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Edited Transcript of NPN.J earnings conference call or presentation 26-Aug-19 12:30pm GMT

Q1 2020 Naspers Ltd Earnings Call

Cape Town Sep 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Naspers Ltd earnings conference call or presentation Monday, August 26, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eoin Ryan

Naspers Limited - Head of IR

* Vasileios Sgourdos

Naspers Limited - CFO, Financial Director & Executive Director

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Conference Call Participants

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* Charl Wolmarans

Avior Capital Markets (Pty) Ltd. - Research Analyst

* Jacques Conradie

Peregrine Holdings Limited - MD

* John Kim

UBS Investment Bank, Research Division - Research Analyst

* John-Paul Davids

JP Morgan Chase & Co, Research Division - Head of South African TMT Equity Research

* Kenneth Charles Rumph

Jefferies LLC, Research Division - Equity Analyst

* Kevin Stirling Mattison

Avior Capital Markets (Pty) Ltd. - MD & Executive Director

* Shaheeda Davids;Nedbank;Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Prosus Fiscal First Quarter Results Conference. (Operator Instructions) Please also note that this call is being recorded.

I would now like to turn the conference over to Eoin Ryan. Please go ahead, sir.

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Eoin Ryan, Naspers Limited - Head of IR [2]

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Thanks, Chris, and good afternoon, everyone. We received approval from shareholders on Friday and we're delighted to say that all systems are go through the listing of Prosus on the 11th of September. We published this prospectus this morning and in it you will see that we provided financials for the fiscal first quarter of 2020, which covers the period from April to June 2019. Prosus will continue to report on a biannual schedule. But as part of the listing process, we're providing the most up-to-date financials for the investment community. And as such, we thought it would be important and hopefully helpful to host this call looking to unpack the numbers in a little bit more detail and give the opportunity to ask some questions.

In November, we will publish the first half 2020 results with all of the normal detailed information. So along with the IR team, we have Basil Sgourdos, our CFO, on the call today, and he will walk you through the main headlines and be available to ask -- to answer your questions. But before I hand it over to Basil, I'd like to highlight a couple of considerations that I think are important to take into account when you're assessing the numbers.

First, all growth rates Basil discusses will be on a constant currency basis, excluding M&A, unless otherwise indicated. Second, these numbers exclude all of the South African businesses that do not form part of Prosus. So those are Takealot, Media24 and in classifieds it's Property 24. Third, there are some changes in scope which reduce reported revenue growth by 2% and trading profit by 1%. Flipkart was -- notably, Flipkart was in the year-ago numbers, but now they're in the current period and that negatively impacted revenue. Our stake in Swiggy increased from 22% to 39%, helping revenue slightly but adding to the investment dollars. Also, there are some first time contributions from Frontier Car Group, the Aasaanjobs -- that's in classifieds -- [Zooz] in payments and then Honor and BYJU’S for the ventures team.

Fourth, while the impact is mostly translational, FX reduced reported revenues and trading profit by about 6% year-over-year, and this is due to the strength of the U.S. dollar. And then fifth, from an operational perspective, I just point out that we do not run the business on quarterly cycles and there will be significant phasing issues, particularly in areas like marketing and investments. And of course, each of our businesses have seasonal patterns that are going to make extrapolation of Q1 to the full year numbers quite difficult.

And then finally, let me remind you that during this call, we may make some forward-looking statements, which are typically preceded by words such as we will, we expect, we believe, we anticipate or similar statements. These forward-looking statements are subject to risks and uncertainties and our results could differ materially from the views expressed today. Some of these risks have been set forth in the Prosus prospectus that we released today, and you can find that on our website. The reported results should not be indicative of future performance, and all of the information discussed on this call is as of today, August 26.

And with that, I'll hand it over to Basil. Basil?

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Vasileios Sgourdos, Naspers Limited - CFO, Financial Director & Executive Director [3]

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Thanks, Eoin. Thanks -- good morning, folks, good afternoon or good evening, depending on where in the world you are at. So let's kick-off. I'm going to focus on the key headlines and trends, and then of course I'll be happy to dig into greater detail in the Q&A session. But overall, Prosus performed well in the first quarter of 2020. It was well within our expectations, and we believe we are on track to meet our key priorities for the full year. It's worth reminding you all that given the factors that Eoin mentioned, Q1 growth rates and trends should not necessarily be extrapolated to the rest of the year.

