own trajectory based on its own values, I guess. All over the world, the Internet industry have and will be regulated as it continues to evolve. We, as a company, does have to accept it. We have to live with it. We have to play our little role. Lastly, folks, we appreciate your support during the recent exchange offer. At the time, a few motif comments were aired, some possibly based on misunderstandings of the mechanics. But thanks for your help. In the end, the transaction was approved by a clear majority of the free float at the process level and at Naspers where every shareholder could elect. The exchange of shares, for Prosus shares, was oversubscribed by a big margin. Approximately half of those new Prosus shares, in fact, 46%, were settled into the shareholder accounts on the Euronext exchange in Amsterdam and the balance on the JSE, Johannesburg. Prosus will now double in size on the Euronext, while Naspers will still remain the largest South African domicile company on the JSE. I think that is a much better ratio for our 2 stocks on the 2 exchanges, given the relative size of each. Thank you once again for your general support in this whole transaction. May I now hand over to Debra Meyer.

Thank you Koos. Today, I'd like to give you a sense of how central sustainability is to our growth and strategy. Firstly, we support local entrepreneurs whose digital innovations make a difference in the everyday lives of the communities where they operate. We focus on local entrepreneurs, who stimulate social and economic progress in emerging markets. That means new jobs, skills and development, plus taxes for governments. As a company with deep South African roots, we are well aware of the wider and sustained impact of helping people to make a living. That is why our social impact programs continue to focus on investing in and supporting South African talent. Digital platforms can have a positive impact on the environment as they help replace physical infrastructure and activities. For example, online learning and digital payment services. Platforms where consumers can buy and sell secondhand goods empower people to minimize their own environmental footprint. At Naspers, we are playing our part in the urgent response to climate change. This year, we increased our focus on sustainability. Together with other stakeholders, we identified areas where our business has most impact. We also updated policies, such as anti-money laundering, in line with our commitment to ensure high standards of corporate governance. For a group like ours, operating across different types and sizes of businesses and in so many geographies, applying a one-size-fits-all approach to sustainability governance in our majority-owned companies is not practical. However, they all share our focus on sustainability and embed it into their business in the relevant context. We have built a diverse, collaborative and dynamic culture across the group. It's our people doing the right things in the right way day after day that makes the difference. Sustainability is a journey, and we look forward to sharing it with you. Over to you, Bob.

Thanks, Debra. Last year was an extraordinary year, in which we tackled the pandemic head on and accelerated growth. We achieved this by executing our strategy to remain focused on our customers around the world and to create sustainable value for our many stakeholders. For many years, we have anticipated how advances in technology can meet the changing needs of people and their communities across them. And our strategy continues to be focused on building global businesses that improve the daily lives of millions of people. And today, our impact is significant. The entrepreneurs and teams at the heart of our investments and companies improve the daily lives of around 2 billion customers. We enable people to buy and sell to each other online to easily order food as delivered quickly to their homes. We also enable participation in the digital economy and access to important financial services, otherwise unavailable to people. We enable customers to educate themselves without ever visiting a classroom and much more. We help to satisfy the most basic of human needs. The ability for people to connect and interact with each other, which is vitally important during the pandemic. There are many examples from around the group of our positive impact on the world. In South Africa, for example, as part of our commitment to develop South Africa's tech ecosystem, we launched our ZAR 1.4 billion early stage-investment vehicle Naspers Foundry, which backs tech companies with high-growth potential. Naspers Foundry has made significant investments in a short space of time, demonstrating the untapped potential of a burgeoning tech sector in South Africa. I'll hand over to Basil to take you through the numbers. But first, I wanted to mention some highlights from our past year. We delivered the strongest set of results since I became CEO, with revenue and traded profit growth accelerating meaningfully, and that translated into a period of positive free cash flow generation. This is outstanding performance for the year, but importantly, it reflects a trend that has been in place now for many years. Our systematic approach has led to consistently strong performance across the portfolio over the last 5 years, and growth has accelerated meaningfully. The results of 2021 further reinforce confidence in our strategy, which has created substantial value in e-commerce segment. Value, which has become large in its own right and should continue to grow at some speed. Core to this success is leveraging our online platforms to enable an offline transactions more efficient. We have deliberately invested in building deeper ecosystems with more touch points with our customers, and this will strengthen our business and will make growth more [ defensible ] over a sustained period. All our large classified markets now offer pay and ship options. This takes us from a facilitator of straight right into the heart of the transaction. We're doing the same in autos, where to FCG and OLX, we are providing convenient transaction services to customers, who value safety and certainty. The same is true in food delivery, where I believe the opportunity set continues to expand. iFood and Swiggy are rapidly expanding into groceries and other new verticals. And our ventures team has made several investments into businesses enabling commerce, such as ElasticRun, PharmEasy and Meesho in India. Our investments in edtech are also proving to be [ pre-signed ]. We have now invested approximately $3 billion on 9 investments in the online learning space. This as well as food graduated from our ventures portfolio to become its own segment and highlights the value of having a team focused on the next wave of growth for the group. Moving forward, we will continue to execute our strategy to build global consumer Internet companies provide excellent products and services for our many millions of customers around the world. On that note, I'll hand over to Basil, who will provide more details on the record performance of the group over the past year.

