Naspers Ltd. (OTCPK:NPSNY) F4Q 2013 and FY2013 Earnings Call June 25, 2013 10:00 AM ET
Koos Bekker – Chief Executive Officer
Steve Pacak – Chief Financial Officer
Mark Sorour – Chief Investment Officer
Basil Sgourdos – Chief Financial Officer, MIH
Eben Greyling – Chief Executive Officer, Pay TV
Meloy Horn – Head, Investor Relations
Edward Hill-Wood – Morgan Stanley
JP Davids – Barclays
David Ferguson – Renaissance Capital
Alex Balakhnin – Goldman Sachs
Kevin Mattison – Avior Research
Craig Hackney- Religare Capital Markets
Chris Grundberg – UBS
Ziyad Joosub – JP Morgan
Richard Barker – Credit Suisse
Good day ladies and gentlemen and welcome to the Naspers FY13 Results. All participants are now in listen-only mode and there will be an opportunity for you to ask questions after today’s presentation. If you should need any assistance during the conference, please signal an operator by pressing star and then zero. Please also note that this conference is being recorded.
I would now like to hand the conference over to Meloy Horn. Please go ahead.
Thank you, Dylan. On behalf of Naspers, I would just like to introduce today’s presentation party. With us on the call today is Koos Bekker, our CEO; Steve Pacak, the CFO; Mark Sorour, our CIO; Basil Sgourdos, CFO for MIH; Charles Searle, the CAO for unlisted Internet investments; Eben Greyling CEO Pay TV; Esmaré Weideman, CEO for Media 24, and Nico Marie (ph), who is our GM Finance. I’d also like to refer you to Slide 2 of our results presentation with all the important information, which I’m not going to read to you.
I’d like to now hand you over to Koos Bekker, our CEO, to start the presentation.
Thank you Meloy. If I may welcome people in Asia – it’s probably the evening over there, and good afternoon to Europe and good morning to the States. My job is simply to orientate you for the more detailed presentation by my colleagues to follow, and I’ll do it in just a few slides.
Let’s start on Slide 5. To give you a broad idea of how the year went, revenue on a consolidated basis is up 27% - that’s top left. The bottom middle core headline, earnings per share, is what we regard as the most reliable indicator of future performance. It strips out the accounting funnies. That’s up by 20%, so you could say the engine turns 27% faster and profitability is up by roughly 20%. You’ll quickly see there was a growth element to the latter and then an exchange currency issue.
In terms of trading profit, both our trading profit and cash flow is about the same as last year, and the reason you will see in the top right-hand side. Development spend is up by about 51%, and development spend is what we devote to the future so that’s the engineers and the software creation and so forth that build the next generation of services. That’s our investment in the future. Now dividends is of course what goes out to our shareholders as a reward for holding our shares, and the proposal is that that lifts by 15%, so that’s at the top line the summary of the year.
In slightly more detail, let’s turn to Slide 6. On a managed basis – in other words, Steve, our financial chief, will shortly explain to you that we distinguish between consolidated, which is the way the accounting guys reflect the results, and managed results which is what we control where we pick up our percentage of minorities we might have in certain businesses. For the last year, it’s up 36% and historically over the last five years it’s 25%, so you can see the engine is spinning faster by that percentage.
Turning to the next slide, which is 7, you’ll notice an interesting feature of our group, which is that we have quite a high degree of diversification, which of course spreads risk. You can see risk is spread in three ways. Firstly in terms of revenues, the Internet is now for the first time our biggest source of revenue. It overtook pay TV, so you have two strong flows – one from Internet, one from pay TV. The next split is geographic. We used to be a South African company; we’re no longer so. Less than 40% of our revenues currently come from South Africa, and in the future it will decline further. The third type of split is where the revenues come from functionally. Our biggest source is subscription – that’s about a third of our total income. Then you have value-added services, games, ecommerce and so on. Advertising is relatively unimportant at 11%. Advertising tends to fluctuate with the economy and the rest tend to be pretty insulated from short-term economic cycles.
If I could refer to Slide 8, you’ll notice that there’s a build-up in our development spend. I referred to it earlier. That’s the investment we make in the future, and we spent about 4.2 billion for that in the past year. Slide 9 indicates to you the earnings. Now, I referred already to 20% core headline earnings per share growth, which is probably the most useful figure you can have. This one is close to that – that’s basically earnings in total, and there’s a 23% lift, and about half of that is due to currency and half to proper organic growth. In Slide 10, you see the payout to shareholders. We propose to shareholders at the AGM that we increase the dividend by 15% this year. Over a ten-year horizon, the increase was 31% compound annually.
I now turn you over to Steve Pacak, our financial chief.
Thank you Koos. If I can refer you now to Slide 12, this is a summary of our consolidated income statement. That can give you a good overview of our earnings and once we’ve gone through that, I will then do a deeper dive into these segments in the following slides. You will note on the top line based on the proportional consolidation of our associates, revenues grew by 36% to 76 billion in the year. If you look slightly below that, consolidated revenues where we actually exclude the associates, that also grew strongly at 27% to R50 billion in the year. So one of the key takeaways of this presentation is that whichever way you look at our revenues, we continue to have robust revenue growth.
On the consolidated profit line, you’ll see that we’re flat at 5.7 billion for the year. This was a consequence of stepping up our development spend, which as I’ve explained to you in prior years, we take all through the income statement. On the finance cost line, you’ll see some increase. There’s a lot of accounting clutter in there, but if you look at the pure interest cost included in there, it totaled R630 million, which is up 22% on last year as we utilized debt to fund some of the acquisitions we made in the year.
Our share of earnings from our associates, you can see this jumped quite dramatically to 9 billion. As we show in the slide, there is included in there a 2.6 billion once-off non-recurring profit flowing from Mail.Ru who sold some Facebook shares during the course of the year. If we strip out this event, the earnings from our associates grew 64% year-on-year.
Then you’ll see the line item, Other – this includes an impairment charge of 2.1 billion which relates mainly to our investment in Abril, which as you know is a print media investment. Given the poor performance of print media globally, we thought it prudent to partially write down this investment, which is what we’ve done. It is, however, worth noting that Abril has embarked on a substantial cost-cutting exercise to right-size the business for the environment that exists today.
The bottom line then on Slide 12 is that our core headline earnings grew by 23% year-on-year to 8.5 billion, but you must note that if we strip out the currency effect, using a constant currency the growth would have been approximately half that at 11%.
