Naspers Limited's CEO Discusses Q2 2013 Results - Earnings Call Transcript

Nov.26.13 | About: Naspers Ltd. (NPSNY)

Naspers Limited (OTCPK:NPSNY) Q2 2013 Earnings Call November 26, 2013 9:00 AM ET

Executives

Meloy Horn - Head of IR

Koos Bekker - Group CEO

Steve Pacak - Group CFO

Basil Sgourdos - CFO MIH

Charles Searle - CIO of MIH Group

Eben Greyling - CEO of Pay-TV Platforms

Analysts

JP Davids - Barclays Capital

Edward Hill-Wood - Morgan Stanley

Alex Balakhnin - Goldman Sachs

Kevin Mattison - Avior Research

Chris Grundberg - UBS

Richard Barker - Credit Suisse

Stephen Pettyfer - BofA Merrill Lynch

Ziyad Joosub - JPMorgan

Jennifer Henry - Standard Bank

Operator

Good day ladies and gentlemen and welcome to the Naspers Interim Results. All participants are now in listen-only mode and there will be an opportunity for you to ask questions at the end of today’s presentation. (Operator Instructions) Please also note that this conference is being recorded.

I would now like to hand the conference over to Meloy Horn. Please go ahead.

Meloy Horn

Thank you, Dillon, and good afternoon everybody. I would like to introduce you to the presentation party today. With me is Koos Bekker, our CEO; Steve Pacak, the CFO; Mark Sorour, our Chief Investment Officer; Basil Sgourdos, the CFO for MIH; Charles Searle, the CEO for Listed Internet Assets; Eben Greyling CEO of PayTV; Esmaré Weideman, CEO for Media24, and Nico Marais, who is our Group Finance Manager.

I’d now like to hand you over to Koos to start the presentation.

Koos Bekker

Folks, welcome, from different parts of the world. Thank you for spending time with us. I would like to alert you to six themes so that you can listen for them as we progress through this presentation.

The first one indicated on Slide 4, is a shift in business mix. In the past, you probably thought our main market was South Africa and the heart of the business was PayTV. That was true but there has been a shift, so today the minority of income comes from South Africa, it’s more an international broad-based market. And secondly Internet e-Commerce has become the heart of the business even bigger than PayTV.

The second theme you will pick up is that there has been solid revenue growth in both, e-Commerce, general Internet and pay-television, that however is accompanied by accelerated development spend which we will define a bit later. That’s the money we spend to build the business for next year. The consequence of those two trends is that there is more muted earnings growth as some of these developments spend detract from the revenues we earn before it hits the profit line.

Then you will see two big developments. First one is the traction in e-Commerce. You will see it in several places. Sometimes the traction takes the form of a revenue increase as in our Amazon like services. Sometime it’s in the form of user acceptance, for example page views in the case of classifieds. It takes many forms. But there is a great traction in e-Commerce.

And then lastly PayTV which we thought of as rather mature in years gone by, is showing renewed life. And it comes from two sources. One is the upper-end, the sort of Internet like services which we don’t elaborate in much on today, but it’s present at the top-end like the personal video-recorder. The most important though is digital terrestrial TV, a cheaper form of local TV that’s very active in East and West Africa, but not in South Africa.

So those are the themes you might want to listen for during this presentation, if I could hand you to our Financial Chief now, Steve Pacak.

Steve Pacak

Alright thank you, Koos. We can now turn to Slide 6. This slide highlights some of our key financial metrics. Most of these we will analyze in lot more detail later on in the presentation. But in summary you will see on the top left hand side, consolidated revenues grew by 28% year-on-year. So we are still experiencing very strong robust top-line growth in the Group. And trading profits were down 15%, and residual reduces largely the consequence of increasing development spend which you will see in the bottom left hand side grew 87% year-on-year to just ZAR3 billion. And then finally our core headline earnings for the period grew by 16% to ZAR12.48 per share. So those were the different highlights.

On Slide 7, we deal with the consolidated results, the consolidated income statement. This is as determined by International Financial Reporting Standards. And just to remind you later on when we look at our segmental reporting, we will look at our revenues and trading profit, we include our share of the results of those associates. Specifically on this slide I will deal with revenues and trading profits later on.

And just some of the highlights on the Slide 7. You will see it on the net finance cost line included in that is pure net interest cost on the various loans that we have in the Group. This amounts to ZAR507 million which is up 80% year-on-year, largely the depreciation of the rand, some increased borrowings because of funding acquisitions that we have made in the year, and of course some development spend that we funded.

On the share of equity accounted results line, included in here, this is of course is the result of Tencent and Mail.Ru included here is a 1.3 billion non-recurring book profit made by Mail.Ru on the sale of the remainder of its Facebook shares and of course the shares in Qiwi and the prior period also included some amounts of profits.

On the impairment line, there is about a ZAR1 billion of impairments relating to the flash-sale business in our e-Commerce segment and these businesses are simply not performing to our expectation and from an accounting perspective we have started to impair some of these investments. And then likewise for Abril, this is our magazine business in Brazil, we further impaired this investment by an amount of ZAR750 million, as it continues to struggle in a fairly weak economic climate.

The bottom-line of all these activities the core headline earnings per share grew by 16%, when we compare it to last year. I must point out here quite clearly that if you looked at that growth in constant currency terms, the growth would reduce to some 2%, so the weaker rand and of course our strong offshore earnings played a significant role in the growth of the 16% in core earnings.

If you then turn to Slide 8 which analyses our revenues and this of course here we include our economic interest in associates. On a net basis you will see the revenues grew by 39% year-on-year to just over 47 billion for the period. You'll also see on Slide 8 that the bulk of this growth comes from the Internet segment which grew across virtually all its platforms, the most significant growth coming in the e-commerce segment which basically doubled revenues from the prior year.

The PayTV segment is also showing good growth, this is largely on the back of a net increase of 560,000 subscribers over the past six months. When you look at revenues the weaker rand of course boosts revenues when you translate them to rand. Against the currencies of our key markets in which we operate, the rand is weakened by approximately 20% over the past year. So that's a factor you have to take into account.

Naspers now earns a majority of its revenues out of South Africa and 52% of the revenue base in fact is now sourced from the Internet segment which on its own is now the largest segment of our Group.

On slide 9 we analyze our development spend. This is a slide that I think is quite important for you to understand. We have indicated to shareholders in the last few reporting periods that our strategy is to accelerate investment in building new longer term growth opportunities, and as clearly we are doing and Slide 9 shows clearly that this is exactly what is happening.

