21 Jun - 15 min read
Annual results announcement for the year ended 31 March 2021
Annual results announcement for the year ended 31 March 2021 Prosus N.V. Incorporated in the Netherlands (Registration number: 34099856) (Prosus or the group) Euronext Amsterdam and JSE share code: PRX ISIN: NL 0013654783 Annual results announcement for the year ended 31 March 2021 Commentary Our Board is immensely proud of what our people achieved during the past year. They managed the pandemic, delivered powerful revenue growth and lifted profitability. Foundations were laid for future growth. The year ended 31 March 2021 (FY21) was an extraordinary period. Despite the challenges, the group has delivered strong results across its portfolio and made good progress against its strategy. Group revenue, measured on an economic-interest basis, grew 34% (33%) to US$28.8bn, a meaningful acceleration of 17pp (10pp) on the same period last year. Group trading profit grew 49% (44%) to US$5.6bn. Seven years ago, we set out a strategy to build valuable, global consumer internet businesses. We focus on high-growth markets, where our platforms can provide useful products and services for millions of people in their everyday lives. In recent years, we have deliberately repositioned the group for an increasingly online world and invested effectively to accelerate growth and deliver good returns across our portfolio. Over the past 12 months, this strategy and the momentum we have built has paid off. The group has benefited from its online focus, its global reach, diversified operations and strong financial footing. Our teams have also adapted well to the changing operating environment. This has meant we have been well placed to effectively respond to the world's increased demand for online products and services triggered by Covid-19. Our businesses across online classifieds, food delivery, payments and finance technology, education technology and online retail have continued to serve and support their customers and communities. We have also identified promising adjacencies for our existing businesses as well as new business models through our global Ventures team. In FY21 our businesses grew stronger, building on the momentum they had at the end of the previous year. For some businesses, there was an initial adverse impact in the face of early lockdowns and restrictions. We adapted quickly, and as restrictions eased and the pandemic drove more people online, we were ready to meet heightened consumer demand with products and services that helped people and their communities through difficult times. At a local level, we also provided additional support to our people, partners, customers, communities and in some cases, governments, to help our stakeholders respond to Covid-19. Separately, we enhanced our commitment to environmental and social issues and we are carbon-neutral as a group, having offset our emissions for the past financial year. During the period, we accelerated revenue growth, improved profitability and cash generation, and grew customer numbers. 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. After an initial drop in volumes in India as the country entered lockdown, our Payments and Fintech business rebounded, reflected in accelerating volumes. Finally, our investments in Edtech began to bear fruit, driven by increased adoption by students working from home. Tencent recorded another strong financial performance. We believe it remains very well positioned for growth. We remain committed long-term investors in Tencent. We are focused on building further value across our businesses and see significant upside in some new opportunities in which we have invested. Notably, in adding the autos transaction businesses to our Classifieds operations, a broader on-demand delivery ecosystem in our Food Delivery segment, expanding into digital banking in Payments and Fintech, and in the promising new segment of Edtech, which will be reported on from 1 April 2021. Over the years, we have increased our financial flexibility, allowing the group to pursue its growth objectives. This has enabled us to invest in expansion and in ourselves. To illustrate this, we announced a US$5bn share purchase programme of Naspers and Prosus stock. This was implemented through on-market acquisitions of US$1.4bn Prosus N ordinary shares, completed in February 2021. In addition, US$3.6bn Naspers N ordinary shares, which will be completed by the end of June 2021. On 12 May 2021, we announced a voluntary share exchange offer to acquire 45.4% of Naspers shares. We believe this is a useful step in unlocking value for both Naspers and Prosus shareholders by reducing Naspers's outsized weighting on the Johannesburg stock exchange (JSE). It will help Prosus in more than doubling its free float on the stock market to 59.7%. Naspers shareholders will derive immediate value accretion from exchanging their shares into the lesser-discounted Prosus shares. This value should compound at a lower discount over time as Prosus's value grows. Naspers shareholders will also benefit from net asset value (NAV) accretion at the Prosus level. Importantly, while we are resizing Naspers on the JSE for the long term, it remains the largest company in South Africa by market capitalisation. For Prosus shareholders, buying Naspers shares at a higher discount will be NAV accretive, as Prosus will buy high-discount shares with lower-discount shares. The transaction should