Naspers Ltd

JSE:NPN

Earnings Call Analysis

Prosus Reports Strong Growth and Restructuring Plans

Prosus Naspers announced a robust financial performance with the core segments of Food, Classifieds, and Fintech delivering a remarkable 36% growth in revenue. Etail, however, experienced a decline due to challenging macroeconomic conditions. The group is on track to achieve ecommerce profitability by the first half of FY25. Food Delivery outpaced peers while iFood saw momentum in its restaurant business and grocery vertical. The Classifieds segment improved both growth and profitability, and the challenging OLX Autos business is being exited to boost ecommerce profits. The Payments sector grew revenues by 52%, with excitement around the scaling of India's credit business. Investments in AI for Edtech and disciplined capital allocation are also highlighted. Furthermore, an open-ended share buyback program aims to enhance NAV per share and increase exposure to Tencent shares. The company emphasizes their financial strength, with $15 billion in gross cash, and a commitment to achieving combined ecommerce profitability shortly.

Leadership and Strategy Overview

Bob van Dijk and Basil Sgourdos, the company's top executives, laid out key highlights with a focus on strong annual results and a strategic proposal aimed at simplifying the corporate structure. They emphasized a strategy that harnesses technology to transform marketplaces, consumer transactions, and access to education, each sector offering significant growth potential.

Operational and Financial Progress

The company demonstrated strong operational execution, with a combined revenue growth of 36% across the Food, Classifieds, and Fintech segments. Despite global macroeconomic challenges, the company's open-ended share buyback program has been successful in increasing Net Asset Value (NAV) per share. The food delivery segment, particularly iFood, recorded impressive revenue growth and improved profitability, while the Payments team achieved a 52% revenue growth, showcasing robust performance in India's credit business. The company's intention to exit the Autos operations is pending and pro forma financials excluding these operations have been presented for a more accurate view of the company's continuing operations.

Divesting and Capital Allocation

The company continues its exit from the OLX Autos business, aligned with its strategic focus on improving ecommerce profitability, which is projected to be consolidated by the first half of fiscal year 2025. Investments in repurchasing shares accounted for $10.5 billion, reinforcing the company's commitment to growing NAV per share. Moreover, the investment in Delivery Hero aimed to correct shareholding dilution signals confidence in undervalued stock.

Environmental Sustainability Initiatives

The company has taken critical steps toward environmental sustainability by reducing its corporate Scope 1 and Scope 2 emissions to zero in fiscal year 2023. The implementation of a comprehensive climate transition plan, aligned with the science-based Targets Initiative's guidance, underscores the company's commitment to sustainable practices and its long-term strategic priority to invest in sustainability-driven businesses.

Commitment to Artificial Intelligence

Artificial Intelligence (AI) is central to the company's operations and innovation strategy. With a dedicated AI Lab established in 2018, the company supports AI and machine learning integration across its portfolio, always with a focus on ethical practices and privacy concerns. Leveraging AI, it has developed strong partnerships within the ecosystem and continues to invest in early-stage AI companies, gauging opportunities with the help of an expert AI leadership team.

Future Outlook

The company has set a clear direction towards improved profitability, expecting peer-leading growth in fiscal year 2024. With significant capital invested in stock repurchase and strategic business expansion, it has managed to achieve a 6% increase in NAV per share. The management's focus on AI-driven products and services, along with a dynamically evolving investment thesis that prioritizes AI and sustainability, is geared to bolster the company's market position and value creation in the years ahead.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, ladies and gentlemen, and welcome to the Prosus Naspers FY ‘23 Results Call. All participants will be in listen-only mode and there will be an opportunity to ask questions later during the conference. [Operator Instructions] Please also note that this event is being recorded.

I will now hand the conference over to Eoin Ryan. Please go ahead.

[Eoin Ryan, IR]

Great. Thanks, Chris, and welcome everyone. Thanks for joining us on the call today. With me on the call, I have our CEO, Bob van Dijk; and our CFO, Basil Sgourdos. They're going to take us through the key highlights for the year and then the proposal to eliminate the cross-holding. We'll then move to Q&A at which time we'll be joined by Bob’s team and the segment's CEOs. And as always, please reach out to IR, if you have any follow-ups afterwards.