The total developments spend over the past six months growing by 87% to just below ZAR3 billion. The main focus of development spend is on the Internet segment and more specifically on the online classified businesses. In addition, we have a focus on developing our digital terrestrial television services, what we call our DTT services, in some markets across Sub-Saharan Africa.

You will also see from recent history on the slide, largely due to seasonality we intend to invest more in development spend in the second half of the fiscal year and for the year ahead to be more precise, we expect the development spend for the current fiscal year will be around 7 billion for the full year compared to some 4 odd billion last year.

So that's Slide 9, if you go to Slide 10 and we look at our segmental trading profit on this slide. As you would expect the consequential effects of this development spend and I remind you all of this goes to the income statement, so the effect on the income statement is a dampened trading profit as well as our trading profit margins. And you can see that this is happening.

So trading profits grow at 16% when compared to last year and this compares to growth in the top-line revenue of 39%. So the profit growth is clearly a lot slower and this change -- the change in the business mix, in particular our increased investment in B2C e-Commerce trading has also resulted in Group margins narrowing.

On Slide 11 we analyzed our free cash flows. You will note that inflow here has declined, when we compare it to last year, this is very simply because of the fact that CapEx has doubled to almost ZAR2 billion and once again this increase in CapEx is predominantly our investment in DTT where we have to build out infrastructure on the ground, and clearly the coverage that we have of cities in Sub-Saharan Africa is increasing and sets a larger CapEx spend.

And then the last Slide 12, we analyze our debt position. Our closing debt at the end of the period was ZAR12 billion, net debt this compares to about 6.5 billion at March 2013. The increase here is partially a consequence of using debt to fund acquisitions, in the past six months we had acquisitions totaling about $350 million all of which were funded out of debt. Of course we had the payment of the annual dividend to Naspers' shareholders which was about ZAR1.5 billion,

And in addition to that because most of the debt is dollar dominated is the currency translation impact. So our net gearing ratio as a result of this is now 20% at the end of September. So those are the financial highlights, we will focus you on some of the key business units, with this I hand over to Basil who will deal with the e-Commerce business.

Basil Sgourdos

Thanks Steve, folks I am going to give you an update on the progress we've made in e-Commerce. So if you please turn to Slide 14, on the slide we show you how we want to organize our e-Commerce businesses going forward. So we began our e-Commerce journey back in 2007 with the acquisition of Allegro. We followed this on with a number of acquisitions in some core markets and in segments that we want that we get into. And that’s expanded our presence globally.

Up to that point, we ran the businesses on a by unit by country basis. We’ve now adjusted our structure and we’ve organized these assets for the next phase of growth in a manner that allows us to ensure that we share knowledge and content faster and that we more effectively scale our platforms going forward.

We thus have three casters and the first is classified, then etail followed by payments. Classifieds has led by Martin Scheepbouwer who joined us about 18 months ago and has done an excellent job in building our global classified portfolio. We’re also very pleased to have Bob van Dijk recently join our team. Bob will lead the etail segment. He comes from eBay where he headed up Germany as well as undertaking a couple of eBay’s expansions into Europe, so we’re really pleased we have him on-board.

If you could then please turn to Slide 15, we are giving a very high level of financial highlight of the e-Commerce segment in whole. These numbers are as Steve mentioned on an economic interest basis, so that means we include our portion of the revenues and the bottom-line of our minority investments with those of our consolidated subsidiaries. The table on the left shows you that our e-Commerce growth has been very strong at the top-line and we basically doubled revenues taking them close to ZAR8 billion.

Organic growth has been about 16% of the total growth and this is really driven by more established marketplaces in Europe as well as our past comparison businesses in Europe and Brazil. Acquisitions too have played the part, the main focus of the M&A has been around the B2C segment and we have acquired controlling stakes in businesses like eMAG in Romania, Netretail in the Czech Republic and we also have minority stakes in Flipkart in India and also Souq in the Middle East.

As you can see from the donut visual on the right, classifieds only makes up about 7% of our total e-Commerce revenues currently. And in classifieds, our current focus is on building our leadership positions, deepening our reach into the markets and getting more and more Internet users on-board using the classified product and obviously using our services. And we really want to build that position before we start to drive monetization.

So our investments are primarily in marketing, in building our brand and our position, in people getting the right people to drive these businesses forward and then in product making sure that people post listings and create content for buyers to go in excess.

As a result of this monetization on classifieds will lag the initial investment and that then dampens our earnings on the e-Commerce segment. And therefore you see a widening of the trading loss despite the doubling of revenue.

If we could then please turn to Slide 16, we show you in more detail how our revenues and development spend have actually evolved over the last three interim reporting periods. You can see that the revenue growth has been very strong. We’ve gone from ZAR2.5 billion in 2011 to ZAR8 billion currently. This revenue growth obviously has been largely driven by the etail and payment segments as I previously mentioned we don’t monetize classifieds in a significant manner yet.

Our development spend has increased as Steve has discussed and as I mentioned earlier and in fact that’s a 123% in the current year to ZAR2.3 billion. And as you can see from the donut on the left 61% of that development spend, so the majority of it is in the classifieds segment. Our ambitions in classifieds are significant. We aim to be a global leader in the space.

In etail, which makes up 29% of the development spend, we continue to build our Greenfield travel and business in India as well as our Greenfield B2C businesses in Africa and managed others. In PayU which makes up 4% of our development spend we’re expanding into additional markets.

So on Slide 17 we present you some of the key metrics of our classified businesses. Again even on the metric side we’re including there on an economic interest basis, so we including our proportional share of the minority investments.

As we continue to improve our positions in some of our core markets and learn from that process we conclude that it’s very important to move fast and aggressively in capturing share and then building out winning positions. We have also thus expanded our footprint and we now have a presence in 40 markets of which 20 are currently focused markets, and we think we have a good chance of winning there.

We're also stepping up our investments in the key markets of Brazil and India, where we're pleased with the progress and we really want to reinforce the leadership position that we have and then we're actually widening the gap versus our competitors.

As you can see from the first two visuals on the top of this slide, these efforts in this investment are yielding strong dividends. On the left graph we show you the daily number of visits to our sites on an aggregated basis, and that number has actually doubled year-on-year to 16.7 million daily visitors. On the right, we show you the daily page views and those are up 2.6 fold from last year, so it's a pleasing 277 million daily page views.