So let's start off with the group revenues. Group revenues were $4.8 billion in the first quarter, up 17% year-on-year. E-commerce grew quicker than the overall group at 23% and that was also meaningfully ahead of both Tencent which grew 16% and Mail.ru which grew 15%. That's the largest outperformance we've seen for some time.

Now I'll also remind you that we capture our Prosus numbers on a 3-month lag. Tencent has just published its second quarter numbers, and we've seen a pickup in their growth too to 21%. Now several of our segments are growing significantly faster than the 23% overall growth for e-commerce. If I can call out but a couple of these, Classifieds revenues increased 31% on an organic basis and 50% including M&A as the business scales its convenient transactions model. The payments in fintech segment generated 19% revenue growth, which includes the growth of associates. If you exclude the associates, and you just look at the core business, that's growing faster at 25%. The PayU is growing also very fast in India at 50% year-on-year, and the associates growth is somewhat muted, primarily for 2 reasons: one is our investment in Luno, a cryptocurrency exchange, it's quite susceptible to the bitcoin volatility, and then Kreditech, the credit investment we made, also was slow growth and as a result, we've now exited that business.

Food delivery was the fastest-growing segment and they grew an impressive 48%, with iFood growing 67% as we stepped up our investments over the last 6 months. We expect the momentum to continue through the year. Now if you look at the group trading profit, you will see the trading profit was largely flat year-on-year, up marginally at 1%. Tencent profitability improvements were offset by the step-up in the investment in e-commerce, largely driven by the increased investment in our food delivery segment.

The e-commerce trading losses increased as a result by $107 million to $193 million for the quarter, and this increase is entirely due to the investment to capture the significant online food opportunity. The investment in food also depressed the growth in core headline earnings, and that was down about 3% year-on-year to $740 million. Then there were other factors in corporate and the core headline earning numbers, including foreign exchange and the scope changes that Eoin mentioned earlier.

Our cash flow remains positive and therefore healthy, although it too is down year-on-year, and that's again due to the increased investment in food delivery. In the period, we received 14% more dividends from Tencent than we did last year with the total dividend equaling $377 million, and that's a sizable contribution to the cash flows. Our net cash is at $6 billion, so we have a very healthy balance sheet. So with that group headline picture, let's dive a little bit deeper into the segment review.

Let's kick off with classifieds, and I'm really happy with the performance on the deliveries. It's another excellent quarter. As I mentioned earlier, reported revenues are up 50% to $284 million and the underlying organic growth was some 31%. There was good growth across the portfolio. Avito increased their revenues by 23%. OLX Brazil was up 24% and Poland and South and Southeast Asia grew markedly faster than that. We also saw very strong growth in letgo.

And as I alluded to earlier, we have now incorporated more of the convenient transactions model into the business, so that's playing a bigger part in terms of the overall revenues and that's largely driven by the Frontier Group initiatives. Some are through the associates investment and some are through a majority investment and that's, in particular -- where we partner with Frontier Group, and that is particularly true for the markets of India and Poland. Overall, convenient transactions increased from 3% of revenues to 23%.

Now as a reminder, the Catch Up for Me model for cars or the convenient transactions, as we refer to here, represent the whole value of the cars being sold on the platform. So it's not advertising or listing fees or other fees, it actually represents the GMV of the cars sold because we actually buy the car from the consumer and we take all the inventory risk and sell it on to them. Classifieds delivered a $16 million trading profit in the quarter. This was down marginally by $4 million versus the Q1 of the previous year and that's really driven by the investment behind expanding our convenient transaction footprint and scaling markets such as India and Poland.

There are also some other factors diluting short-term profitability, and we're investing more involving our global tech infrastructure and then there was a onetime higher share-based payment expense. Underlying profits in the core classifieds, so if you exclude convenient transaction investment, remains very healthy, and we saw organic growth of 17% year-on-year, driven by record profitability in Avito, in the group's European businesses, and then of course lower losses in letgo as we continue to drive revenue and scale their platform.

