While Naspers management noted in their commentary to the annual results and in a webcast to shareholders and analysts that the group has delivered its best results ever, shareholders are bound to rather take solace from the income statement, which shows that Naspers’s new, cash-draining ventures are eventually nearing economic viability.
Bob van Dijk, group CEO of Naspers and its international subsidiary Prosus, commented that Naspers has delivered the “strongest results to date and accelerated growth” in customer numbers and cash generation, while CFO Basil Sgourdos noted that revenues grew by 32% to $29.6 billion (R421.6 billion) and trading profit increased 45% to $5.6 billion (R79.7 billion). They point out that Naspers and Prosus connect with more than two billion people around the globe.
However, the good news for shareholders is that things are looking up for the group’s own operations.
As usual, the largest contributor to the Naspers figures was the ever-increasing profit from its investment in Tencent.
The income statement shows that the equity-accounted share of profit from Tencent increased by 80% to nearly $7.1 billion in the year to March, the sole reason for the increase in headline earnings per share to $9.70 compared to $4.96 in the previous year.
The $7 billion odd was further boosted by translation gains of another $1 billion in the market value of (mainly) Tencent, contributing in total more than $8 billion to pre-tax profit.
Tencent aside, Naspers’s big venture into food delivery is bound to attract attention this time round. The segmental analysis of revenue and earnings show that the food delivery interests continued and accelerated growth during the past year.
The food delivery businesses around the world reported a 98% increase in revenue to $1.48 billion – a massive R21 billion.
Van Dijk mentioned that revenue from the food delivery interests is now 10 times larger than just four years ago. “Food delivery became essential for consumers and restaurants during the pandemic. We added more than 100 000 restaurants to the platform in the last year.”
Profits are still elusive, but there were signs of improvement during the last year.
Trading losses increased from $171 million in 2019 to a massive $624 million in 2020 on the back of continued expansion and investment in own delivery capability, but decreased to $355 million as volumes picked up in the past year.
iFood, Swiggy and Delivery Hero
Van Dijk said Naspers benefitted from the accelerated consumer shift to online food delivery during 2021. iFood, majority-owned by Prosus, grew revenues more than 200% year on year.
Food delivery improved globally – with the exception of the important market in India, which was hard hit by Covid-19.
“On the back of scaled food delivery platforms, Food, Swiggy and Delivery Hero are innovating to build a broader on-demand delivery ecosystem, going beyond restaurant delivery to grocery and convenience delivery, and increased logistics capabilities.
“We believe that food represents a significant growth opportunity that is still in its early stages,” said Van Dijk, adding that Naspers is a patient long term investor.
Management reiterated its vision for the food delivery business: “Even before the pandemic, the food-delivery market was on the cusp of a tech-enabled shift in dining habits, with increasing numbers of meals being ordered for delivery as people switched from home cooking and on-premises dining in restaurants. However, online food delivery still accounts for under 10% of global food service spending.
“Given the high-frequency use patterns, promising engagement metrics and growing importance of convenience in people’s daily lives, we believe the opportunity is now broader than we initially envisioned.”
Management reports that the group grew customer numbers and achieved accelerated revenue growth, improved profitability and strong free cash flow generation during the past year.
“All core ecommerce segments made progress against their financial and strategic objectives. Classifieds performed well under tough circumstances and recovered in the second half, regaining financial and operational momentum by focusing on continued innovation with products that support users along their transaction journey.
“Food delivery and etail performed exceptionally well as customers shifted from offline to online. Our investments in edtech began to bear fruit, driven by increased adoption by students working from home,” according to the results.
Valuation and cash flow
For the first time, Naspers disclosed an “official” valuation for its ecommerce interests outside of Tencent.
An independent valuation by Deloitte valued the ecommerce portfolio at $39 billion, which Van Dijk said is in line with valuations by investment analysts.
He noted that the value has almost doubled since a year ago and that the independent valuation confirms that the ecommerce portfolio has delivered an annual return in excess of 20% since 2008.
Sgourdos says the group ended the financial year with a strong and liquid balance sheet, showing $5.2 billion in cash and cash equivalents.
Net cash flow from operating activities improved to a positive $73 million, thanks to $459 million received in dividends (mostly from Tencent). But Naspers continued to invest heavily in new ventures and growing existing businesses. The cash flow statement shows total investments exceeding $5 billion, resulting in negative cash flow of $605 million.
But the cash flow statement can be considered out of date for all practical purposes.
Naspers announced the sale of Tencent shares after its year-end, raising $14.6 billion from the sale of the 2% interest in Tencent.
While management says the proceeds from the sale will further strengthen financial flexibility for further investment in its diverse portfolio, shareholders are probably hoping it will be enough to buy the new businesses the time they need to achieve profitability.