If you can enter into Slide 13, here we analyze the 36% growth in proportionately consolidated revenues, which now total just over R76 billion. If you look specifically at the 36% revenue growth and analyzing that, 20% of that was organic growth, so 20% of the 36% growth was organic. Acquisitions provided a 7% boost, and the currency effect amounted to 9%. So if you stand back, you’ll see the organic expansion is still a primary source of growth, making up just over half of our growth.
You’ll note on the slide that the major growth came from the internet segment which year-on-year grew by 80%, and we actually recorded strong growth in all the major Internet platforms with the ecommerce platform in fact doubling up in size year-on-year. You’ll also see on this slide that Internet revenues exceed those of pay television for the first time this year in the doughnut on the right-hand side. The pay TV business also had a good year, growing its subscriber base by 1.1 million net, taking our total cumulative households now to 6.7 million subscribers. This translates into revenue growth of 20% for the year.
On the next slide, Slide 14, we analyze the step-up in development spend. The main areas of focus you’ll see are ecommerce and digital terrestrial television – DTT. We will expand on both these themes later on in the presentation. On Slide 15, we analyze the 23% growth in trading profits. This now totals just over 14 billion when we bring our proportional share of associates in. As indicated, trading profits grew nominally at 23% year-on-year, and once again if we did the analysis in constant currency terms, its growth would have been 12%. The lower trading profit margin is largely explained by the step-up in development spend in the year.
On Slide 16, we analyze free cash flows. You’ll see for the year, they totaled 3.5 billion for the current year, so it’s marginally lower than last year and it’s largely explained by the step-up in CAPEX in the year, mainly in the pay TV segment. On Slide 17, there’s an analysis of acquisitions over the past five years. The current year was quite active with [inaudible] 630 million of acquisitions concluded, virtually all of them in the ecommerce space. Then on Slide 18, we analyze our debt position. Our net debt at the end of March 2013, excluding transponder leases, totaled 6.6 billion and that gives us gearing of about 12%, so the balance sheet still remains in good shape.
So that’s the financial summary. I’ll now hand you over to Mark, who will deal with some aspects of Internet segment.
Thanks Steve. First, if I could ask you to turn to Slide 20. Over the years, we’ve evolved our focus onto ecommerce, as you may know. If you look at this area, for us we see it as a huge market size and great growth potential. If you look on the left-hand side of the slide at the U.K. for instance, this is a market where online retail now accounts for around 11% of the total size of the retail market, and this has been done in the short space of less than 10 years. Now, given the relatively low levels of online retail penetration in the markets in which we operate, anything between 1 and, say, 4% we see great upside potential to ride this wave into what we believe will be sizeable opportunities.
If you then turn to Slide 21, a quick look at our ecommerce strategy. Now having laid down our marker in ecommerce, our strategy is now razor-focused on three main areas. Moving from left to right on that slide, firstly looking at the classifieds. With it’s strong and attractive network effect, we believe we can build solid businesses in this segment in several markets across the world. Secondly looking at e-tail, here we are focused on building integrated first and third-party online retail platforms. And then thirdly, focusing on payments, which this is in a nascent stage for us, it holds plenty of promise as it underpins transaction activity across all of our online platforms.
With that, I’d like to hand you over to Basil in Hong Kong who will share with you more info on the ecommerce financials.
Thanks Mark. If you could please turn to Slide 22, I’m going to take you through the progress we’ve made and take you through some of the operating metrics around our ecommerce business, and then I’ll hand over to Charles who will take you through Tencent and Mail.Ru.
You’ll see on this slide that we highlight the financial performance of the ecommerce segment in aggregate. The combination of the organic growth, obviously driven by the high development spend that both Steve and Koos referred to earlier, as well as M&A means that we delivered very strong top line revenue growth. Currency, as mentioned earlier, has also had some impact here as we’re reporting these numbers in rand and the rand has weakened versus the currencies in which we transact. If one excludes that impact, revenues grew about 89% year-on-year and currently stand at a sizeable 11.4 billion.
If you look at the chart on the right, you’ll see that e-tailing is currently the biggest contributor, and there’s really three reasons that drive that. The first is that our first businesses are in that functional area, the first businesses we acquired, that being Allegro then followed by Buscapé, and in addition we’ve added quite a few B2C businesses and they’re classified in the e-tail segment. Now remember, those businesses sell directly to consumers, so they book the sale of the item as revenue and they also book a related cost of sale. The third reason is on our classified site, monetization hasn’t yet begun, and I’ll talk a little bit more about this when we get to the classified slide.
In the year ahead, we’re going to continue to invest in driving growth. As part of this, we’re also going to invest quite heavily in building out our mobile platforms. The full impact of smartphones and tablets as well as the increased availability of wireless bandwidth means that consumers are rapidly migrating their Internet experience from a desktop one to primarily a mobile one. In fact, you will have seen research that shows that in India now, mobile traffic exceeds their desktop traffic on the Internet.
Some of our businesses are profitable, but in the aggregate we post a loss of R2.1 billion for ecommerce, and that’s largely driven by the R3.2 billion development spend that we’ve incurred in the year. That’s highlighted in more detail on Slide 23.
So last year we told you that on the same call that we would increase our development spend, that’s in fact what we’ve done. You can see that development spend has increased by 88% from R1.7 billion last year to R3.2 billion this year. The operating metrics that we see and the revenue performance over the past year gives us confidence that this strategy is the right one, and as such we’re going to continue with this train of thought and we will continue to invest, building on our successes and also building out additional opportunities and markets. The investment primarily goes into marketing, into people, into products, into engineers and the software, and then obviously mobile development which I mentioned in the previous slide.
We don’t always win out, and in the cases where we don’t, we want to move fast and we’ll close businesses and divert the capital to better opportunities. We did exit or shut down a couple of businesses in the year gone by that weren’t meeting our expectations.
So if you could please go to Slide 24, I’ll give you a high level, helicopter view of what’s happening in the classified businesses. We have significantly strengthened our classified team, and it’s now led by the very able Martin Scheepbouwer. As mentioned in the previous slide, in continuation of that theme we’ve invested in product and marketing and we’ve built leading positions in almost all our markets. We’ve begun to pull away from our competitors but we face very, very strong competition in almost all the markets we’re in, and in fact we need to accelerate that investment in the year ahead to give ourselves the best chance of winning out.
If you look at the chart on the top left, which shows you the daily number of visits as of March 2013, you will see that’s increased by 65% when compared to the daily average for March last year, and we now stand at 10.2 million visits. In terms of daily page views, in fact the rate of growth has been far greater at 127%. We now do roughly 136 million daily page views – that’s 110,000 page views per minute, which is a substantial number. The higher growth in daily page views, when you compare it to the daily visits, suggest much higher engagement, and that’s really driven by the significant improvements we’ve made in products, and engagement is also very good.