Over time, we expect further profitability improvement in the core classifieds.

Let me just take a sip of water, give me a second.

So turning to payments in our fintech segment, PayU saw another quarter of good progress and healthy growth, driven by the core payment processing business, which grew 25% year-on-year. They continue to scale well, and we posted 270 million transactions with a value of $9 billion. That's a 29% increase year-on-year. As has been the trend historically, India is leading the pack with growing at some 50% year-on-year. And the volume being posted is actually up 50% year-on-year. Overall growth was lower in full year 2019 at 19% due to the weaker reported results by our associates, and I explained earlier why that is occurring.

In the first quarter, trading losses increased marginally by $4 million to $19 million, driven by the incremental investment in building up our nascent credit opportunity in India. It's important to note that the first quarter is seasonally PayU's weakest quarter. And also in this quarter, PayU continued to scale its credit platform in India through its associate investments which are ZestMoney and PaySense, and they reached monthly loan issuances of $25 million at 30th June. You will have seen several recent deals to continue to build out our ambitions in the payments and fintech segment: notably Wimbo in India, then Red Dot in Southeast Asia, which expands our payment processing capabilities into the fast-growing Southeast Asia market, and then EasyCall in Turkey which drives consolidation in Turkey and creates a clear leader in the payment processing space.

Again, I'm happy to discuss the rationale for these in more detail in the Q&A.

And folks, finally, on food. So I'm very pleased with the top line performance of all our businesses and 2020 is shaping up to be a really transformational year, although we are making significant incremental investment that drives this accelerated growth. iFood and Swiggy are investing in first-party models and logistics, extending into new cities, increasing the number of restaurants as well as building out dark kitchens and other models that enable us to scale and grow very quickly. The segment saw cumulative quarterly GMV growth of 74% and order growth grew over 100%. Now remember, the reported revenues are net of customer acquisition costs such as discounts and coupons. And these increased in the quarter leaving net revenue growth at 48% in local currency and excluding M&A. If you take out the couponing impact, then revenues grew -- then it can add another -- sorry, you can add another 39% on top of that 48% growth.

Now of course, as we told you when we did -- on the full year call that we would be increasing our investment to capture this opportunity and stay ahead of competition, our trading losses have expanded to $131 million. And now we are very comfortable and okay with this investment because the underlying KPIs, the acquisition costs, the LTV values that we see for the customers we're adding more than provide a good ROI. And as we've said in the past, we think this is a sizable segment, and we think this investment is going to create significant value over the long term.

Now in the interest of time, I'm going to stop here, but if you want to cover the other businesses like ventures or B2C or some of the associates like Tencent and Mail.ru, I'm happy to deal with that in the Q&A.

So focus a little bit on the outlook. In summary, we've had a good first quarter and that's very much in line with our own expectations, and we remain on track for the full year based on what we've budgeted and are looking to deliver. We continue to see encouraging progress across our portfolio. Our core segments are growing fast, as I've mentioned earlier, and they're scaling well. And that's giving us the confidence to invest further and to unlock value over the long term. Our priorities over the rest of the year are to drive profitability in our established segments while increasing investment to scale through delivery and then using our strong balance sheet to selectively invest in new opportunities. Our objective is as important [as we vote], and it's our prioritization around investing to upgrade the talent base, the tech infrastructure, and especially our artificial intelligence and machine learning capabilities across the group and that will improve our competitiveness over the long term.

So with that, I'm going to hand back to Eoin.

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Eoin Ryan, Naspers Limited - Head of IR [4]

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Okay. Thanks for that, Basil. And now Chris, let's open the lines up for some Q&A, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from JP Davids of JPMorgan.

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John-Paul Davids, JP Morgan Chase & Co, Research Division - Head of South African TMT Equity Research [2]

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Two questions from my side. Just firstly on food delivery. Basil, thank you very much for the additional color around the higher coupons in the first quarter maybe explaining a little bit of the disconnect between revenues and GMV. The question there is really, as we look out to 2020, in your opening remarks you referred to the momentum around the food delivery business sort of staying at these levels. Is that really just reflective of the ongoing investment in FY '20 around food delivery and maybe more looking forward to that revenue number accelerating into FY '20 and catching up with GMV? So really asking there at what point do you think revenues and the discounting can accelerate towards the sort of GMV levels?