It's also important to note that the increase in daily page views is in fact greater than daily visits which suggests greater engagement in our classified businesses, and that's an important trend for us.

On the bottom right, we show you the page views by region and Europe currently is our biggest region measured on page views, but some of the other regions are growing really fast and there are some really sizable markets outside of Europe to respect of a time that that mix will change.

Then finally on Slide 18, to give you a helicopter view of our etail segment, which as I mentioned earlier is headed up Bob van Dijk. Our revenue overall has more than doubled and 16% of that growth has been organic in the balance acquired. It's important to note that our marketplace businesses in Poland and Switzerland are profitable as our price comparison businesses in Brazil and Europe.

Our price comparison assets have very strong leadership positions in the markets and when you measure them on the basis of the GMV that they facilitate for their sellers they are growing ahead of the overall e-Commerce market in their respective countries.

So as Steve reported moving to flash-sales as he reported to you, we have prudently impaired these flash-sale businesses that we own. But many other flash-sales businesses globally we still face some challenges in the segment. We now need to cut costs, leverage the investments we have already made on performance and logistics and then move to higher margin in season category and that's improved the overall experience, improved conversion, improved rupee price. We hope this will allow us in the future to recover some of the license we're taking now, but again we're in a transition now so we have prudently decided to impair.

And since making our investments in the B2C space in Europe in India and Middle East as I reported earlier, all these businesses have in fact begun to accelerate the growth rate year-on-year and we're seeing really robust growth. They're investing in additional product categories, in improving their fulfillment and delivery capabilities as well in marketing and building their brand and positions in the market. Other businesses are growing significantly ahead of the market and some are already running a negative working capital cycles which is quite pleasing.

We will continue to invest in expanding the product categories and further strengthening the overall customer experience through investments in areas such as logistics.

While on a gross margin basis these businesses offer a lower gross margin percentage than say a marketplace or our price comparison business given that we take on the inventory and therefore book a cost of sale like Amazon does. We strongly believe that these businesses are going to scale fast, given the growth trajectory that they are now and we will also open up our infrastructure investment to third-party sellers which will further boost these margins. And we hope that longer term the margins will be healthy from the segment.

The donut visual on the right gives you a breakdown of the GMV by region and you'll see that 90% of the GMV comes from Europe. This is really driven by the fact that our most established businesses are in Europe and we own majority stakes in them, and so we own -- so we consolidate the numbers. While in markets like India and the Middle East these are younger markets and there we only have minority stake, so we only include our minority proportion.

Having said that markets like India and the Middle East are sizable markets they are going to grow very fast and they will make a bigger part of the overall donut in years to come.

So I would now like to hand you over to Charles Searle, who is our CEO of Listed Assets and he'll take you through the update of Tencent and Mail.ru.

Charles Searle

Thank you very much Basil. If I could ask you to turn to Slide 19, now Tencent’s financial results as have indicated in most of the slides are in fact the same to the Naspers account on a three months lag basis. So I encourage you to visit the Tencent website for full details of the third quarter results which were released earlier this month on the 13th of November.

So what I prefer to do is to take you through a short summary of the six months period through 30th of June. Now during this period, Tencent recorded strong year-on-year growth in both revenue and earnings, and this was achieved against the backdrop of continuous investment in new opportunity such as mobile platforms and e-Commerce as well as selective expansion.

The diversified game portfolio, the open platform strategy and an increasing contribution for international markets was the driver behind robust year-on-year growth in the IVAS business. The ongoing investments in 3g.com and the video and advertising platforms are also increasingly beginning to pay-off and in particular the video and performance-based special advertising enjoyed strong growth during the first half.

The e-Commerce business is also registering good growth as in all those product categories and expand those geographic coverage, but of course the shifting revenue mix continues impact overall Group margin. From a platform perspective, in the third quarter you will see Spartan based social communication product Weixin known internationally as WeChat registered a combined 272 million monthly active user accounts in September and this is a 124% increase year-on-year.

The rapid growth benefited from the launch of new services and features such as online games and online payments, as well as from increased marketing activity particularly in the international markets. And we expect the further investment in Weixin or WeChat will be focused on product development and selective international expansion.

QQ Instant Messaging monthly active user accounts increased incrementally by 4% year-on-year with 860 million, and Qzone Tencent’s popular social networking service recorded 623 million monthly active user accounts. Overall, it was another good performance from Tencent.

Turning to Mail.Ru on Slide 20, now similar to Tencent, Mail.Ru’s results are reflective to Naspers’ account in the same manner on a three month basis. So I should refer you to the Mail.Ru reported website to go through some of the trading results as released in October. From the three month period ending June Mail.Ru continued its positive growth trajectory.

Total revenue grew 28% year-on-year in residuals, plus EBITDA increased 26%. Now, display advertising had a slow start at the beginning of the year, but we saw improvements as the first half progressed. Contextual advertising revenues however remained strong throughout that period which reflects Mail’s funded market share there in first and its ongoing focus on its target contextual advertising product.

EBITDA margins remained stable at 54% and this is a reflection of the scale benefit for the current revenue mix despite the increased investment in new product development. Mail.Ru’s strategy continues to focus on the execution in the core Russian-speaking market with an increasing focus on mobile. Continual products improvements across the board has resulted in audience growth in the core email photo and social networking surfaces categories, and good growth has been experienced with Mail’s new mobile, email related products which were launched over the past six months.

If you’re turning performance stat, you will see the users of the Mail.Ru portal grew to 33 million active monthly users which is an increase of 4% year-on-year, and this is broadly in line with the overall growth in the Internet market in Russian. The MMOG gaming business continues to do well. Warface has been an important component of this and remained the top revenue generating game in the first half of the year.

Now Mail as you may have seen has also recently begun to launch mobile product internationally under the my.com and this includes an innovative Mail client, a chat communication product and several mobile games.

The game Jungle Heat in particular is developing some traction especially in the U.S. so overall Mail.Ru continues to perform well. I now hand you over to Eben Greyling, the CEO of the PayTV Division who will take you through the PayTV results.

Eben Greyling

Thanks Charles. First of all I will start on Slide 22 where we have some of our key strategic focus areas in the PayTV business.