Before I hand it over, I want to do some quick housekeeping items. We've commenced, but not completed the exit from OLX Autos business. So as such, our reported IFRS continuing ops still include some Autos operations whose exit process was not finalized at the 31st of March. Our intention remains to exit these businesses and as such, we thought it more useful to present pro forma numbers excluding OLX Autos. So a reconciliation to the IFRS numbers has been appendix (ph), and that's on Page 34 of the deck that is on the website.

Lastly, FX translation negatively impacted the Group's revenue and trading profit by about 7% or $2.4 billion and $347 million, respectively. So to get a true view of our results, we will speak to organic growth, excluding FX and M&A, and the OLX Autos operations.

So with that, I'll now turn it over to Bob.

[Bob van Dijk, CEO]

Yeah. Thanks a lot, Eoin, and thanks everybody for joining us on the call today. Today, we announced strong results and we also put forward a proposal to simplify the Group structure. We are really making clear progress on the commitments that we made to you last year. So you would have seen that our businesses are growing really strongly and they are on a clear path to profitability.

At the same time, we are reducing our share count and we are improving NAV per share every day. We continue to have very strong confidence in and support for Tencent and Tencent has been rebounding quite well. And today, we're proposing a transaction, which will meaningfully simplify the structure of the Group by eliminating the cross-holding.

And we thought we should start there, so if we can go to Slide 3, we'll talk about the proposal. So we have received approval from the South African authorities to unwind the cross holding in the Group structure, and we will be putting this proposal to shareholders to vote on. Now Basil will talk you through the specifics in a bit. But first, I'm very pleased with this outcome. It is an excellent solution with minimal cost and it will ensure the continuation of the open ended share repurchase program.

And second, the elimination of the cross holding will meaningfully simplify our corporate structure, while it preserves the benefits that we gained from the listing of Prosus and from the share exchange transaction. And third, the economic interests of both sets of shareholders will be preserved and Naspers will remain domiciled in South Africa. So more on this later from Basil, but let me talk about results now.

So I'll first highlight our strategy on Slide 6 and it's been a source of great strength for the Group in a very volatile environment, and it will continue to define our path in the years to come. So we've built a strong portfolio in markets that are really transformed by technology and its technology that empowers local marketplaces and its technology that disrupts consumer transactions and access to financial services and it is technology that delivers enhanced education all the way from kindergarten to enterprise. We see a lot of upside in each of these categories.

And as we build value operationally, we're also taking meaningful steps to improve our NAV per share through our open ended share repurchase program. And every day, we sell a small amount of Tencent shares and we buy back our own shares at a discount and this actually increases our per share exposure to Tencent. We remain very bullish on Tencent's future about its assets and also the management team and in the past 12 months, we have repurchased and sold about $12 billion worth of stock. It's minor compared to the overall size of Tencent, but it's really significant when it compares to the size of Prosus. And in the coming year, we do not expect changes to the parameters of the program.

Now let's move to Slide 7, where you can see that sticking to our strategy resulted in another strong year for the Group, where we executed well across our key objectives. So first, we delivered a strong set of results. So our Food, Classifieds and Fintech segments combined delivered peer leading growth of 36% in revenue.

Now Etail, now which is take a lot in eMAG was negatively impacted by the macroeconomic backdrop like all of its peers in Etail and it actually saw a small revenue decline year-on-year and that decline had a large impact on our total consolidated revenue growth, which came in at 16% when we include the Etail business. Second, we've taken significant action to achieve our goal of ecommerce profitability during the first half of financial year ‘25, and we are very well on track.

Third, our open ended share buyback is doing exactly what it's supposed to do, which is to grow NAV per share, while increasing our per share exposure to Tencent. Fourth, we have a very strong financial position with gross cash of almost $15 billion, and that is a strategic advantage that provides flexibility to pursue opportunities when they arise. And finally, sustainability is a strategic priority and its core to our strategy and to our capital allocation process.