And then separately, just a question on the transaction itself. Just wondering if you could provide a little bit of comfort around the checks and balances you've put in place around mitigating future regulatory and tax considerations. For example, South African tax law, at least to a layperson like myself appears quite complex around things like company restructurings and the related rollover relief, just wondering if you can provide any context around the sort of due diligence you've done there.

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Vasileios Sgourdos, Naspers Limited - CFO, Financial Director & Executive Director [3]

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Thanks, JP. So on free delivery, look, I think there were a couple of pieces in your question that I'd like to address. And again, I don't suggest you take the first quarter and multiply by 4 and say, well, that's going to be the level of investment. And the pace of investment's really going to be dictated by the progress we're making, whether the core KPIs are showing good progress and whether we're comfortable with the customer acquisition costs and the lifetime revenue and the returns there. And if we continue to see good outputs there, we could in fact pick it up. But again -- so it's very difficult to guide. And then, of course, there's also seasonality.

With regards to coupons, it's unfortunately a product of competitive markets. And when your competitors do it, you've got to match them. But that said, even with the couponing, and we factor that into our cash computations, we're still comfortable about the long term. The reality remains that in a market like Brazil, we have 80% plus market share, and it would be silly to cede that because we're not willing to compete aggressively for a period of time. I think long term, we have better execution, we are much closer to the market. We are a lot more disciplined about where we invest, we are a lot more focused on the customer acquisition side and the lifetime value side. And therefore, we're going to deliver superior returns versus some of the competitors out there who are just trying max amounts of money without building the core that needs -- that is needed to sustain lead over time and deliver great customer value.

Then on the transaction, I've heard that this was a note floating around in South Africa about the tax impacts and the complexities around it. And I haven't seen the note myself, but I'd like to make a couple of points. This transaction in no way changes Naspers' tax obligations. It doesn't make them larger, it doesn't make them smaller. Prosus' tax obligations are, of course, different because they are governed by a different tax jurisdiction and that is the Netherlands. And they have previously articulated that the withholding taxes on dividends are likely to be lower. I mean things like CGT are not going to play a big impact; in fact, no impact, particularly given the large accumulated losses. What we've also articulated in the past is that if Naspers fall below 70%, but stays above 50%, then we will have tax leakage because what will happen is, if we move assets around and we realize unrealized gains in moving those things around because they need to be moved around for tax purpose at their latest value, then that tax -- then that will be taxed and that will be a positive share loop, but as we previously said, that's the reason that, for now, we don't think we want to go below 70%.

I've also explained that if Naspers falls below 50% plus 1 share, there's going to be a massive exit tax. And essentially, it's a deemed gain on our foreign assets, right? What you do is you take the market value at the time versus the investment cost, you deem the gain and that's tax payable. And purely on the Tencent stake at current valuations, that's roughly $27 billion. So that's not the tax we would put on our shareholders. It just makes no sense. So all in all, there's no real change. We have no intention, of course, dropping below 50% plus 1 share. And we are -- based on this transaction, we remain about 70%. And as you know, we don't comment about the future. I don't want to speculate about what happens if we get close to 70% and if we go beyond that. If we get to that place and if we did go below, know that the net impact would be a positive one for shareholders.

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Operator [4]

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The next question is from Jacques Conradie of Peregrine Capital.

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Jacques Conradie, Peregrine Holdings Limited - MD [5]

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So just 2 questions from our side. Firstly, on the core classifieds. If I strip out this change or the rapid increase in the convenient transactions from 3% to 23%, it looks like the underlying classifieds business only grew around 5% revenue in the period. So maybe just -- whether it's right to do that and whether there's anything specific you can flag that led to that slowdown? And then, one question just on the Prosus-Naspers transaction. Dividends from Prosus to Naspers when declared, am I right that you will be able to utilize a South African and Netherlands' double tax agreement so there would be no tax leakage on that intergroup dividend from Prosus to Naspers?