Firstly, we continue to investment more in local content and now produce more than 6,000 hours of local content in South Africa, Nigeria, and Kenya, making us one of the biggest producers of the local content worldwide. M-Net in the last six months launched three new local channels for the South African market that features game shows, local movies and new sub -- viewership righting for the public and local GALA Lalibela is about -- also continues to increase. Then we also focused on improving our product. And in August, we launched the new high-definition PVR decoder, the DStv Explora that was well received by subscribers.

With this significantly improved hard drive the number of hours of the catch-up service has increased over 200 hours, subscriber recording space more than doubled and the number of box office movies available for inflow increased from 15 to 20.

The new DStv Explora bouquet was launched earlier in the year with a price point between the premium and compact bouquets. This bouquet achieved good growth at the top-end of the market in South African. Growth at the lower end of the satellite market in South Africa is addressed with our rebrand of this to be access bouquet. This bouquet was bolster to the content that driven nice with that market segment.

Over the last two years, the main focus area for the business in Sub-Saharan Africa that’s outside of South Africa was a rollout of digital terrestrial television services another OTV brand. This service was significantly expanded in the first half of this year. We started March with about 25 cities and at the end of November, we (Audio Gap) and to be in more than 70 cities covering other countries.

If you turn to Slide 23 and you’ll see our growth in the private numbers. For the first half of the year we continued our growth with [indiscernible] rate of 21%, that’s higher than our 19% rate that we’ve achieved for the last five years. So, we are very pleased with that performance in the first six months of this year.

On Slide 24, you will see the PayTV segment results. Firstly, on the top right hand side you’ll see the business delivered good growth of 1.3 million subscribers on year-on-year basis. Growth in our compact repays remain strong and our DTT subscriber base passed 0.5 million mark during this period.

The revenue increased by 18% on a year-on-year basis to just over ZAR17 billion and this increase was driven by subscriber growth and also the annual price increase that we processed on the 1st April of this year.

Trading profit is up 11% to ZAR4.5 billion, the trading margins reduced from 28% to 26% this was mainly impacted by our [indiscernible] in local content, the weaker rand and also the additional satellite correspondent cost on [indiscernible] that came online in September last year. So, if you look at it on year-on-year basis you are next to see that cost in the numbers of the first half of last year.

Regulatory scrutiny in the business also continues to bring momentum and in various forms as well. We see an increased regulation from the broadcasting sector both in terms of newer legislation that’s coming in and also licensing activities, completion authorities across a continent of placing more focus on our sector and then lastly also consumer protection regulations are being introduced in various markets.

Competition is also picking up price across the continent both from traditional broadcasting service and also now from new online players, online delivery of content is now a reality that we live with but new start that’s launching transactional and subscription on video on-demand services. International players such as Apple is making on-demand video content available from the archive store and we also see telecoms companies becoming more interested in this space, our own online development a key order for us to be prepared for this onslaught in the future.

As you turn to Slide 25, you’ll see some we cover some of the main operational dynamics in the business. If you look at the top left hand side you’ll see the change in the mix of the subscriber base, now premium subscriber base as a percentage of the total base is declining that’s really because of the growth in the compact and lower market segments, compact area is maintaining its share of the total base because of the good growth we’ve seen there and at the lower-end our products are really gaining traction.

With this in mind, we do expect ARPUs to decline overtime with this change in the subscriber base and the mix in the base. If you look at the graph on the top right hand side, you will notice that programming costs has increased by 17% on a year-on-year basis. This increase is mainly driven by the increase in variable cost -- on the back of our subscriber growth, but also investment in local content and as always have an increase in cost of [indiscernible].

At the bottom left hand side, you’ll see how the margins are trending. The downward trend is driven by our investment in DTT, local content and the online products. At the bottom right and you will see our investment in our significant increase in our capital expenditure now amounting to about 1.6 billion for the first half of the year.

So, a couple of areas that’s driving this, the biggest is the DTT networks that we bring up across Africa but we’re also investing in transmission and broadcast equipment and new operating facilities across the continent to service the increase in subscriber base.

Then if you move to Slide 26, we provide you with an analysis of our revenue. The chart on the left, you will notice that subscription revenue account for 80% of total revenue of the business and advertising revenue only contributes 8%. On the right hand side you’ll see that the premium and compact bouquets they are main revenue driver with 83% of total subscription revenues.

Then turning to Slide 27, you’ll see what our Africa team is focusing on a lot of lead time over the next 12 to 24 months we will be preparing for analog switch over in Africa that is really getting price. Then [indiscernible] we may restart analog switch and we expect many markets to follow over the next couple of months and 12 to 24 months.

So, this is one of the main income statement items that are infecting our investment in DTT. So, if you break that up, it’s driven by decoder subsidies and marketing. So, with analog switch off we expect decoder sales volumes to increase substantially and this will have a significant increase on the decoder subsidies in the income statement.

And we’ll also increase our decoder inventory levels over the next six months increasing our sales volumes. The net result is that we expect to see a significant increase in the DTT investment in the second half of this financial year as well negative impact on trading results and margins. [Indiscernible] segment and I’ll hand you back to our Naspers’ Group CEO, Koos Bekker.

Koos Bekker

Eben thanks a lot. And folks on Slide 29, we conclude with certain summary observations about the outlook. They come in three parts, e-Commerce, PayTV and overall financial comments.

On e-Commerce, you would have noticed by now a significant step up in spending on classifieds, there are about 20 classifieds markets that matter a great deal to us and Brazil and India among them. Taken the all over the different e-Commerce segments, we aim to strengthen our market positions. We’re probably not into as many new markets as strengthen our existing position in markets we already have a foothold in, and then lastly a big focus on mobile.

In many of our markets, mobile will tend to be the main way of accessing the Internet in future and the PC and tablets supplementary. So that’s where the weight of our development is happening on mobile.

Regarding pay-television just three things; at the bottom-end you would have seen digital terrestrial growing that’s to provide a cheapest product for the teacher and the bank teller to access pay-television.

At the top-end we are mimicking online services on satellite, new PVR, new services that look like U.S. and broadband market products. And then lastly we’re preparing for intensified competition both from conventional TV sources and from the new Internet like entrance.

Regarding the overall financial straight points; the first is we expect the top-line growth, which at the moment quite lively to be maintained into the foreseeable future. However, we guided you towards the development spend of about ZAR7 billion for the year. Remember the first six months we spent 3 billion because of seasonality we’ll spend 4 billion in the next six months total for the year of 7, it’s the first time we ever gave a specific figure but we do it to warn you that we are spending this amount to develop the services.