We’re currently focused on 23 countries and in the current year we’ve added markets like Indonesia, Thailand and Africa, and we’ve also consolidated our position in Portugal through the acquisition of FixeAds. In Russia, we merged Slando Russia with Avito to build the leading—well, the undisputed market leader in Russia. In the year ahead, we’ll continue to add markets and look for additional opportunities. The Slando-Avito merger allows Avito to focus on monetizing and we should start to see some revenue driven out of that market in the year ahead. That said, though, many of our markets are not in positions yet where we want to start monetizing, and thus we don’t expect significant revenue growth in this segment for at least a couple of years.
If you could please turn to Slide 25 and now talk about e-tail, which is the biggest segment right of our ecommerce portfolio. If you look at the top right graph, we show you that the items bought or sold per day now stands at 802,000, which is a 21% increase from—sorry, this is a daily number, which is 21% increase from the same period last year. In the operating metrics, we do include the prior year numbers for the businesses that we’ve acquired, but obviously for financial reporting and when you look at the revenue visual on the left, we only pick up revenue from the moment we acquired the businesses. As such, the revenue growth is much higher in the left region with 130%, and that totals R9.6 billion. Twenty-one percent of the growth was organic and the rest was acquisitive and primarily as a result us expanding our B2C portfolio. We’ve seen good growth in all our markets and we continue to maintain leading positions in all (inaudible).
You will see on the bottom right that eastern Europe still is the biggest part of the e-tail segment, and that again is for a similar reason to the one mentioned earlier. Our first investment was Allegro in 2008 in the ecommerce space, but in addition this year we’ve added a number of B2C businesses that have added further scale to the eastern Europe platform, and those include net, tail and eBay. Steve reported to you earlier on the M&A, and the bulk of that M&A in ecommerce is around the B2C space. These businesses, as I mentioned earlier, sell directly to consumers so we take our inventory, we manage our own fulfillment in some cases. The businesses also invest in their own logistics and distribution.
When we look at margins, we’re comfortable and they remain stable. Again in this sector in the year ahead, we’ll invest in improving the product, building out mobile. We’ll expand our product categories and the number and types of goods that we offer consumers. We’ll sharpen our performance so that we can get things to the consumers faster, and coupled with that we’ll improve our delivery options and methods. I think this will enable us to scale our businesses over the medium term and then drive the unit economics and obviously over the longer term build operating margins.
When I look at the working capital, it remains relatively low and I’m comfortable that it’s well managed. We’ve also strengthened our team in this area, but together with the acquisitions that we’ve made, they now bring on systems and expertise that we can leverage across some of our other markets.
I’ll now hand you over to Charles who will take you through Tencent and Mail.ru.
Thank you very much, Basil. If I may ask you to turn to Slide 26, Tencent produced another really good set of results over the last financial year. Revenue was 43.8 billion for 2012, which represents an increase of 54% year-on-year. Operating profit was 15.4 billion for the year.
At the bottom of Slide 26 at the left, you can see that value-added services comprises the lion’s share of the revenue mix at some 81%, with online games being the major components of this category. Tencent is also starting to make some progress in ecommerce, particularly in B2C with ecommerce accounting for approximately 10% of total revenues at the end of 2012. Ecommerce does, however, have the effect of reducing margins on the overall business, as of course it has a much lower margin profile than the other lines of business in which it is active.
At the platform level, the operating performance of Tencent continues to be solid. We show you at the top right some selected operating stats for the first quarter of 2013 where you can see that Tencent recorded some 825 million monthly active instant messaging accounts at the end of the first quarter, and this represents an increase of 10% year-on-year. Equally the gaming and social network activity has also performed consistently over the period.
Weixin, or WeChat as the international version of this mobile communication product is known, has enjoyed really exceptional growth over the past year. 194 million monthly active users were recorded at the end of the first quarter of 2013, and this is up from some 59 million a year ago. There’s also some early evidence of growth starting to pick up in respect of WeChat in some international markets, but whilst this product is quite exciting in terms of what it holds for the future, it has to be noted that Tencent faces some very intense competition, particularly internationally, in relation to this product.
Overall it was an excellent performance by Tencent and a year that I would characterize such as being ongoing investments in brand, innovation, technology, and in its people.
If we can turn to Slide 27, Mail.Ru also had a very good year as it continues to build its position as the leading online communication and entertainment destination in Russia. It remains the leading portal destination and had approximately 35 million monthly users at the end of March of this year. Odnoklassniki, it’s social network service, reached over 24 million daily active users at the end of March.
From a financial perspective, revenue was approximately RUB21.1 billion for 2012, which represents an increase of 39% year-on-year, and earnings before interest and depreciation was RUB11.5 billion. Community value-added services has become a key contributor to revenue growth and has delivered strong growth of approximately 78% year-on-year. The main driver from this growth has been product improvements, particularly in mobile services, but also an increase in the paying number of users for its virtual gift and related digital services. Content advertising continues to grow in line with the market, although we note a slowdown in display revenue was experienced, particularly in the second half of 2012, and this was largely due to the result of a ban on alcohol advertising in Russia that came into effect at that time. Mail has also continued to execute on its online game strategy. The first person shooter game, Warface, has become an important component of this and is seeing increasing traction in both users and revenue and is in fact later to become one of the leading online games in Russia.
Finally at a corporate level, Mail has continued to sell down its full minority interest in non-core assets, including its interest in Facebook, and has been distributing excess cash to shareholders via special dividends. A small shareholding in Facebook of some 14.2 million shares still remains.
That concludes the Internet feedback. I will now hand you over to Eben, who will take you through pay TV.
Thanks Charles. I’m going to start on Slide 29 and (inaudible) give you a brief overview for the key focus areas on the pay TV business, and then the slides after that deals with our results in a bit more detail.
So on Slide 29 on the left-hand side there, you will see one of the first focus areas, which is the graph, penetration rate in TV homes across the continent. In the last year, we’ve achieved a good mix of subscriber growth of 1.1 million homes, and we now reach 6.7 million households across 48 countries in Africa. Secondly on the right-hand side, you will see our focus on local content development. In the last year, we’ve spent more than R1 billion on local content. That equates to more than 6,000 hours of local content produced in South Africa, Nigeria and Kenya, making us now one of the biggest producers of local content worldwide.