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Vasileios Sgourdos, Naspers Limited - CFO, Financial Director & Executive Director [6]

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Yes, Jacques, thanks for the questions. The core classifieds, there isn't a massive slowing and what plays into that is foreign exchange and M&A and a couple of other things. I mentioned earlier in the call that the core is still growing well. So Avito, which is obviously at bigger scale than everyone else, is still growing fast, right? I mentioned that Avito is growing at 21% and we're seeing good growth in Central and Eastern -- sorry, in Brazil at 24%, and then Central and Eastern Europe and India are growing above that. So we've seen growth above 20% if you strip out M&A and ForEx and other [funnies], so no, it's not 5%. And if it was, that would be quite worrying. But I appreciate it's quite hard to sort of unpack these numbers and its [lost] footprints to take account of and we'll try and help you going forward.

Then on the dividends from Prosus to Naspers, absolutely. In fact, tax law says that if you pay dividends to a shareholder, to a significant shareholder -- I think they need to own more than 20% of the company -- then that particular shareholder is exempt from withholding taxes. So that would be tax free as long as Naspers stayed above 20%. And in fact, I think we've also mentioned, and it's somewhat buried -- but technical, but even forgetting about that, we have about $120 billion of reserves in Prosus and we can distribute those reserves via capital reductions and that would mean that those dividends are actually not only tax-free to Naspers but also tax-free to all our shareholders. So the first $120 billion -- and that could take a while, and given our dividend payments -- is basically tax-free for almost all shareholders. From a tax reform impact perspective, I don't know what happens, of course, when the dividend lands in the U.S. or London or somewhere else, then that is very particular and specific.

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Operator [7]

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The next question is from Ken Rumph at Jefferies International.

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Kenneth Charles Rumph, Jefferies LLC, Research Division - Equity Analyst [8]

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Basil, a couple of questions. Firstly, and apologies if I haven't found the right part of the prospectus, when will we know the answer on elections of whether to [receive] and therefore, the percentage that Naspers will own in Prosus? Second question, just if you could, I'm afraid, go through the revenue growth in food delivery? I see a figure of more than 100%. You came up with a few figures and I was struggling a bit to follow it. Certainly, it's not more than 100% on the reported figures. So perhaps the GMV and so on -- if you don't mind repeating that for me, sorry for that. Finally, you're classifying the MakeMyTrip sale stake as held-for-sale. It's going to end up as a Ctrip stake, is the implication that you're going to classify that as a held-for-sale investment? I think you said that it's going to be treated as an investment at fair value, but is the implication that you would ultimately intend to sell that?

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Vasileios Sgourdos, Naspers Limited - CFO, Financial Director & Executive Director [9]

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Thanks, Ken. So on the election outcome, the actual election deadline is on September 13 and then we do the allocation. So on September 16, we will know -- which is the Monday after the planned listing day, we will know more or less -- we will know exactly, not more or less, we will know exactly what the percentage is. Then if I can go through the food delivery numbers for you again, so we saw cumulative GMV across all our assets of 74% year-on-year. We saw order growth at 100%. So what we're seeing is we are seeing some drop in ARPU, right? Then on the revenues themselves, we grew 48% in local currency excluding M&A year-on-year, but knocked on from that is 39% of growth relating to the couponing and the discounting. So if you look at it on a gross pre-couponing, pre-discounting, then the growth is actually closer to 87% year-on-year.

And then on your last question. No, we will not be classifying Ctrip as an active held-for-sale. It's basically -- and we won't be equity accounting. I think in short, we don't plan to sell Ctrip just yet. I think -- we think it's a great business. We think there is upside from here. We have a Board of Service seat, so we get the opportunity to understand what's going on in the business. And as long as we believe there is meaningful value creation from here, I think it will be silly for us to sell. So we will remain invested there.

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Kenneth Charles Rumph, Jefferies LLC, Research Division - Equity Analyst [10]

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Okay. So it's just that MakeMyTrip is kind of pending and therefore it's in that category this quarter?