The reason we do it and the reason we take a lower profit growth and a lower free cash flow is that we want to position the business for a long-term growth, that’s the main objective. So that is an overall view of our business for the past six months.

I’d like to hand you back to Dillon our monitor to guide questions.

Question-and-Answer Session

Operator

Thank you very much sir. (Operator Instructions) Our first question comes from JP Davids of Barclays. Please go ahead.

JP Davids - Barclays

Two questions please both on e-Commerce, firstly you’ve talked around the increase in development spend and obviously M&A in the space. Do you think it’s fair to say that the ramp-up in development spend demonstrates an increasing confidence on your behalf in the classifieds segment in particular and also an ability to generate a return on capital over the medium term?

And then the second question looking at Avito specifically that business is starting to see a nice step-up in revenues as it hits a critical mass, and if you are looking at that business and you think of sort of it reaching a critical mass what do you think the key milestones are for that classifieds business to achieve this type of inflection point? Thank you.

Koos Bekker

JP I’ll ask Mark Sorour to respond he is of course M&A chief he led the investment in Avito. And he’ll guide you towards some of the issues.

Mark Sorour

I think JP the first approach to the market is either build or buy. And looking at the classifieds sector we particularly like that sector because the sector itself demonstrates strong network effect. And to the extent that you can build up liquidity so you’ve heard my colleagues talk about building up engagement on the platform as well as penetration into the market. To the extent that you can do that the network effect on the liquidity follow so it’s quite predictable.

I think in terms of the ability to measure the key performance indicators that tell you whether the business is moving forward or not satisfactorily that again those measurements are predictable as well. So we like the market. We think that in many of the emerging markets where we are focusing like Brazil and India, Africa, we find that it’s the low hanging fruit and that the model the format is very well suited to the markets in which we are focusing.

Koos Bekker

I think to your comments on Avito, much of what I have just said is applicable to Avito as well.

JP Davids - Barclays

Okay, thanks Mark. Just a quick follow up there, you talk about the KPIs being predictable. I guess is it also fair to say that, if things don’t shake up in the second half as you thought they would then you will pull back, I guess development spend, if these businesses don’t perform as expected?

Mark Sorour

Yes, I think that’s the right conclusion, and just bear in mind that when we talk about development spend the period over which you can measure whether the spend has been effective on not is very-very short. So you have for example a marketing campaign. You measure whether the engagement and the penetration is coming through. If it is you reinforce it. If it isn’t you stop it.

Operator

Our next question comes from Edward Hill-Wood of Morgan Stanley, please go ahead.

Edward Hill-Wood - Morgan Stanley

Hi everyone. I have two questions please. The first better relates to classified business. The first one, it relates whether or not there is any material synergies between the individual customers businesses, as you [indiscernible] the minority stakes which you’ve been doing whether or not there is an opportunity to unify the business or will they potentially one day even for example listed if it was successful; what do you expect [in these days] individual units?

And then secondly I would like to ask question about Brazil in particular, whether or not you’ve seen any increase in competitive behavior from [indiscernible] now first that deal and given the value that’s been created in Russia by consolidation whether or not you as a business would be open to consolidation either in Brazil or in India, where you do have a considerable investor?

Koos Bekker

Hi Edward, it's Koos here. On classifieds, there is a limited amount of synergy you can expect. The reason is classifieds are immensely local. As you want to sell your second hand tennis racket, you want to sell it to someone in your city; not someone in London. So each unit [indiscernible] own feed and serve the local market, often a city size market. What we do find in those that technologies can be shared. So the backend serving these cities could look probably the same, but the front end, the actual product needs to be local.

Then your particular question about Brazil; we have a market lead there, we have a very good team, and we at the moment are spending a considerable amount of money on it. We expect to win Brazil so don't see a sort of Avito consolidating deal required in that market.

Edward Hill-Wood - Morgan Stanley

Great, could I just follow-up on Brazil again. Just in terms of when you say you’re winning in Brazil, what -- is that needs some evidence to provide to back that up, please.

Koos Bekker

Yes, luckily in classifieds, you have almost the unique set of things you can measure, it's like I go to the cardiologist once a year, and I plug you in and you run on a wheel, and I measure everything, your heart rate and your contractions whatever. Classifieds are a bit like that. So you measure, for example, how many visits you get every single day, how many page views per visit, how people respond, for example, how many ads do they place in relation to every visit to the site. The balance is right and so forth, so you have so many measurements a single site. If we look at Brazil, our product is clearly superior. The team running it is clearly superior and we have a lead on all these features. More page views, more visit, better engagement and so forth. It's not always true of other sites. There are many parts of e-commerce where it's much harder to measure things and where the lag is much longer. Just by accident it happens that that top of, the way a classified works gives you a lot of responses back.

Operator

Our next question comes from Alex Balakhnin of Goldman Sachs, please go ahead.

Alex Balakhnin - Goldman Sachs

I have two questions. One is on [indiscernible] Africa, and do you expect probably some regulatory exchanges on the market for example forcing you to have a must carry obligations or do you expect probably some other regulatory stats which may impact your business.

And my second question is you are highlighting the successful cases in Brazil and in India, what in your e-Commerce or classified assets globally keeps you awake at night, if you can share this, would be very helpful.

Koos Bekker

Yes, even there for the regulatory one.

Unidentified Company Representative

Alex, in the recent Africa in terms of must pay rules and those things; I don’t think there is any specific related mention that’s driving us towards a specific point. We've got a very good relationship with most of the regional air operators. So there is not any legislation forcing us anyway. We are happy to work with most of our prepaid partners in the various countries.

Koos Bekker

Yes, Alex, then on forms of e-Commerce that don’t work they do happen and when they do you better fix them or kill them. At the moment we're struggling with flash-sales, now just to clarify it a little bit if you handle it, it’s a handbag manufacturer selling fancy women's handbags and they end up with 100 bags to the end of the season but haven't been able to flog at the normal price. They'd like to clear it, so flash sales types we typically buy it from a brand name and then sell it in the market at 20% of the normal price.

And it's in these times easy to achieve a start and a turnover, but don't think of things to actually make money because you tend to spend a lot of marketing. And there is not a regular flow of purchases every day. So what we're doing is we're moving these things towards a full-fledged service where people also could return for a full priced hand bag the latest in fashion and get more regularly going. In other words to move from a specialist clearing the excess inventory site into a fully-fledged fashion site, and we probably need a good year to achieve that.