On Slide 30, you will see our focus on technology and our expansion in this area. It covers three areas – digital TV, digital terrestrial television, online and mobile services. One of our main focus areas in the sub-Saharan Africa business outside of South Africa for the last two years was the rollout of digital terrestrial television, and we are rolling that under the brand name GOtv. This service is now active in eight countries, covering some 25 cities. In the year ahead, we will significantly expand the number of cities and countries that we cover with this service.
On the online and mobile front, we’ve got various initiatives that are taking place. The popular BoxOffice service, which is a video-on-demand service that allows subscribers to view the latest blockbuster movies instantaneously on their PVRs, or personal video recorders, was recently made available online to users on personal computers. The catch-up service has also been recently expanded to iPad as a streaming service and will likely (inaudible) be available for downloads. We will continue to develop this and expand this service to Android tablets and other platforms later in the year.
On the mobile front, we continue to develop our own devices. This includes the launch of the (inaudible) for the Apple devices in the last year, and the new larger 7-inch mobile TV called the Walka.
If you move to Slide 31 you’ll see our subscriber growth trend for the last couple of years. You will see that we’ve achieved a growth rate of 20% in the last year and we now average an annual growth rate for the last five years of more than 21%, and we’re happy to see that the business is continuing to show good growth. On Slide 32, we summarize a couple of our main operating dynamics in the pay TV segment. Starting on the top left-hand side there, you will see our average revenue per subscriber, or ARPU, in the business. In the last year, that increased marginally but we do expect ARPU to decline over time as we change the mix in our subscriber base, and that will happen because of our focus on penetrating the lower market segments. On the top right-hand side, you will notice that programming costs in the last year increased by 15% on a year-on-year basis. That’s mainly related to the increase in variable programming costs on the back of the good subscriber growth, our investment in local content, as we covered earlier, and also some additional sports rights costs.
On the bottom left, you can see how our development spend is trending. The increased spend in the last year is directly related to our strategy, as explained earlier, that includes investment in DTT services and making our service available online, and our mobile TV services. We expect this development spend to continue to increase in the next financial year as we accelerate our investments in DTT.
These new technologies also require investment in CAPEX. On the bottom right-hand side, you will notice a significant increase in capital expenditure for pay TV in the last year by some 840 million. This is mainly due to the rollout of DTT services. Our DTT CAPEX in this last year alone amounted to some $109 million. The rest of the CAPEX relates to broadcast projects, network infrastructure costs at M-Net, and some costs related to new properties that we acquired. We also expect to see this CAPEX spend increase in the new year.
If you turn to Slide 33, we give you a summary of our results for the pay TV segment. As mentioned before, the business delivered good growth of over 1.1 million subscribers in the last year. Growth in the lower priced compact with pay remains strong and we’re pleased to say that our DTT service is now starting to contribute as well. The personal video recorder base reported good growth of some 200,000 subscribers to end on just under a million homes. Revenues for the year increased by 20% and is now sitting at just over R50 billion. This increase was mainly driven by the subscriber growth and also the price increases we process around 1 April every year.
Trading profit was up 18% to just under R7.6 billion and our trading margin has remained stable at around 25%. In our business in South Africa, the trading margin increased slightly from 33 to 34% mainly due to scale, and in the rest of Africa the trading margin declined marginally from 10 to 9% due to our high investment in DTT.
I’ll end with some comments on competition. We continue to see an increase in competition across the continent from both traditional broadcasters and also new online players. Existing players in the broadcasting space are aggressively growing their businesses, and we also see new players launching or planning to launch services. Online delivery of content is also now starting to become a reality on the continent. New start-ups are launching video-on-demand services and international players such as Apple, with their iTunes stores now delivering online video-on-demand services in our markets. We’re sure that this trend will definitely increase in the future when broadband becomes mainstream on the continent, and our own online developments are key in order for us to be prepared for this onslaught in the future.
That covers the pay TV segment, and I’ll hand you back to Koos.
Thank you, Eben. Folks, in conclusion please turn to Slide 35. I would like to end with three categories of observations. The first is on ecommerce. I think you’ll note we’re one of the fastest growing ecommerce groups anywhere in the world. We have three pillars. The two main ones are classified and B2C e-tailing, and then we have a new developing pillar of payment methods. We expect that we’ll be able to increase our market positions in the year ahead. There will be some acquisitions, but mainly organic growth because we now have businesses that are in attractive markets and that we can actually grow.
The next set of comments is on pay television. Eben outlined it to you – we’ll have accelerating subscriber growth, especially digital terrestrial services addressing the bottom end of the market outside of South Africa. I think we’ll have less growth inside of South Africa. We want to extend the online services – this is both pure Internet services as well as pseudo-Internet through the personal video recorder. We expect both intensified competition and more regulation, and some of the regulation may stifle innovation – that’s just the way the world develops.
On the financial side, there may be some acquisitions but we will grow mostly organically, and our focus is on recruiting the best engineers and entrepreneurs, focus on innovation, move across from the PC to the mobile world. Financially you’ll see, I think, a lively top line and less growth on the profit lines simply because we’re developing more organically. Looking at the future, there may be some currency volatility – sometimes it’s good for us and sometimes bad, you can’t predict the future.
So folks, that’s an outline of our performance over the past year and some tentative indications of the future. I’d like to hand you back to the moderator for questions.
Question and Answer Session
Thank you very much, sir. [Operator instructions]
Our first question comes from Edward Hill-Wood of Morgan Stanley. Please go ahead.
Edward Hill-Wood – Morgan Stanley
Hi, good afternoon everybody. I have two questions, please. The first one just relates to sort of longer term margins within the ecommerce business. If you strip out development spend, then you’re clearly seeing margin dilution to around 10, 11%, partly a function of mix. But also, I was wondering whether or not if you exclude the mix effect of having more e-tail and development spend, is there an underlying decline in profitability from either competition or pricing or marketing, and whether or not you would say that migrating towards, I suppose, a 10 or below 10% margin is a sort of reasonable long-term way of thinking about things.
The second question relates to India. You haven’t mentioned India, really I think, today. There’s been a lot of activity there. It’s clearly going to be a very interesting market for you. I was wondering if you could just outline your ambition in India and what—I just want to really get a sense of what you’re trying to achieve in that market and whether or not it could be subject to a significant degree of investment over the next couple of years.
Edward, Koos here. I’ll take the margin question and Mark will respond on India. Margins are a mix that’s in fact the end result of so many influences. If you just think about it, there’s currency – for instance, we buy a movie in dollars, collect a subscription in lira. Secondly, competitive forces, sometimes regulatory forces, sometimes your phase of development when you’re early, you tend to be high on the development cost, then there’s a phase where you cruise, where you have little competition and you can milk, and then competition enters and you need to spend a bit more defensively. So margin is actually the end result of a great many forces.