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Vasileios Sgourdos, Naspers Limited - CFO, Financial Director & Executive Director [11]

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Yes. And that's right, Ken. Just maybe an update. I think we've just received regulatory approval for that transaction, should be closing relatively soon and our stake in MakeMyTrip then converts into a stake in Ctrip. So by the time we come out with our interim results, that will all be done.

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Operator [12]

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The next question is from John Kim of UBS.

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John Kim, UBS Investment Bank, Research Division - Research Analyst [13]

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Two questions, please. One on clarification. I just want to make sure I heard you correctly, Basil. The first $120 billion in dividends could be tax free under Dutch tax law, billion with a B? And second question, more specific to the prospectus, in a section there, you were kind enough to provide a number of IRR calculations on the Naspers/Prosus investments. The figure I seem to remember is, ex Tencent, a figure of roughly 20% IRR. Is it possible to provide that figure if you were to adjust for impairments?

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Vasileios Sgourdos, Naspers Limited - CFO, Financial Director & Executive Director [14]

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Yes. So John, on the first one. So the Netherlands also has a withholding tax rate similar to South Africa. And as I recall, South Africa's, I think, rate is 20% and Netherlands is 15%. Now what will happen is on that first $120 billion, we will not process it as a normal dividend, we'll process it as a capital reduction. And as a result, the 15% does not apply on capital reduction. So there will be no withholding tax and I'm very -- taxes, we have to be quite specific there. No dividend withholding tax on payments out of the Netherlands for the first $120 billion. Then on your question around the IRR. The 20% IRR is indeed for the existing portfolio of assets. So for the assets that we currently have on the books and after impairment of those assets, and there are some assets that we have on the books that have been impaired. Now if you wanted to look at all investments, including the ones that we've impaired and since got rid of or ones that we haven't impaired but sold for a profit and over the period of time, then that IRR is closer to 17%.

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Operator [15]

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(Operator Instructions)

Our next question is from Kevin Mattison of Avior.

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Kevin Stirling Mattison, Avior Capital Markets (Pty) Ltd. - MD & Executive Director [16]

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Just on your change in costs with regards to the food business. Can you maybe tell us how much of that is variable or relating to client acquisitions and then how much of it you see as being permanent going forward? And then on that, just in terms of that cost makeup, how much of it is fixed versus variable?

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Vasileios Sgourdos, Naspers Limited - CFO, Financial Director & Executive Director [17]

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Yes. Kevin, unfortunately, I don't have that level of detail handy, and we probably won't make it public. And then what's variable, what's fixed, it's going to take time to determine because we'll have to see what has to stay post competition. Let me tell you rather where we are investing. So the couponing impact, as outlined already, and that's largely variable, right, and that's a knock off revenue. And we'll always have to do some couponing, but of course, the intensity will come down on a per unit basis as we continue to stay ahead of our competitors and as they realize that couponing alone is not going to build sustainable market share. So that's a fair amount of investment. And the other investments are in building up first party.

Now essentially, what happens there is, of course, we pay on a per order basis to our drivers and then there are some other costs like collection costs and so forth. And generally, those costs are coming down on a per unit basis as we scale and as we optimize our technology in terms of delivery routes, in terms of batching orders and in terms of driving some other models like the loop model in Brazil, where what we do is we go to a restaurant that makes -- on which we have data and on which we see that there's 3 or 4 or 5 meals that drive orders in that restaurant. We then tell the restaurant in the downtown to make a couple of hundred of those meals, you collect them in one go and then we arrange for them to be delivered in batch.

So that's another part of the investment. And that is increasing because order growth is accelerating, the number of orders we have is accelerating. But on a per unit basis, and certainly markets like iFood and in Swiggy, those costs are coming down as we both scale and as we get better at optimizing. And then there is what we call fixed, but it's not really fixed, so it's step fixed. It's that underlying marketing, right? And that is somewhat heightened as you start to penetrate new cities and as you start to get new restaurants on board. But in time, as you scale and the branch starts to be known and you build the habit that can also come down. So all in all, I think as long as we continue to optimize and continue to scale and as long as we continue to stay meaningfully ahead of competition and build share, I expect the fixed costs and the variable costs to come down on a per unit basis.