So you have certain areas where you feel I've got a good grip on this and I am making progress in other fields where you feel I need to change the model and we are the [indiscernible] something doesn't work we fix it or we kill it.

Alex Balakhnin - Goldman Sachs

And may I ask just a quick follow-up question on your development spend and the competition globally which was highlighted in a few questions previously. To what extent your R7 billion development spend guidance is related to the partnerships [off shifts to then] Telenor. I mean do you increase your expenses as they sort of measure to address their potential improved fire power or it's just an organic process. And if it's just an organic process then for how long do you think they will dispatch an accelerate build up over the developments spend. Thank you.

Koos Bekker

Alex my colleague has been at to it, I think remember we completed the shifts in only in very few markets, they are mainly a Scandinavian and European phenomenon, nothing there they are actually good, they have some good assets both in Norway, Sweden, France and so on. Outside of Europe they haven't really proven they can do anything and we don't compete in many places. So our spend is more determined by our need and as previously indicated in the past we were more acquisitive we bought things, now we've got -- we bought quite a number of items starting point, so we need to reinforce them organically so we tend to grow more than we actually buy.

And then in terms of the spends, Steve you want to add anything?

Steve Pacak

Well yes, I think development spend is just a feature of our business, it's never going to go away; we operate in very dynamic markets. There is always new product [indiscernible] that's coming on that we want to develop, and quite frankly I hope that never stops. So I think it's very difficult to ever say, so we think we'll be at a level of about 7 billion for the full year, there are aspects of that development spend and I think over the next year or two will start diminishing particularly the CapEx spending DTT, once you vote out your network you’ve voted out. So it will start coming down. And but as that comes down I would imagine that there could very well be new product facilities that we're developing. So it's actually very difficult to say where will CapEx -- where will development spend be, where will it start tapering off. I think as long as opportunities are there and we go out and we try and grasp those opportunities and we watch what we spend very carefully, we do a very disciplined approach, where things don't work and you can look at our history over many years. You could look at our history where we shut things down that don't work, we take the hit, we shut them down and move on to new ventures. So I can't give you guidance more than what's going to happen in the current year. But I would expect, I really would expect it to be development spend in the years ahead, it's difficult to comment on the level of it.

Operator

Our next question comes from Kevin Mattison of Avior Research. Please go ahead.

Kevin Mattison - Avior Research

You are obviously doing an incredible amount of development at the moment across four continents in a wide number of verticals. And there are obviously some restrictions on the capital that you have, the money in Africa faces foreign exchange controls, your investments in Tencent and Mail.ru you try and control those cash flows. So my question is given that you have additional initiatives for a number of years, do you feel that you have any constraints when it comes to the resources that you can throw at us, and does that mean you are having to fine tune or do you feel that the current availability of cash is appropriate to your needs at this point in time.

Koos Bekker

Kevin, some of the points you highlight there are realities, I mean the truth there is firstly looking at our history, I can't recall of anytime where we really wanted to do a deal within reason, and we haven't been able to do it because of financial constraint. So it's never hold us back in the past. If you look at our balance sheet as of now we have unutilized cash resources of pretty damn close to $1.5 billion offshore, so that's our fire power in short. We of course have a business that in the aggregate is still generating operational cash flows, albeit that they're at a lower level now because of the spend particularly on CapEx in DTT, but the business itself is generating free cash flow, and of course in South Africa we have -- we sit on a couple of billion rands worth of cash which is if we sensible about what we invent -- what we invest in we can deploy it on the African continent or elsewhere in the world. So I think in terms of cash and the resources that we have and our current gearing is only at 20%, I think we have -- we comfortably have the firepower to do or preparing to do in the year ahead. So I don't feel any constraint right now.

Operator

Our next question comes from Chris Grundberg of UBS, please go ahead.

Chris Grundberg - UBS

I just had a couple of questions actually and the first is, I suppose a difficult one, but you've obviously you mentioned that a couple of your marketplace businesses are profitable and a couple of your price comparison business are also profitable, I just wonder if you could revisit the point we talked on previous calls about that past profitability and almost stripping out the development costs if that's possible, just looking at your blend of businesses now in that e-commerce space. What sort of a timeframe are you thinking to the overall aggregate profitability of that business, if you could give some sense around that that'd be great, I then have a follow up.

Koos Bekker

Chris it depends a bit on the nature of the particular e-commerce asset and gradually as we understand the business better, realize how divergent they are, just here’s an example, if you run an Amazon like site it’s very easy to achieve revenues because you sell a cell phone and you book $400. Whether it's profitable is another issue, but the revenue engine turns fast. If [indiscernible] to run a classified site you might want to run if for four or five years without charging anyone anything, that you know establishing your marketplace, building liquidity and so on.

So the profile of the particular asset differs a lot and if you look at our portfolio, we have assets that are profitable for example the Elegra marketplace in Poland, is dominant in Poland, profitable but it's slower growing because it is to be more mature, then you have assets that have barely started you know we went into the market, let`s say in Nigeria with Korea's 24 recruitment site, barely two months ago, so there is just the starting point, and if you look at the whole kitty of our e-commerce assets, is a mix from assets that are 15 years old to assets that are two months old.

To some extent the question of when you want to bring all of it to profitability depends on your level of ambition. If you stop rolling out these services or entering new markets you pull profitability forward but if we see a great opportunity three years hence we might actually launch then.

I think e-commerce is one of those global happenings that will have a resonating effect for many decades to come. In other words if you say to me, just try to predict, 20 years from now how big is e-commerce, I would say it’s one of the biggest business of the world, it'll be bigger than oil. Why do you think that? Because retail is absolutely massive like $12 trillion in the world and a great part of that will actually move online and I think as e-commerce evolves, it'll become more fragmented and more diverse so there'll be a good way of booking your next trip to Thailand on certain types of sites, there'll be a nice way to sell your second hand tennis racket, there'll be a good way to buy a new cellphone. And those things may not happen on the same platform in the same country, they may actually happen at different types of platform each customizing it. Just think about it, when you sell your tennis racket you want to show one picture, it's not that important how great the picture is, when you sell your house you might want to show 12 pictures plus a video, so you need two sites that do different jobs for you, so I think if e-commerce develops as well as we think it will, we'll keep investing in it deeper and deeper and we'll open up new countries and new ways of e-commerce and the trick will just be to check that each individual venture starts at a point, either succeeds or is killed, and if it succeeds you can milk it and reinvest the profits elsewhere. Any of my colleagues would want to add, Basil you agree or disagree.