If you look at our group, I think pay TV is generally stable in margin and what will change it is a strong development of digital terrestrial in some markets, where firstly because you serve the bottom end of the market, there’s some movement in revenues in margins, and secondly because of the development spend you start hitting the income line. But basically pay TV is more stable.
On the Internet, if you look at the three pillars, payments tend to be relatively stable – you take a certain percentage, 2% or whatever, of the turnover. Classifieds has no margin because the model there is to be develop it five or six years up until you have a really strong position before you’re charging anything, so the first phase is simply lose money. E-tailing is typically a high volume, low margin business. If you sell a tablet computer like an iPad, you have quite a firm revenue line but quite a thin margin, and that’s typically of ecommerce – in fact, commerce retail globally and ecommerce also in particular. So when you look at our group as a whole, you get a collection of all these margins put together and you can look back at our [margins] [ph] historically and draw some conclusion about the future, but it will be influenced by many, many factors, some pulling and some pushing.
Mark, on India?
Yeah, look. India for us is a great market. It’s a large market, firstly. I think the benefit of the market for Internet is in the fact that it’s quite fragmented and it’s got a high mobile engagement, so there’s some very strong drivers. Now, our play in India is to create an integrated travel platform, and the reason why we look at it that way is because if you think about how you buy travel, you first of all go onto the Internet, you look for an air flight to a destination and then perhaps a hotel or how to get from the airport to the hotel – you might need to take transport. And so it’s an integrated sale, and so by packaging that together you get the benefit of being able to drive down your traffic acquisition costs on the one side, and on the other side because you’re able to offer integrated packages, you’re able to increase your conversion of traffic into transactions. So India for us is really focused on creating an integrated travel platform.
Our next question comes from JP Davids of Barclays. Please go ahead.
JP Davids – Barclays
Good afternoon. Two questions, please, on ecommerce. Firstly, in Russia you’ve mentioned you merged for scale and then in Southeast Asia, you closed Multiply, which is a potentially very exciting market, Southeast Asia. Can you provide some color on what factors you consider before you switch off the tap, particularly in the latter, or provide some color on what forces you into a merging for scale type of scenario.
And then secondly and separately, your disclosure provides a very broad overview on the progress of ecommerce. Can you give us an example or a case study of where you’ve had success in monetizing and indeed potentially recovering investment in the ecommerce space, even if its regionally or potentially on a vertical? Thank you.
Okay JP, I’ll tell you where we screw up and Mark can tell you where we make money! Something like Multiply, it was simply a mistake. It was a social network run from the U.S. by a team, and they started noticing that people trade on it; so we had the brilliant idea of converting a social network where the users spontaneously started trading into a true trading platform, simultaneously moving the base from New York to Jakarta, and it failed in execution so the result was bad management by us, and then we smile and we close it down and we take the hit, and we try to hide it as deep as we can in the income statement.
You will always in a high risk environment have failures, so if a company like us doesn’t fail, it simply means you’re not trying hard enough because you assume a certain risk, and risk means that sometimes the dice will fall against you. What you try to achieve in the long term is to have more successes than failures, so I think the best judgment of a company in our position is to look at the track record and say, okay, over the past 20 years, or whatever track you can find, how did this particular team do in terms of winning or losing.
But you’ll always have write-downs because we often go into markets very young, we take a risk, we try to build it, and I think we as a group are very good because we’re not scared of admitting mistakes and fixing it. So we sit down with every unit twice a year, we look at it top-down, and in our last review we had a look at Multiply. We said guys, you’ve tried very hard, you’re not succeeding. We’re killing the business, we’re closing the business, and we did it immediately. And then when you have a success, conversely, we step on the gas. So if something starts taking off, instead of sitting around and waiting for the next budget cycle to address the board, we try to immediately respond to it; and you have to do it because we move in a very volatile, liquid market. I think the best response of management is to be alert to trends and to respond quickly where you see them.
Mark, you can now tell them where we sometimes succeed – highly occasionally, but sometimes.
Okay. I think unlike e-retail, as we mentioned to you, which where scale is the name of the game, the name of the game in classified is network effect where you can build a strong liquid market quickly. We had assets in Slando and OLX which had secondary market positions – they had several markets but those were not their primary markets, and by merging our assets with those of Avito, we were able to create a combined vehicle that had complete liquidity, which allows for a reduction of any wasted marketing expenses and for early monetization. That’s what you’re seeing now happen in Russia with a very, very strong position.
JP Davids – Barclays
Thanks to both of you for your candor.
Our next question comes from David Ferguson of Renaissance Capital. Please go ahead.
David Ferguson – Renaissance Capital
Hi, good afternoon everyone. So two questions, please. The first is a sort of follow-up on classified and the idea that monetization is still some way off. I guess I sort of understand this need to invest and strengthen your market position, but if we take Avito as an example, it’s going to be a good example of a business that has achieved market leadership, that’s monetized effectively, and they’ve been able to do that despite sort of historically you being a high standing competitor. So I guess the question is, it’s not just about sort of out-spending the competitor but also having more of a balance towards driving revenue per user, so your thoughts there, please.
And then secondly on PayU, maybe you can give a little bit more color there on what differentiates that product from other e-wallets, which markets is it gaining traction in, and to what extent is it being used of your own owned ecommerce platforms? That’s it, thank you.
David, on classifieds as we discussed, the typical approach is to invest for five or more years to build a liquid, big platform, and then to start charging for elements of it. An example is what Mark alluded to in Russia, which is fairly well publicized, and that’s that Avito, given its market leadership, has been able to start monetizing. If you want some more mature examples, you can look at some of Schibsted’s properties, Blocket for example in Sweden or Finn in Norway, or in fact you could look at the position in France, which is fairly well developed. There’s a certain rhythm to it, but it depends upon first becoming big and useful to society before you start charging, and then introducing the fees one by one.
The second on PayU, what typically happens is people try using our platforms and they use all sorts of ways of settling their bills, and it differs from country to country. You might find, let’s say, in countries with a high degree of trust, Poland, people will purchase something on the web and actually transfer the money from their bank account to the seller without ever having met this guy, and they just trust that the people are so honest that the item will be received in good order on your doorstep. In some other societies like Russia, that’s patently absent and people do not transfer money blindly. They tend to meet personally and exchange cash. So in our different markets, we try to take these cultural factors into account and to build a system that works for that market. Some markets tend to be credit card, some debit card, some back account, some purses, and some you have—in Brazil, there’s the odd phenomenon that people buy everything on installments. You know, you wouldn’t buy a couch with a cash payment as you would in America. You actually have paid installments for the couch. And then we’d need to provide credit, and we do it by dealing with the banks so we do it back-to-back with a bank and say, if we do the deal, you provide the credit and we offer the consumer something nice.