Now if we can take to Slide 8, it shows the strong execution across our core segments with each delivering between 20% and 50% growth, despite tough comparisons from a strong period last year and weaker economic backdrop. So Food Delivery’s revenue grew ahead of peers and profitability improved tremendously. And iFood benefited from sustained momentum in the core restaurant business and from improved traction in quick commerce and in groceries.

Core Classifieds delivered good growth and improved profitability with solid operating metrics and strong performance in Europe. We made a tough decision that you've heard about to exit the OLX Autos business that was facing significant challenges at the end of last year. And this will lead to a sizable improvement in the ecommerce profitability. Our Payments team is making excellent progress and is growing revenues by 52% and we're especially excited about India's credit business, which continues to scale meaningfully.

And in Edtech, our enterprise platforms continued to grow and better position themselves by scaling and by improving their product offerings. And in the future, we will focus our investment on leveraging the Group's generative AI capabilities for Edtech in particular.

Now we're committed to achieving profitability, while growing revenue and Slide 9 shows that we are doing exactly that across each of our segments in financial year '23. So it's not either or it is both. So I expect peer leading growth and improved profitability in financial year ‘24 as we look to achieve our ambition of ecommerce profitability during the first half of financial year ‘25.

We're making real progress towards that ambition. You can see the turning point was reached in the second half of the year on Slide 10 and this is being driven by two things. So first, the benefits of scale, right, with increased revenue and solid revenue growth, this is falling to the bottom line. And second, we have a leaner cost base following significant reductions at both the business level and at the corporate level. And I'm very confident we will hit consolidated ecommerce trading profit during the first half of financial year ‘25.

Now over the past year, we have been allocating capital to our own stock and to the future growth of our current businesses. Our current businesses, we know well, and we believe the risk there is much lower and Slide 11 shows this nicely. So all-in-all, we have invested $13 billion and $10.5 billion of that was allocated to share repurchases. And the vast majority of the remaining capital we invested was devoted to the Food segment with $1.6 billion used to acquire the remainder of iFood. And as you can see in today's results, this is a great company that is doing very well, and we're very excited about its future.

We also invested $600 million in Delivery Hero, as we have seen some dilution in our holding over time and we continue to believe that stock is undervalued and we increased our holding to just under 30%. And finally, we've invested $200 million in early stage investments primarily in India through our Prosus Ventures arm (ph).

The impact of our investment in share repurchase is actually illustrated on Slide 12. And there are not many other companies of our size that have the ability to do this and the benefits are many. In the last financial year, we returned $12 million (ph) to shareholders. We reduced the free float by more than 20% and we improved NAV per share by more than 6%. And the buyback has contributed to a significant reduction in the combined holding company discount and equals in the last financial year $29 billion of value created for the Group shareholders.

And while it's not shown on this slide, Naspers has also bought back about $3 billion of its shares and it reduced its free float by 12%. And we will continue this program for as long as the large discount to NAV in persists. You can see here how the benefits would compound over time, so improving NAV per share by 19% after three years. And as we make progress on the top and the bottom of the NAV per share equation, we've also made real progress on our sustainability initiatives and you can see that on Slide 13.

So we know that the investment choices we make matter. Recently, we've established our responsible investment thesis, and our ambition is to invest more into sustainability driven businesses and we took decisive action on climate. And in financial year '23, we implemented all necessary measures to reduce our corporate levels, scope 1 and scope 2 emissions to zero.

So it's a great achievement, but it's only a step on the journey ahead and we've worked hard to build a real world climate transition plan and we have developed our climate targets applying the science-based Targets Initiative’s guidance. Our teams are also focused on managing waste and we've developed principles that enables impactful and scalable packaging strategies for digital delivery platforms in the Group.