Basil Sgourdos

So that's right, it's very hard to sort of predict what it might look like over the three years but also very hard what the opportunities might be and how they develop, mobile is a game changer too and that create new models, new opportunities, and so as long as we have a strong presence in the market, we want to build around that, we have an audience, we have people, we can push into the right properties and the right things depending on their needs and that might create further opportunities, Koos is absolutely right, the key to all of this and pursuing all of this is measuring your progress and we do that methodically. We have very detailed KPIs, very detailed financial reviews, and we make sure that those investments are yielding results and if they don’t we stop.

Chris Grundberg - UBS

My follow-up actually is in another segment in Pay-TV, I just wondered if you could give a little bit more color. You mentioned your online offerings and the fact that you’re starting to see some of the international players like Apple and others moving into your markets and I guess specifically South Africa. You also mentioned the margin impact of your own online offerings, I just wondered if you could mention, I mean, how compelling do you think your online offerings are today versus those international players? How compelling do they need to be and what the margin impacts of potentially investing or rolling them out further? Thank you.

Unidentified Company Representative

I think maybe the sort of first part of it is -- if you look at our online services it’s really still early days, so online what we're focusing on at the moment is providing value-added services to the customer -- to our existing customers and also then making available things like transactional video on demand, online box office service that we do online. So those are still very small and they may impact on our results in the short term, it doesn’t matter, I mean it’s not going move the needle now that’s for us really the main important thing long term, but another example is, we're spending money on building the technology for instant for subscription video on demand services but you don’t launch that, you launch that when the market is really for us, doesn’t make sense to go and spend a lot of money on minimum guarantees and those type of things for content and then the market is just not there yet to drive that services to. So short term, not a major impact but long term, those services will become key for us, but where there is competitors in the market I think we’ve got good products that compare.

Operator

Our next question comes from Richard Barker of Credit Suisse. Please go ahead.

Richard Barker - Credit Suisse

Thank very much. I want to [indiscernible] Pay-TV if that’s okay and just ask for a few insights really on the regulatory side. First three issues I wanted to explore specifically but I guess if there are any more than that I obviously quite be interested to hear about them as well. The issues that I specifically wanted you to think about was first of all, the Competition Commission complaint there's been filed against you in South Africa, I guess is also similar to your some claims that have been made I think in other markets as well outside of South Africa. I just wondered if you could talk about where those stand and how you see them playing out, that’s the first issue.

The second was on this whole issue of the proposed ban on alcohol advertising in South Africa and what impact you expect to see from that and when that might happen or basically just the confirmation as to whether that's actually a done deal or not yet.

And then the third thing was this issue that we've seen in the past in South Africa on A La Carte Pay-TV content and I see now in Denmark they’ve actually content on A La Carte basis, we seem this set something of a precedent globally which I don’t think was there before. I always wondered if you think that this is an issue which -- well are you getting any pressure on that again and do you think that that is an issue that will raise its head again and if so again what do you expect the impact of that to be? Thank you very much.

Unidentified Company Representative

Richard, there's Competition Commission ban on alcohol A La Carte even.

Unidentified Company Representative

Okay, I will start on the Competition Commission, we are really at the beginning stages of their investigation so it’s -- I mean to speculate where and how it will play is, I mean it’s impossible, it’s something that's sort of taking place in all of the developed markets where you have some form of Competition Commission intervention in the market, but I think it will take some time for that to develop.

On their proposed ban on alcohol advertising, again we thought something what happen just here but it will probably span over into the next calendar year. Ultimately not a massive impact on our business total alcohol advertising is probably about $25 million in total on our platform.

We don’t think it will be a complete ban. There will be some agreement reach in terms of watershed periods but it’s early to speculate on that. But again if it does happen, you will also find replacement advertising come in as you had in the old days or years ago when the cigarette advertising was cancelled. There is always a loss of our revenue and replaced by something else.

Lastly, your question is really about bundling. Again, there is one or two markets we are starting to raise [indiscernible] I think in our markets where we operate probably something that will take time to raise its state and really develop, but it’s -- you can’t tell someone how to sell a product and even to change the way you sell a product which will result in the business of surviving [indiscernible] and there will at this stage, are we aware of the Pay-TV business that works on the pure a la carte basis and are profitable. So, again it’s something that we’ll keep an eye on but it will take time to develop.

Operator

Our next question comes from Stephen Pettyfer of BofA Merrill Lynch. Please go ahead.

Stephen Pettyfer - BofA Merrill Lynch

Two question please on the Pay-TV business. First on the -- you provided helpfully the split of the subscription revenue, could you can give me a sense as to the difference between the premium and compact ARPUs on that business.

And then secondly when you -- as you rollout DTTs across sub-Sahara, are there any geographies where you’re pleasantly surprised by the take-up and perhaps geographies by the reverse is happening. Thanks.

Koos Bekker

I think the second one which is DTT where you’ll find take off in which markets are slower and the first one relates to ARPUs on premium and compact.

Unidentified Company Representative

If you look on premium and compact, if you look at your premium base you can probably work on an average ARPU of around $60 at the current exchange rate, compact there your ARPUs are sitting probably at $25, $26 per subscriber across the continent.

On DTT, one thing its specific market that we can say this is significant traction more than other one and in every market where we’ve launched it, we’ve actually seen very good take up and what we’ve done as well as to use a market like [indiscernible] for instance so you launch once a day with a product, if you see its interesting, you start to rollout in other cities. So, that’s why our investment increased over the last two or three years.

Stephen Pettyfer - BofA Merrill Lynch

It span your lower ARPUs, DTT.

Unidentified Company Representative

So, on DTT, in most of the markets we sell two products, entry level products that’s $6 and over the GOtv plus product at just below $10, around $9. So, our average ARPU is actually sitting at $8 in Africa and what we’ve actually seen in most of the markets that are across products is backup days is more than the lower price product. So, at this stage we're very happy with the take up of DTT, we’re in the developing process.

Operator

Our next question comes from Ziyad Joosub of JPMorgan. Please go ahead.