So the typical progression is we start with our own platforms and offer a payment method on our platforms, not exclusively but as an alternative to the user, and once we do that well, we offer it to third party people. So both ourselves and Tencent have lots of external clients who do not use our platforms but still use our payment method. The typical margin on payments is quite low – it’s 2% or something, but if you do it for large enough volumes, it starts becoming a good business.
David Ferguson – Renaissance Capital
Okay, that’s great. Thank you. Can you comment on which countries pay you specifically in some good (inaudible)?
I think Poland is a good example. We are probably the biggest ecommerce entity in Poland, and because we’ve been there for a while, people trust you and then when you—you know, payment involves an element of trust, so before I give you my credit card details, I want to know that you’ve been around a while and wouldn’t cheat and go sell it to some shaky outfit. So a brand name that’s well respected in a market like Allegro is in Poland is quite an invaluable asset in that regard, and people start trusting you. Once you’ve done one transaction, I have your credit details, and when you next time have to consider, well, should I use my credit card or rather PayU, you say well, these guys have my details. It’s like you’d rather use the trusted method.
So the sequence is first establish a brand that’s respected in a market and help people to trade successfully on the web, offer them next to other payment methods also your payment method, and once they’ve used it they might decide to become regular clients.
David Ferguson – Renaissance Capital
Okay, that’s very helpful. Thank you.
Thank you. Our next question comes from Alex Balakhnin of Goldman Sachs. Please go ahead.
Alex Balakhnin – Goldman Sachs
Yes, good afternoon. I have three questions if I may. First is on the development spend. On the Internet, it was quite consistent at around sub-30% of Internet sales over the last two years. Is that pretty much what you are keen to commit in terms of development spend going forward, or should we think differently about that?
Second is on Avito transaction, which is probably the great example of the consolidation of the market. I guess—well, you are in 28 countries and in all of them your positioning may be slightly different. Can you outline your approach to the (inaudible) if you are, for example, a market leader, if you have a not-so-distant competitor or equal competitor to you, and if you have a not second tier but not the dominant position, so how you would compete in those markets.
And lastly on the B2C ecommerce in eastern Europe where you already have quite sizeable market positions in some of the countries, do you see (inaudible) for the market share gain or you would be rather growing in line with the market than B2C? Thank you.
Let’s do it this way – Steve can comment on the development spend, Mark can talk about Avito. But just define your third question – I’m not sure we got it completely.
Alex Balakhnin – Goldman Sachs
On the ecommerce properties which you have in eastern Europe, including eMag and Netretail, all those companies have quite different market shares in their respective categories. Do you think you may grow this market share even further, or you think you will be growing pretty much in line with the market?
Okay, the latter I can perhaps answer before I hand to Steve. I think definitely the latter – we expect our market share to increase. The reason is lots of our businesses are quite young. You have something like eMag and Netretail are sort of in a sense leading in categories of the market, but all of them are developing new ways of trading. If you take a country like Poland, it started off as basically an auction engine and then people started selling by way of fixed price sales, and then different things developed and today you have payment methods and price comparison engines and classifieds, and all these things. So typically in one of those eastern European markets, there is a market entry – someone starts doing something successfully – and then they move sideways and they do different things, some of them hopefully will succeed. So overall I think, at least we hope, our share of the market will increase, which means we must grow faster than market. And I’ll be surprised and not charmed if we actually grow only on the market level.
Mark, you want to talk about—sorry, Steve, development spend?
Yeah. On development spend, we don’t look at it the way you intimated, in other words as a percentage of revenue. We don’t look at that aspect in that way at all. The way we look at it is what opportunities present themselves, can we attack those opportunities, and how do we attack those opportunities – do we do it by way of acquisition or do we do it by way of development within the business itself? And one of course goes through the income statement, the other one goes through capital accounts.
We presently on a group basis have development spend of approximately 8.5% of sales – that just happens to be a consequence of the opportunities that we have on the table today. If you went back five years ago, you’d probably find it’s approximately 5% of sales. But we don’t sit down with our budgets and say it can be no more than X% or Y%. We’d rather look at what opportunities present themselves and how best we take those opportunities.
And then your last question was on Avito.
On Avito. I think to go back to the Avito position, and I think that’s the way we approach classifieds in all our markets, is to look at picking the market where we think we’ve got the best opportunity, building great product which is locally focused, making sure that we recruit the best talent in that market, and build the engagement and liquidity, and I think that’s the key focus for us. That’s why you will see that our focus is really organic built.
Alex Balakhnin – Goldman Sachs
So you think it’s probably too early to talk about any consolidation like (inaudible) consolidation in the next few years, and you would rather think about an organic build-up of your presence in these 28 countries?
Yeah – indeed, indeed.
Alex Balakhnin – Goldman Sachs
Thank you so much for your help.
Our next question comes from Kevin Mattison of Avior Research. Please go ahead.
Kevin Mattison – Avior Research
Hi. Two questions. The first one is about a year ago, you were talking about acquisitions and saying things had looked quite expensive and you were expecting to conclude less acquisitions in the coming year, and we did just over $600 million. Can you maybe just sort of take us through a (inaudible) about what changed – was it a valuation? Was it things coming up? And then also how that factors into your outlook right now – is this something where you look for opportunities and as opportunities present themselves, you execute?
And then the second thing is, (inaudible) I guess probably invented this term of the J-curve cycle. You’ve been investing in ecommerce businesses for a number of years. Can you make just take us through, given your portfolio, of how long it takes from the time that you enter into the market the way you’re doing right now to the time that you start to turn a normal profit margin? And again, just sort of adjust it for the portfolio businesses or maybe spread it across from B2C to classifieds. Thank you.
Sure, Kevin. The M&A, particularly the last year, is mainly the result of Mark’s lack of restraint, so how do you defend yourself?
Kevin, you know, we completely focus, as we’ve said many times before, on building integrated platforms, so we believe that a shopper is not too concerned about what format we call it but is interested in getting the price, convenience and selection when he gets there. So the acquisitions that we have made in the last year have been bolt-on acquisitions into the existing platforms that we have, mainly in central and eastern Europe.