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Kevin Stirling Mattison, Avior Capital Markets (Pty) Ltd. - MD & Executive Director [18]

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And just in terms of this quarter, would you say you're at the start of this journey or do you expect acceleration into the next few quarters? Or do you sort of see this as being something that is sustainable to [settle alone]?

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Vasileios Sgourdos, Naspers Limited - CFO, Financial Director & Executive Director [19]

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As you know, we don't guide on specifics and it's been a policy that has stood us well in the past. And the reason really is, at this very early stage, it is really hard to -- well, actually even to say, well, it's going to be x, y, or z because things are very fluid and things are moving quickly. We've, of course, put a budget together and we stay within that budget. But it really depends on a couple of things: competitive intensity and how we see the customer acquisition cost versus lifetime value evolving and there's a number of factors there.

So that said, the one assurance I can give you is, as you've seen us over the past 10, 15 years where we've gone and built out these businesses, we're not going to spend irrationally, right? We spend to build deep modes that allow us to stay ahead of our competitors. Sometimes there is a little bit of irrational spend, but that's normally for a limited period to hit the competitors hard because that's all they have to -- because not always, but because many -- a lot of the time that's all they fight with. And then when they realize we matched them, but we beat them on many other dimensions, the competitor [will] goes down, our market share gains and then we move forward. And we'll remain disciplined.

If the spend and investment is not going to yield good return, then we'll look to either merge or take some other action, and if we can't do any of those things, probably stop investing and then shut the business down. So I know it's somewhat unsettling. It's quite a big impact in the first quarter numbers and it's likely to be a big impact for the full year. But know that we do it with a lot of focus on the customer acquisition cost, on the lifetime value and on building a long-term sustainable competitive advantage. And we've seen all those dimensions come together in the first quarter despite the increase in competitive intensity.

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Operator [20]

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The next question is from Shaheeda Davids of Nedbank.

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Shaheeda Davids;Nedbank;Analyst, [21]

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My question doesn't relate to the financial results, but rather regarding something that is in the prospectus in terms of the Board composition. So Basil, can I go ahead with question like that?

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Vasileios Sgourdos, Naspers Limited - CFO, Financial Director & Executive Director [22]

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Yes. Please go ahead, Shaheeda. Anything you want to ask. It's all on the table.

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Shaheeda Davids;Nedbank;Analyst, [23]

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So there is a description in the prospectus around the project committee that is being established, which is similar to the executive committee that is currently at Naspers except for the addition of the lead Independent Director. In terms of this project committee, it says here that the committee can act on behalf of the Board with regard to the management of urgent matters, subject to limitations. Could you -- would you mind giving me an example of what would be deemed as being a type of urgent matter? And then is this type of committee, is it a permanent committee? Is there quite a frequent -- what is the frequency of the meeting? Is there specific terms of reference that it's got, if any color would be very much appreciated.

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Vasileios Sgourdos, Naspers Limited - CFO, Financial Director & Executive Director [24]

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No problem, Shaheeda. And I'm happy to give you more color. This is not a committee that meets on a standing basis. It meets on an as-needed basis. And generally, this committee takes its direction from the Board. So it doesn't serve the Board, it doesn't replace the Board. What happens is -- and a perfect example is the Impala transaction, right? So the Board says, "Look, we want you to stay very close to management on this, we want to stay very close to the prospectus drafting, we want you to give them guidance, we want you to look at the overall transaction structure and see that you're comfortable with the management on the right course."

For all intents and purposes, once the project committee has done its work, the final approval always goes back to the Board or generally goes back to -- most of the time goes back to the Board. It's only limited circumstance where the Board says, "Look, you just carry on." So for significant matters, significant transactions, after the project committee has done its work it goes back. And then that committee is made up primarily of the few executive directors, so myself and Bob. And then folks that are very close to the business that have either worked in the business before and had a good detailed understanding of what's going on in the day-to-day, but also those who have very strong financial balance sheet expertise.

So generally, the type of things we start our work off their work views, things like a capital raise, a transaction like this, a bond raise, and we'll do all the detailed work with them and it allows us to move quickly. And then whatever we conclude there goes to the Board with the appropriate color and information so that they can review it and sign off on it as well.