Ziyad Joosub - JPMorgan

Just two quick questions please, first one is on your classifieds businesses. What I'd like to get a bit more color on is how do you see the revenue model developing for your classified sites, I mean traditionally it seems like advertising is a key driver of revenue growth on classified sites. Also you can make money through VIP memberships preferential listings, SME store fronts et cetera. The only thing that worries me at this stage is that outside of Poland and Brazil to some extent the online advertising market sizes in, let say India for example or Philippines et cetera is exceptionally small. So, how important is advertising revenue to you in terms of your classified strategy, that’s a first question and then could, I do follow afterwards please? Thank you.

Unidentified Company Representative

So I think you can’t infer what happens on a portal for advertising as an example on to classified. The two models are completely different and are driven by different dynamics. The revenue sources for classifieds are driven from the network and then what exists in that environment. So, what you’re not going to be doing in your classified side is really driving revenues with Google Ad Sense or banner ads that click outside of the site, that’s not useful. You want people to be in the site. So, what will happen is as liquidity improves and as people add more content, people want to put their listing up higher and there may be opportunities to provide some security services or maybe lay a little bit of payment elements over time. But I think it will play out very differently from market to market.

The other things we need to factor is the impact of mobile and really mobile talks very strongly to classified because it makes it easier to list the product, makes it easier to browse listings in your area and then people will want to get their listings served up on a particular mobile device and not pay for that. So, I think you can’t infer what happens on a portal and on the classified model.

Ziyad Joosub - JPMorgan

And then just secondly, 61% of internet development spend is now on classifieds, right? If I’m not mistaken most of that is marketing driven and it was mentioned before that you guys have got 20 key markets or countries that you operate in, I mean just judging by the level of marketing activity in those markets right now, with 2016 or 2015 do you see scope for this marketing or development spend particularly on classifieds in those key 20 markets to pick up dramatically. I mean obviously most of it is TV and inventory cost increasing dramatically in markets. If you just give me a bit more insight on to how you see that playing out.

Koos Bekker

So a couple of things, it’s not all whole marketing, right, investment in product and technology, we’re bolding up our mobile, we're really hiring the best in market, we train people to get them up to speed, so that investment is quite mixed but this marketing is a big component. What that might look like next year and the year after really depends on how quickly the opportunities evolve. As we said earlier, if something really starts to move and move fast, we are going to reinforce it and push it hard. And now it’s very hard to predict how four key markets are going to play out over the next few years. Those are many -- there's many markets, but we watch them all closely and I hope that we spend more, because if we spend more it means we’re winning and we are doing really well.

Operator

Our next question comes from Jennifer Henry from Standard Bank, please go ahead.

Jennifer Henry - Standard Bank

Thank you for taking my question. It’s related to mobile commerce which is one of the strategic points going forward. I was hoping to get some idea of the take up of mobile commerce in some of the countries that you operate in and which particular segment is mobile most conducive to and then how much of development costs are going towards mobile and whether this could stay at an elevated level for longer or keep development spend as a percentage of sales at higher levels for longer? Thank you.

Koos Bekker

Jenny; extremely interesting question, a couple of years ago there were some doubt as to how well mobile will monetize. You remember the days when people said Facebook as you move to mobile you are going to lose your revenue source. And that’s proven quite the opposite. Mobile has curiously enough seemed to be able to monetize even better than PCs in some cases, and maybe Charles you can just interject a word about the experience of online games on mobile, recently.

Charles Searle

Yes, so Koos certainly. You would have seen perhaps particularly in the Asian markets a number of players have started launch mobile games on some of the communication like products integrates within those products or is standalone mobile gaming product and they have taken off tremendously well producing fairly substantial revenues for a number of different players in that space. Now this has always been a -- it was a -- I think initially of some concern and interest to see how the migration from the PC world to the mobile world would move into as far as games was concerned, but also for other products. And what we're seeing certainly over the last six to nine months is that there has been tremendous adoption for mobile games in particular. And the raise of revenue is come through from those games has proven to be quite substantial and we expect that to continue in the future.

Koos Bekker

I just want to say Jenny, for example, a cross comparison site. Some years ago you will sit behind your PC and you compare the price of two cameras, let’s say right. What’s happening now is people go right into the store with a mobile in hand and you actually snap the picture of the phone, I think with the camera you identify and you ask your cross comparison engine, is this the best price I can get in the city, or can you help me to get a better price. So mobile is immensely flexible, also as a rather curious characteristic that it knows where you are. If you allow it to track you, it can actually provide you better service because it can locate you and the product in close proximity. So we're spending a lot of thinking about mobile and of late we’ve said to people in some categories of product, not all, if you have a [product] don’t come to us for the PC execution. Go back to your desk, do it as a mobile execution, then bring it to us and if we buy it you can later extend it to PC. That’s exactly the opposite of what we were doing three years ago.

Jennifer Henry - Standard Bank

So that sounds like the -- you can see that the adoption is going to be rapid, but just in the markets that you are currently operating, do you think that mobile can just grow very fast or do you still have to wait for the internet penetration levels to sort of get to certain levels like particularly in India where there is sort of low penetration level. Do you think that for example the Indian market would be very suited to mobile commerce?

Koos Bekker

Absolutely; Mark you want to comment, perhaps on mobile in India?

Mark Sorour

Yes, it’s a really good question, what we've seen is that we’ve created a horizontal platform for travel in India which goes from online ticket sales, online hotel bookings, online bus bookings; redBus for example which we acquired earlier this year and mobile is ideally suited for that, because you can serve, especially when you get to services where you’ve got virtual product, you don’t need to deliver a product from one place to another. It’s an ideal opportunity to be able to serve on to the phone, a mobile solution and the beautiful thing about the mobile is that it’s a device that can authenticate a person which means that next to that you can couple payments on to it and that's what we do in India.

Unidentified Company Representative

Jennie, remember in many of our markets, mobile is the primary internet device, right. So in many of the markets -- and you cited India, India is a good example, people use mobile as the primary internet device. So and the sort of passion that you see -- there is a lot of research out there that shows you in markets like India and China and others, mobile usage for the internet now exceeds that of the desktop and we are seeing similar trends in some of our more relevant services.

Jennifer Henry - Standard Bank

Okay, so mobile does sound quite exciting. Thank you very much.

Operator

Gentlemen, we have no further questions. Do you have any closing comments?

Koos Bekker

We just want to thank you for you spending time with us, we really appreciate it. And we look forward to an exciting next six months. Thank you very much Dillon for leading us.

Operator

Thank you again. On behalf of Naspers, that concludes this conference. Thank you for joining us. You may now disconnect your lines.

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