On the valuation, the benefit that you get out of doing a bolt-on acquisition by way of example is that if I’ve already got a core site and I bolt on a new site, I can drive traffic to that new site overnight at no incremental cost, or very low incremental cost on the one side and on the other side. Because you are adding more formats, you’re providing more selection, your probability of converting the traffic into a transaction is higher, which lifts your revenue, so you get it on both sides. Valuation for us obviously means that the value to us in being able to do that exceeds the price that we look to pay for the asset.
And then on the outlook, we can’t really—we can’t forecast acquisitions. Our view is we want to build integrated platforms and we will then choose at that point in time for that particular market whether it’s a build or a buy.
Given the so-called J-curve, the shape of it depends greatly. Mark alluded to bolt-ons. We’ve had some situations where you can actually profit in the first year. You strip out the cost, you both do things together, and you actually have a profit, but that’s rare.
Business plans tend to break even in three years, and I think there’s an interesting article to be written for Harvard Business Review on why. It’s basically the psychology of the board, but the reality is quite different. I mean, some J-curves, if the business doesn’t turn successful, it just goes down forever, it never lifts up. If you are successful, it turns up and the period that you allow is a factor of many things, one of which is sort of the level of capital intensity. The more capital intensive something is, the longer the cycle – like mining or even pay TV is a notoriously long business. Our businesses in ecommerce aren’t typically that long. I think if a business doesn’t turn in, let’s say B2C in two or three years, you probably have a problem.
Classifieds are somewhat different. I think that will require five or six years per country once you enter, because of the reasons we explained – you need real penetration and liquidity before you can start charging. But I would say our J-curves differ from one year to five, and then occasionally you never get a turn, so it’s not a very satisfactory answer but that’s the reality.
Kevin Mattison – Avior Research
That’s very useful, thank you.
Our next question comes from Craig Hackney of Religare Capital Markets. Please go ahead.
Craig Hackney- Religare Capital Markets
Good afternoon. Just looking at your dividend declaration for this year, it looks a bit stingy relative to your earnings growth and relative to the fact that you generated 4.9 billion of net cash this year, and you saying that you’re not expecting to be particularly acquisitive into FY14. Could you just help us understand what prevented you from being a bit more generous with the dividend this year?
It’s only Steve, Craig, that stands between you and a more decent dividend, so what do you have to say for yourself?
Craig, at the other extreme, there are certain members of the management team that believe (inaudible) pay a zero dividend because utilizing the capital internally – if you look at the history of the business, it generates a better return for shareholder. But at the end of the day, there’s no—I mean, we don’t think it’s stingy, obviously. That’s why we propose it that way. At the end of the day, the board looks down once a year at the audited results and looks at the projections or the budgets going forward, the opportunities that present themselves, the need for capital in the business, and you have to get to a conclusion. And the conclusion is we’re paying a dividend of 15%. It’s slightly below the earnings growth for this year, as you know. Our core earnings per share grew at 20%. But we think it’s a fair and reasonable dividend.
If you look at our dividend, as we showed in the slides earlier on, our growth over the last 10 years, compounded growth is over 30%, so I don’t think there’s a lot stingy about that. So that’s the basis on which we propose it and hopefully shareholders are happy with it.
At the end of the day, Craig, and this has to be said – at the end of the day, you don’t buy Naspers shares for dividend yield. You buy it for capital growth, and that’s how we’ve managed the business.
Craig Hackney- Religare Capital Markets
Okay, point taken. Is net debt to EBITDA ratio a constraint given that your EBITDA—reported EBITDA is flat lining but your net debt, I think, is flat or slightly up year-on-year?
No, it’s not a constraint at the moment, although in the years ahead my colleagues may make it a constraint.
Craig Hackney- Religare Capital Markets
Okay, thank you.
That is said in jest, at least I’d like to (inaudible).
Craig Hackney- Religare Capital Markets
Our next question comes from Chris Grundberg of UBS. Please go ahead.
Chris Grundberg – UBS
Thanks. Just a couple of quick ones from me. Just first of all on DTT, obviously you’re in eight countries now. Can you give a quick update on how many countries you’d like to be in ultimately, and also just a time horizon for the DTT investments, when are you expecting those to peak?
And as a follow-on on the e-tail story, obviously you mentioned mobile. I’m curious – is that investment, when you’re investing in the platforms for that, that you can make centrally and roll out across your portfolio of general retail science and businesses, or are they all developing those independently? Thanks.
Eben, on DTT?
Chris, first on where we want to be, I think the short answer is basically in all the markets that we can launch. Where we get frequencies and licenses, we will launch DTT services. The second one is a bit more difficult to answer – where the peak investment will be. You would have seen over the last couple of years, every year when we come back to the market, we sort of increase the amount that we’re spending on DTT. But as opportunities come along, we re-look at our budgets and if the investment makes sense, we increase our spend on DTT.
You know, Eben, what would be useful to explain is just explain your CAPEX, your transmitter cost (inaudible) and then the one-off on your subsidy of decoders when the sale goes through.
So if you look at where we’re spending our money, it’s roughly—you could almost say 50/50 in terms of CAPEX and OPEX. On the CAPEX side, it costs us an average of about $1.5 million per site that we roll out on the continent, so every—and some cities require one or two or three sites, others if it’s a flat environment or topography, then you only need one power tower transmitter to cover a big area. So that’s where the big investment goes on the CAPEX side.
On the OPEX side, at the moment there’s really two big investments on the cost side. The one is our subsidy on our decoders – you put the decoder into a market at a price that’s relatively the same price as your competitors. Because we’ve launched the latest technology, which is a technology accepted by most of the African governments, our initial cost of the decoder is higher but that’s coming down quite quickly. So in the short term, you will see a decoder subsidy going in, but then also you need to spend marketing money to grow your brand, so we invest quite a bit upfront in terms of marketing and services when we launch new cities or new countries.
But we probably expect in the normal—like Koos said, in the normal J-curve that we have three to four years out before we will start to see a return on the EBITDA line.
Yeah. Basil, the second question related to how mobile is developed, centrally or in each region. Do you care to answer that one?
Thanks Koos. So again, if you look at how we’ve developed on the Internet side, we’ve developed specific solutions to deal with the demands of the country, so we don’t develop on the desktop side centrally and we won’t do the same—and we won’t do it on mobile either. You know, our advantage is driven by being close to the market, having developers and entrepreneurs in that market who understand the dynamics and the needs for that particular market.
That said, we do see things—there are things that can be shared across, and when those opportunities present themselves, we’ll encourage the guys to do so, and we’ve done that in the past on the desktop side as well. So I would say in short, mostly developed locally in country.
Chris Grundberg – UBS
Great, thank you.
Our next question comes from Ziyad Joosub of JP Morgan. Please go ahead.