And finally, before I turn it over to Basil, I'll spend a moment on Slide 14 that highlights our progress in AI and generative AI. And it's really difficult to capture everything that's going on one slide because we've actually prioritized AI across the portfolio. We've been completely embedding it in our workflow for the last five years. So in 2018, we created our own AI Lab and since then, it's been supporting Group companies to accelerate machine learning and AI and also to scale adoption. And it also helps companies develop AI by design products and services. And we always do this with an eye on ethics and privacy.

So the early start we had our scale and also our ability to apply AI in real world examples has enabled us to develop really strong connections with important partners in the ecosystem and that has granted us early access to releases of new models and the very latest tools. And based on that access, and the tools we have developed an AI assistant based on GenAI, which is called PlusOne.

And to date, there are already 4,000 people across the organization that using PlusOne to improve their daily work. So across our Group, our colleagues are using AI for better product recommendations, but also for things like fraud prevention, content moderation, logistics optimization and much, much more.

To give an example, right, in OLX AI models are used to attribute ROI to single marketing campaigns and it allows OLX to better optimize spending, which is drastically reducing costs for the same marketing outcomes and similar initiatives are now being implemented across the Group. Another example is in iFood, which leverages GenAI to provide a personalized offering to customers and that really improves the reliability and efficiency of the food and grocery delivery process.

Things are moving quickly, and we also continue to look at early stage AI companies. We already invested in a number of dose and actually, in our investment decision making process, our AI leadership team is actually in the lead and very central, and it's hugely helpful in understanding the right opportunities.

And finally, our team are really working across the Group to make sure that ethical, social and legal considerations are integral to our AI development. And I think it's really crucial to preserving the quality and longevity of AI products and their performance. So lots going on, on AI and GenAI and a lot more to come.

And with that, I will turn the call over to Basil.

[Basil Sgourdos, CFO]

Thank you, Bob, and hello, everyone. We appreciate you joining us today. I'm delighted to share the substantial progress we've made on our shareholder commitments. So let's kick things off with Slide 16. The first point I will make is that e-commerce consolidated revenue growth was strong. The Group delivered revenue growth of 36% in the four core segments of Food, Delivery, Classifieds Payments, and Fintech and Edtech.

Second, we reduced costs across the organization, including a 30% reduction in corporate headcount. Trading profit margin of our consolidated businesses improved 6 percentage points in the second half of the financial year when compared to the first half. We've turned the corner by accelerating profitability while still maintaining good growth. Group trading profit of $3.6 billion and core headline earnings per share reflect a reduction in Tencent profits and higher losses from ecommerce associates.

Encouragingly, post the close of the financial year, Tencent and other significant associates have reported good improvements in earnings. This will factor into our next set of results. Given the challenged macroeconomic conditions and their impact on valuations, we recognized impairment losses of $2.5 billion for the drop in public market valuations and the increased cost of capital drove these impairments. Our investments are growing ahead of peers and are committed to delivering significant improvements in profitability. We are confident in their long-term potential. Valuations can scale on continued growth and profitability improvements.

Finally, alongside a strengthened balance sheet and excellent liquidity, our free cash flow improved significantly year-over-year to an outflow of only $30 million. This figure excludes OLX Autos which we are in the process of exiting. I’m very pleased with the strongly (ph) improvement in free cash flow.

Now let's turn to our consolidated ecommerce businesses on Slide 17. You can see, we are heading in the right direction, accelerating profitability while still driving better than peer growth. The strong growth was driven by all of our core segments. As I mentioned earlier, the four core segments grew at strong 36%, each segment is growing significantly ahead of its peers, notable in the world starved of growth.

Etail was the lone exception, declining 4% to $2 billion. Revenue growth has been impacted by the lapping of an elevated pandemic-related base in the prior year. There was also lower demand in the reported financial year, as offline retailers offloaded inventory when COVID restrictions lifted. These trends are stabilizing and we are seeing improvements in the new financial year.

But turning to Slide 18, you can see a clear improvement in profit, driven by continued revenue growth and cost reductions. The second half of the financial year 2023 represents an inflection point. We are increasingly confident in our ability to achieve ecommerce profitability during the first half of 2025.