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Operator [25]

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The next question then is from Charl Wolmarans of Avior Capital Markets.

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Charl Wolmarans, Avior Capital Markets (Pty) Ltd. - Research Analyst [26]

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Just a quick one on food delivery seasonality. You mentioned in your comments earlier about food delivery seasonality, and I know it's still early days around the food delivery industry, but is there any seasonality trends which you could provide further color on, maybe major differences between the different regions?

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Vasileios Sgourdos, Naspers Limited - CFO, Financial Director & Executive Director [27]

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So I think there's a couple of things that drive it. Of course, holidays, sort of long holidays, and particularly people are away from home. And then big sports events where people are in front of the TV watching sports, they tend to order more. And then in markets like Russia where we have exposure via our investment in Mail.ru, of course, the deep winters have some impact too, right? So it varies market to market and then we have a spread. We have investments in the Southern Hemisphere, including Mr D and iFood. And then we have investments in the Northern Hemisphere and some of those have deep winters, other have mild winters. So it's a mixed bag right now and to see that impact in the aggregate is still quite hard. And I think the patterns will become clearer as we scale and as certain markets become more prevalent versus others.

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Operator [28]

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(Operator Instructions)

The next question is a follow-up from Ken of Jefferies.

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Kenneth Charles Rumph, Jefferies LLC, Research Division - Equity Analyst [29]

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A couple of questions. Firstly, on that point about the $120 billion of reserves which could be free of withholding tax. Without presuming any action on Tencent, were you to sell some of your Tencent stake as you did before, what would be the tax implications of that whether or not you distributed it? So you made the point that this was a specific reference to liability for withholding tax; does it change anything regarding either the sale or distribution of the Tencent stake and any tax that would be payable on that?

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Vasileios Sgourdos, Naspers Limited - CFO, Financial Director & Executive Director [30]

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Yes. So let's do a mirror of the transaction we did 2 years ago where we sold a 2% stake for $10 billion. And then let's assume of that $10 billion we paid $2 billion as a dividend to the Prosus shareholders, okay? What happened last time we did it, there was no tax, right? There was no capital gains tax within the company because we kept the cash in. The same will happen here. So whatever we did with Tencent now in the new structure doesn't create any incremental tax liability. There is one benefit that if you're a Prosus shareholder and we pay the dividend and we took some of those proceeds and we paid a dividend out and those -- that dividend payment would substantially be free of withholding tax, and for the first $100 billion odd worth of -- a $100 billion or $125 billion, I can't remember the exact number, [$1 billion odd] worth of distribution, now Naspers would get its share, right? Now assume Naspers took its dividend and then on paid back to its shareholders, then at the Naspers level, if you are a foreign shareholder, there will be a 20% withholding tax. If you're a South African corporate or an institutional shareholder, there is no withholding tax.

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Kenneth Charles Rumph, Jefferies LLC, Research Division - Equity Analyst [31]

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Okay, understood. Actually, could I ask a follow-up, which is for the future, are we going to have kind of one announcement combined for kind of Naspers and Prosus or indeed one call, given that they are sort of substantially the same, a little bit of difference? Or are there going to be kind of 2 events?

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Vasileios Sgourdos, Naspers Limited - CFO, Financial Director & Executive Director [32]

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No. We are actually working through the details, but the current thinking is we do one call that's primarily focused on Prosus and then we also provide as an appendix the Naspers' consolidated information, which would incorporate, of course, Media24 and Takealot and explain the key differences between the 2 sets of numbers. Of course, both Prosus and Naspers will have to prepare separate interim and annual financial statements and separate integrated reports.

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Operator [33]

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Ladies and gentlemen, that then concludes the questions for this conference call, and I'd like to hand the call back to Mr. Ryan for some closing comments.

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Eoin Ryan, Naspers Limited - Head of IR [34]

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Thanks, Chris, and thanks, Basil and thank you all guys for joining us. So hopefully, you found it helpful. And as always, please reach out to us in IR with any follow-up questions. So with that, let's close the call, and have a great day.

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Operator [35]

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Thank you very much, sir. Ladies and gentlemen, that then concludes this conference call, and you may now disconnect your lines.