unlock billions of dollars of value and assist future value creation. Further, it addresses a driver of Naspers's discount by almost halving its index weighting, while remaining South Africa's most valuable company on the JSE. In addition, it improves Prosus's investment profile, increasing its free float's economic exposure to NAV by over 100%. It is backed by a US$5bn buyback to support the transaction and stimulate orderly trading. The transaction is expected to close in the third quarter of 2021. For further details, please go to https://www.share-exchange-offer.com/. Given the wide geographical span of our operations as well as significant M&A (mergers and acquisitions) in Ecommerce, reported earnings are materially impacted by foreign exchange movements and the effects of acquisitions and disposals. Where relevant in this report, we have adjusted for these effects. These adjustments (pro forma financial information) are quoted in brackets after the equivalent metrics reported under International Financial Reporting Standards as adopted by the European Union (IFRS-EU) and is provided in the summarised consolidated financial statements. The following segmental reviews are prepared on an economic-interest basis (which includes consolidated subsidiaries and a proportionate consolidation of associates and joint ventures), unless otherwise stated. Salient features Year ended 31 March 2021 2020 US$'m US$'m Revenue 5 116 3 330 Operating loss (1 040) (593) Earnings per ordinary share (US cents) 459 232 Headline earnings per ordinary share (US cents) 360 169 Core headline earnings per ordinary share (US cents) 299 207 FINANCIAL REVIEW The group financial highlights for the year ended 31 March 2021 are outlined below: Year ended 31 March 2020 2021 2021 2021 2021 2021 2021 2021 A B C D E F2 G3 H4 Group Group composition composition Foreign Local Local disposal acquisition currency currency currency IFRS1 adjustment adjustment adjustment growth IFRS1 growth IFRS US$'m US$'m US$'m US$'m US$'m US$'m % change % change Revenue Ecommerce 4 266 (354) 489 (282) 2 111 6 230 54 46 - Classifieds 1 281 (115) 318 (91) 206 1 599 18 25 - Payments and Fintech 428 (11) 37 (28) 151 577 36 35 - Food Delivery 751 (17) 6 (189) 935 1 486 greater than 100 98 - Etail 1 363 (11) 95 67 736 2 250 54 65 - Travel 146 (146) - - - - - (100) - Other 297 (54) 33 (41) 83 318 34 7 Social and Internet Platforms 17 189 (115) - 736 4 716 22 526 28 31 - Tencent 16 779 (54) - 786 4 644 22 155 28 32 - Mail.ru 410 (61) - (50) 72 371 21 (10) Group economic interest 21 455 (469) 489 454 6 827 28 756 33 34 Trading profit Ecommerce (782) 101 (44) (20) 316 (429) 46 45 - Classifieds 34 45 (33) (26) (11) 9 (14) (74) - Payments and Fintech (67) 5 (7) (3) 4 (68) 6 (1) - Food Delivery (624) 17 (3) (2) 257 (355) 42 43 - Etail (20) 8 (2) 3 79 68 greater than 100 greater than 100 - Travel (22) 22 - - - - - 100 - Other (83) 4 1 8 (13) (83) (16) - Social and Internet Platforms 4 699 (72) - 190 1 337 6 154 29 31 - Tencent 4 601 (15) - 194 1 346 6 126 29 33 - Mail.ru 98 (57) - (4) (9) 28 (22) (71) Corporate segment (140) - - - 30 (110) 21 21 Group economic interest 3 777 29 (44) 170 1 683 5 615 44 49 1 Figures presented on an economic-interest basis as per the segmental review. 2 A + B + C + D + E. 3 [E/(A + B)] X 100. 4 [(F/A)-1] X 100. Financial review The group delivered strong results for the year ended 31 March 2021. Group revenue, measured on an economic-interest basis of US$28.8bn, was driven by Ecommerce revenues which grew 46% (54%) year on year, and Tencent which grew 32% (28%) year on year. Group trading profit grew 49% (44%) to US$5.6bn. Aggregated trading losses in our Ecommerce segments reduced by 45% (46%) or US$353m to US$429m. Trading profit of our profitable ecommerce businesses grew by 32% (37%) to US$433m. Tencent's contribution to the group's trading profit improved 33% (29%). Core headline earnings were US$4.9bn - up 45% (39%), driven by improved profitability from our Ecommerce units and the growing contribution from Tencent. On a consolidated basis, total revenue increased by US$1.8bn, or 54%, from US$3.3bn in the year ended 31 March 2020 to US$5.1bn in the year ended 31 March 2021, primarily due to Food Delivery and Etail. Operating loss increased from US$593m to US$1.0bn despite the significant, improved performance in revenue and profitability across most of our segments. This was primarily due to an increase in the cash-settled share-based payment expense as a result of marked improvement in ecommerce and tech valuations. The strong performance of our businesses over the past year drove the increase in valuations of these businesses and therefore an increase in the cash-settled share-based payment liability. Our equity-accounted results in equity-accounted companies increased by US$3.2bn, or 81%, from US$3.9bn in the year ended 31 March 2020 to US$7.1bn in the year ended 31 March 2021. The increase is driven primarily by Tencent and Swiggy, which reported improved profitability during the year. The equity-accounted results include investment disposal gains of US$1.1bn, impairment losses of US$968m and net fair value gains on financial instruments of US$2.5bn. In August and December 2020, Prosus raised US$4.4bn in debt, comprising its longest-dated US dollar offering to date and its debut euro notes offering. Strong investor demand resulted in attractive pricing that reduced our average funding cost. The group has no debt