Ziyad Josub – JP Morgan
Hi everyone. Just two quick questions please. The first question is on Allegro. I’m just wondering what is the economics that Poland makes up of Allegro total, because since March 2011 I think Poland was 85% of their economics and in H1 this year, it made up only 50%. So post-acquisitions of Netretail, eMag, what sort of—what is the level of economics at Allegro that is explained by Poland?
And then the second question is just on GMV and revenue growth dynamics in Allegro Poland’s legacy marketplace – how is that proceeding? Have we seen a slowdown there, or what sort of growth figures are you seeing in the legacy C2C marketplace? Thank you very much.
Okay Ziyad, I will try the latter and Meloy can work out the former quickly for you. In a mature market, all mature markets like Poland, the marketplace tends to be your slowest growing sector. The reason is—if you look at the U.S., in the U.S. eBay started doing auctions and then moved to fixed price, C2C type stuff, and then more likely started developing a third party marketplace where other people can sell using some infrastructure and using PayPal and so on. The same is true of—I’m sorry. In the U.S., you can see that the initial auction site has slowed down and the rest is still growing quite well. In Poland, we experienced the same, so the initial sort of auctions business is low growth. The B2C fixed price marketplace is still quite lively, and some of the other businesses are growing quite quickly. So over time, the blend changes.
Meloy, could you work out Poland?
Yes, sir. In the past year, Poland accounted for 40% of Allegro’s revenue.
Ziyad Josub – JP Morgan
Okay, and that’s post-acquisitions, eh?
Ziyad Josub – JP Morgan
Okay, thank you very much. Thanks a lot.
Our next question comes from Richard Barker of Credit Suisse. Please go ahead.
Richard Barker – Credit Suisse
Thanks very much. I’ve got two, if that’s okay. The first one is to go back to the interesting sort of strategic decisions and choices that you’ve made regarding Slando and Avito and the way that you’ve seen your Russian businesses—the way forward you’ve seen for those, comparing that with your decision in Multiply. Just interested to know how you look with Buscapé. Admittedly it’s a very superficial analysis which I don’t have privy obviously to things like some of the revenue numbers, but certainly on a traffic basis the business seems to be a little disappointing maybe – let’s put it that way, I’ll leave you to correct me. But you obviously are still quite committed to it and see it as a business with prospects, so I’m just wondering if you can maybe compare and contrast, if you like, how you look at the Buscapé business with how you looked both at Slando, for instance, and at Multiply, and just sort of help us maybe understand why it is that you are more optimistic about Buscapé going forward. That’s the first question.
And then second one is a lot simpler, and that is can you just say anything about how the economics of DTT as compared to DTH look in a mature business? Can you generate similar levels of margins and returns on that or not? Thank you.
Okay, Eben will take the latter first.
So no, I think it’s quite significantly different if you look at the economics, because on DTT you’re looking at very much a low margin—not margin, low ARPU product, so we’re addressing the mass market so you’re looking more for volume in terms of subscribers at a low ARPU. But again, obviously if you—
And your churn will also be higher.
Yeah, and because you are addressing a lower segment of the market, you definitely become more susceptible to churn on this market. But then in order to make sure that you get a return on that product for DTT, you try and achieve a greater what we call a gross profit margin if you purely take your subscription rate and less your programming costs, you try and achieve a high percentage margin on that side. So when you’re on DTH, it’s slightly different. We charge higher prices but your programming cost is significantly higher for our DTH business.
Yeah. And then Richard, your question is quite interesting in terms of decision-making. You have—and that’s why I like the business. There’s constant calls to be made, and sometimes one calls it wrongly. For instance, in the group we had huge debates about the value of Facebook. Your friend Mark on the call today was always a strong proponent and our late Internet head, Antonie Roux, who passed away last year, was a strong detractor from Facebook. And in the end, Mark was sort of right on the listing, and then he was less right when the price went off. Even today, the debate is out there - what is Facebook worth? It’s very hard to call.
So let me just tell you the process we follow. So take Multiply – we had high hopes, bought in, saw the management team wasn’t working, replaced the management team with a new one, gave them a new brief, tried all we could, saw we got nowhere, killed it, right? And that’s the process of something that doesn’t work, and we had it before. We had a social network engine in Poland called Gadu-Gadu which got clobbered by Facebook, and so it goes – you take a risk and sometimes you lose.
The situation with Slando, which Mark described, is we had a good position but as number two, and then the trade-off is do you beat number one about the head until it falls down, and what it will cost; or do you actually merge and get a slice of the combined entity. In Russia, Avito is a very well run company. We greatly respect the management, so we decided to rather join them than fight them. But in general, we don’t often do deals like that. We mostly find things organically and build it.
Now Buscapé is actually a very attractive company. I think it’s not particularly well understood, especially South Africa because we lack a similar model. It started as a price comparison engine, so you say where can I buy the best iPhone 5, and I’m in Sao Paulo and I’m in this street in Sao Paulo, and I’m only wanting to buy from merchants who have a five-star rating, let’s say. Buscapé will bring you the best set of merchants ranked in the way that you want and you then walk off to the merchant and actually go buy it, or buy it electronically as you wish.
Then they evolved. They said, okay, what else do we do well? As it happens, we can actually make the sale, so how about this – we find you the best or the cheapest or the most reliable item, and then you click here and we actually help you make the sale, which turns it into a marketplace of sorts. And then they said, okay, merchants need details, they want information on the customers - how good is this customer, and the customer wants details on the merchant. This is interesting, and then the merchant wants to advertise some way, so they needed an affiliate engine and they grafted Lomadi (ph). And so they expand sideways until they have about seven or eight businesses today that encompass a very wide track of the ecommerce business all the way to actually payments. They have PayU in virtually all the countries in LatAm now, so it’s a composite business, and we surpassed the up to then market leader called MercadoLibre in terms of GMV in Brazil very recently, so it’s now bigger in Brazil but not yet in the whole of Latin America.
So I think Buscapé is a very good company and under excellent management. Of course, Brazil recently had these surprising riots after 10 years of excellent growth and social peace. There is quite a lot of social turbulence like in Turkey, but I think it will pass. The World Cup next year will be a period of, I guess, peace and optimism, and maybe Buscapé can benefit from that.
Richard Barker – Credit Suisse
Gentlemen, we have no further questions. Do you have any closing comments?
No, we just want to thank you very much for participating in this call and asking questions. We enjoyed answering them, and we hope we can deliver for you over the next year.
Thank you very much, sir. On behalf of Naspers, that concludes this conference. Thank you for joining us. You may now disconnect your lines.
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