Thank you, Bob. Hello, everyone. I hope you are well, and I'm glad you can join us. As Bob mentioned, despite the challenges of the past extraordinary year, the group delivered its best financial performance ever. These are the key takeaways from our results. Our strategy has positioned us to benefit from the structural shift to online commerce in some of the largest and fastest markets and segments globally. The shift to online was accelerated by COVID. Our businesses have done well to capture the available opportunities, and there is still plenty of growth ahead. The strong financial performance underlines this point very well. We are growing at a strong pace and often ahead of our peers. Growth accelerated significantly in e-commerce, which is now growing meaningfully ahead of the fast-growing Tencent. We saw significant improvements in profitability. Our more established businesses have reached some scale following several years of fast growth. Over 60% of e-commerce revenues are profitable revenues. This is up from just 35% 5 years ago. Revenue growth for these profitable businesses was 39%. This bodes well for future growth and profitability improvement. We have a strong balance sheet and remain active in debt markets. There are several opportunities with potential to create significant value for you, our shareholders. We will continue to approach M&A with the same rigor and discipline that has driven the strong returns to date. These points I've just mentioned combined to drive a significant appreciation in the value of our e-commerce portfolio. The valuation has almost doubled in the past year to reach $39 billion. E-commerce IRRs on the existing portfolio remain above 20%. So now to the numbers. Group revenues grew 32% to $29.5 billion. E-commerce grew faster than the average, delivering 55% year-on-year growth. That's a 21% acceleration from growth delivered for the year ended 31 March 2020. Food delivery, etail and payments segments drove the significant acceleration. Classifieds was most impacted by the pandemic, but has recovered fast and grew 36% in the second half of the year. Group trading profit grew 45% to $5.6 billion, and core headline earnings, our measure of after-tax operating performance grew by 15% to $3.5 billion. In e-commerce, trading losses reduced by $384 million or 49%. The food delivery segment significantly improved profitability of increased scale, and PayU also improved its profitability. Our etail segment is now profitable in the aggregate. So off the back of this very strong profitability improvement, free cash flow also improved by $383 million to an outflow of $4 million. We were very active on the M&A front, investing some $7 billion between April 2020 and May 2021. We raised $5.7 billion in bonds last year at our lowest coupons ever. We followed this up with a further $4 billion in July at even lower coupons. We've prepared our financial results with great rigor and care, and we value the robust and thorough orders undertaken by our auditors, PwC. I hope you will agree with my assessment that this is a strong performance all around, further notable for the challenges that COVID-19 created for our people. Our businesses performed exceptionally well, and the value of our portfolio continued to grow very strongly. We continue to allocate capital well through assets and investments that I'm confident will continue to contribute to strong returns for you, our shareholders. Our performance underlines our strength as we continue to focus across the group on creating sustainable shareholder value. I'm sure Craig will touch on our commitment to value creation when he takes you through our HR and remuneration story. So over to you, Craig.

Thanks, Basil. This year, as ever, we continue to focus on attracting, motivating and retaining the best people to create sustainable shareholder value. And of course, we did this while facing the ongoing challenges of COVID-19. Our priorities here remained unchanged throughout, preserve the health and well-being of our people and act responsibly for all our stakeholders. Throughout the year, we tackled the pandemic head on, responding rapidly in the first instance and investing considerable resources and energy in ensuring our people, our customers and communities stayed safe and supported. As a global tech leader, we never forget that our people are absolutely critical to the success of Naspers. This is why we take a strategic approach to human resources and remuneration in a world where we face stiff competition for digital talent to attract and retain the best and achieve our goals. We focus on pay for performance, encourage ownership and entrepreneurialism in our teams around the world and align management compensation with the creation of shareholder value over time. We aim to promote superior performance, direct employees energies to key business goals, achieve the most effective returns for employees spend and address diverse needs across differing cultures. At the same time, we cultivate a strong group-wide culture that empowers and encourages our people to excel. We embed equality and consistency in our pay practices across the group as we continue to build our diverse and inclusive workplaces. To this end, we ensure that our pay practices around the world are fair, competitive and above minimum wage standards. Throughout the year, we focused on a number of key areas. These included ensuring that the group has a market competitive remuneration policy, structure and tools to attract and retain the world's best talent. When making remuneration decisions, we took the COVID-19 impact into account by withholding fiscal year '21 pay increases for CEO and direct reports, adding COVID-19 malice cause to senior management's STI and delaying LTI awards. We also considered [ independent ] external advice on nonexecutive directors' fees, the improved disclosure of executive remuneration in the annual report, setting STI targets, including ESG goals that are measurable, sufficiently stretched and linked to the group's strategy. For executive directors, we increased the weighting of PSUs in the LTI mix, ensuring an even closer alignment between executive remuneration and shareholder outcomes. Despite the initial uncertainty and significant operational challenges of the pandemic, we exceeded our business plan and delivered financial performance ahead of the pre-COVID-19 budget. This performance is reflected in our remuneration decisions. To continue maximizing shareholder value by incentivizing value creation at the core of our businesses, longer-term incentive rewards or LTIs were made to our executives. More than 92% of the executive directors' LTI is linked to long-term value creation in our core consumer Internet businesses, excluding Tencent. PSUs and share appreciation rights only reward for the increase of that underlying business value, which contributes to reducing the discount to net asset value. Looking ahead, we will continue to engage with shareholders on remuneration topics. We will also continue to monitor market developments to ensure our remuneration structure allows us to compete globally for talent and that our offering is compelling, fair and responsible. In addition, we will aim to achieve an appropriate mix of longer-term incentives with explicit and embedded performance conditions. We will do all this and more in the spirit of ensuring our strategic approach to HR and remuneration, continues to help us build on our success and create greater value for all our stakeholders.