maturities due until 2025. We ended the period with a strong and liquid balance sheet. We had net debt of US$3.1bn, comprising US$4.8bn in cash and cash equivalents (including short-term cash investments), net of US$7.9bn in interest-bearing debt (excluding capitalised lease liabilities). In addition, in April 2021, we received US$14.6bn from the sale of a 2% interest in Tencent Holdings Limited. Proceeds from this sale further strengthened our financial flexibility for further investment. We also hold an undrawn US$2.5bn revolving credit facility. Overall, we recorded a net interest expense of US$179m for the period. Consolidated free cash inflow was US$126m, an improvement on the prior year's free cash outflow of US$338m. This was driven by growth in our Ecommerce profitability, dividends received from Tencent of US$458m (2020: US$377m), and improved working capital management. We continue to explore growth opportunities to expand our ecosystem and position the business for sustainable growth. Across the group, we invested US$3.6bn, notably: In our Classifieds unit, we merged letgo and OfferUp into a business with national reach across the United States (US), well positioned in a highly competitive market. As part of the transaction, we contributed US$100m to support its continued growth and monetisation. We injected our Middle Eastern Classifieds assets into Emerging Markets Property Group (EMPG) and contributed US$75m in a financing round that valued the business at over US$1bn. Our joint venture OLX Brazil completed the US$520m (BRL2.9bn) acquisition of leading real estate vertical Grupo ZAP, strengthening its positioning in the real estate market. In Food Delivery, we acquired an additional 8% interest in Delivery Hero on 31 March 2021 for US$2.6bn to offset current and future dilution. We remain the largest shareholder. In Payments and Fintech, we invested an additional US$67m in Remitly to expand its suite of products. Finally, we focused on increasing our exposure to Edtech by investing US$60m in Eruditus, a global professional higher-education online platform. In November, we announced a total investment commitment of US$500m in Skillsoft via Churchill Capital Corp II's special-purpose acquisition company, which closed in June 2021. The transaction creates a leading digital-learning company with a comprehensive suite of on-demand and live virtual content. There were no new or amended accounting pronouncements effective 1 April 2020 with a significant impact on the group's consolidated financial statements. Effective 1 April 2020, the group made a voluntary change to its accounting policy on the subsequent measurement of written put option arrangements with non-controlling shareholders. Subsequent changes in the carrying value of put option liabilities previously recognised in the income statement in 'Other finance income/(costs) - net' are now recognised through equity. We adopted this change in accounting policy retrospectively, but the impact is insignificant to the summarised consolidated statement of financial position as all previous remeasurements recognised through the income statement are already accumulated in equity as at the effective date of the change. Dividend (All figures in euro cents unless stated otherwise.) The board recommends that a distribution is made to the Prosus shareholders, in the form of a capital repayment, of 14 euro cents per ordinary share N. If the exchange offer transaction announced by Prosus on 12 May 2021 is implemented and settlement takes place, the distribution on the ordinary shares N held by Naspers will be capped at Naspers's effective economic-interest percentage of the total distribution as outlined in the amended articles of association. Simultaneously to the distribution of the ordinary shares N, a distribution will be made on the ordinary shares A1, and, if the exchange offer is implemented and settled, the ordinary shares B, in each case in accordance with the distribution rights attached to such shares under the articles of association. Holders of ordinary shares N as at 29 October 2021 (the Dividend Record Date) who do not wish to receive a capital repayment can elect to receive a dividend instead. A choice for one option implies an opt-out of the other option. Ifconfirmed by shareholders at the Prosus annual general meeting on 24 August 2021, elections to receive a dividend instead of a capital repayment will need to be made by holders of ordinary shares N by 15 November 2021. Capital repayments and dividends will be payable to shareholders recorded in the books on the Dividend Record Date and paid on 24 November 2021. Capital repayments will be paid from share capital for Dutch tax purposes. No dividend tax will be withheld on the amounts of capital reductions paid to shareholders. Holders of ordinary shares N electing to receive a dividend will receive a dividend declared from retained earnings. Dividends will be subject to the Dutch dividend tax rate of 15%. Dividends payable to holders of ordinary shares N who elect to receive a dividend and who hold their ordinary share N through the listing of the company on the JSE will, in addition to the Dutch dividend withholding tax, be subject to South African dividend tax at a rate of up to 20%. The amount of additional South African dividend tax payable will be calculated by deducting from the 20% South African dividend tax otherwise due, a rebate equal to the Dutch dividends tax paid in respect of the dividend (without any right of recovery). Those shareholders, unless exempt from paying dividend tax or entitled to a reduced withholding tax rate in terms of an applicable tax treaty, will be subject to a maximum of 20% total dividend tax. Holders of ordinary shares N that do not elect for a dividend will automatically receive a capital repayment which will not be subject to Dutch and South African dividend tax. The issued share capital as at 19 June 2021 was 1 612 777 577 ordinary shares N (excluding 11 874 493 ordinary shares N held by the company as treasury shares) and 3 511 818 ordinary shares A1. Preparation of the short-form results announcement The preparation of the short-form results announcement was supervised by the group's financial director, Basil Sgourdos CA(SA). These results were made public on 21 June 2021. ADR programme Bank of New York Mellon maintains a GlobalBuyDIRECTSM plan for Prosus N.V. For additional information, please visit Bank of New York Mellon's website at www.globalbuydirect.com or call Shareholder Relations at 1-888-BNY-ADRS or 1-800-345-1612 or write to: Bank of New York Mellon, Shareholder Relations Department - GlobalBuyDIRECTSM, Church Street Station, PO Box 11258, New York, NY 10286-1258, USA. Important information This report contains forward-looking statements as defined in the United States Private Securities Litigation Reform Act of 1995. Words such as 'believe','anticipate', 'intend', 'seek', 'will', 'plan', 'could', 'may', 'endeavour' and similar expressions are intended to identify such forward-looking statements, but are not the exclusive means of identifying such statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances and should be considered in light of various important factors. While these forward-looking statements represent our judgements and future expectations, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. The key factors that could cause our actual results performance, or achievementsto differ materially from those in the forward-looking statements include, among others, changes to IFRS and the interpretations, applications and practices subject thereto as they apply to past, present and future periods; ongoing and future acquisitions; changes to domestic and international business and market conditions such as exchange rate and interest rate movements; changes in the domestic and international regulatory and legislative environments; changes to domestic and international operational, social, economic and political conditions; the occurrence of labour disruptions; and industrial action and the effects of both current and future litigation. We are not under any obligation to (and expressly disclaim any such obligation to) revise or update any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise. We cannot give any assurance that forward-looking statements will prove to be correct and investors are cautioned not to place undue reliance on any forward-looking statements contained herein. Further information This short-form results announcement is the responsibility of the directors and is only a summary of the information in the summarised consolidated financial statements. This short-form results announcement was released on 21 June 2021 and the summarised consolidated financial statements can be found on the company's website, www.prosus.com, and can be viewed on the JSE link, https://senspdf.jse.co.za/documents/2021/jse/isse/PRXE/YE21.pdf. Copies of the summarised consolidated financial statements may also be requested from the company's registered office, at no charge, during office hours. The summarised consolidated financial statements for year ended 31 March 2021 have been audited by PricewaterhouseCoopers Inc., our independent auditor. Their unqualified report is appended to these summarised consolidated financial statements available on www.prosus.com. Any investment decision should be based on the summarised consolidated financial statements published on SENS and the company's website. The information in this short-form results announcement has been extracted from the reviewed information published on SENS, but the short-form results announcement itself was not reviewed. On behalf of the board Koos Bekker Bob van Dijk Chair Chief executive Cape Town 21 June 2021 Directors: JP Bekker (chair), B van Dijk (chief executive), EM Choi, HJ du Toit, CL Enenstein, M Girotra, RCC Jafta, FLN Letele, D Meyer, R Oliveira de Lima, SJZ Pacak, V Sgourdos, MR Sorour, JDT Stofberg, BJ van der Ross, Y Xu Company secretary: G Kisbey-Green Registered office: Symphony Offices, Gustav Mahlerlaan 5, 1082 MS Amsterdam, the Netherlands Transfer secretaries: ING Bank N.V., Bijlmerplein 888, 1102 MG Amsterdam, the Netherlands JSE Sponsor: Investec Bank Limited, 100 Grayston Drive, Sandown, Sandton 2196, South Africa JSE transfer secretary: Computershare Investor Services Proprietary Limited, Rosebank Towers, 15 Biermann Avenue, Rosebank, Johannesburg 2196, South Africa Euronext listing agent: ING Bank N.V., Bijlmerplein 888, 1102 MG Amsterdam, the Netherlands Crossborder settlement agent: Citibank, N.A. South Africa Branch, 145 West Street, Sandown, Johannesburg 2196, South Africa Euronext paying agent: ABN AMRO Bank N.V., Corporate Broking & Issuer Services, HQ7212, Gustav Mahlerlaan 10, 1082 PP Amsterdam, the Netherlands www.prosus.com Date: 21-06-2021 07:50:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.