Now, I will share a deeper insight into each of the segment's financial performance, starting with Delivery and iFood on Slide 19. iFood grew revenues 35% to reach $1.4 billion. Orders increased 7%, which together with growth in order values and advertising revenue growth, drove the strong revenue growth that I mentioned earlier. iFood delivered over 830 million orders in the year and its gross merchandise value grew 20% to $9.4 billion.

Good growth and enhanced operating efficiency improved margins. Trading losses reduced by a substantial $110 million. iFood's grocery marketplace and quick commerce business saw substantial growth. Focused investment and improving economics drive strong improvements in trading margins in the second half of the year when compared to the first half. These strong results underline the Group's conviction when it purchased the remaining stake in iFood in November. There is a clear path to a good return from this investment.

Turning now to Slide 20, where Classifieds grew strongly and improved profitability. Classifieds has had a challenging year. The segment was most impacted by the significant events of the past year. The war in Ukraine and the stark change in macro conditions for Autos in the second half of the financial year were consequential. The business, however, moved decisively in a tough environment. Avito was sold in October 2022 for $2.4 billion, and we are in the process of exiting OLX Autos.

The financial numbers on this slide focus on what remains, that is a solid European classified business. Core Classifieds is well on the path to industry level margins, while growing strongly. Excluding the impact of the war in Ukraine, the consolidated revenue of the core Classifieds business increased by 20%, well ahead of peers. Trading profit margin of 19% was a 6 percentage point improvement compared to the previous year.

The segment has significantly improved profitability in the second half of the year, due to good growth and cost actions. Profitability and margins should continue to improve in the year ahead. The segment generated substantial profits and positive cash flows, all of which are experiencing healthy growth.

Moving to Payments and Fintech on Slide 21, which shows strong growth in the PSP business and meaningfully improved profitability for our quick scaling Indian credit business. PayU grew revenue by 52% to $903 million, driven by strong performance in India and in Turkey and a fast growing India credit business. In the PSP business, the total number of transactions grew 19% year-on-year, total payment value grew 39% to more than $98 billion.

India is the largest contributor to the PSP performance and its revenue grew by 42%, while its total payment value grew 44% to $58 billion. The GPO business group total payment value by 32% to $39 billion. Significant progress in Turkey underpins this growth. India credit continued to scale, with issuances increasing 47%. India credit revenues doubled in the second half of the financial year to reach $48 million.

With the weakening macro backdrop, the business managed default risk well and was deliberate in keeping delinquency low at 2.5%. Good growth, solid risk scoring, and continued diversification and reduction in the cost of funding drove the India credit business to a $1 million profit in the second half of the financial year. It was a 63 percentage point year-on-year margin improvement.

Lastly, let's move to Edtech on Slide 22, where the business is expanding offerings to capture a very large opportunity. Stack Overflow and GoodHabitz were acquired during the first half of the financial year ended 2022. The numbers in the prior year incorporate eight and 10 months, respectively of trading, while the financial year 2023 numbers capture 12 months of trading. Edtech revenues grew 21% to $134 million and investment in the expansion of offerings increased trading losses to $131 million.

Stack Overflow bookings grew 37%, driving revenue growth of 20% to $94 million. Stack Overflow for Teams now accounts for 50% of total revenues of the company, compared to 38% in the prior year. Product development and expansion of sales and marketing capacity drove the Stack Overflow trading loss of $84 million for the year.

Turning to GoodHabitz. They increased the number of courses by 51% and the number of enterprise customers they serve by 18% to over 2,600. GoodHabitz revenue grew by 24% and as a result, it significantly improved its profitability in the second half with a margin improvement of 38% when compared to the first half of the financial year.

On Slide 23, we reflect core headline earnings, the Group's indicator of the operating performance, which adjusts for non-operating items. The decrease in core headline earnings is driven by a drop in Tencent profitability and currency translation impacts. Like the rest of the portfolio companies, Tencent has the tax costs and returned to growth in the new financial year as Chinese COVID restrictions were lifted. Its first quarter results delivered a strong 34% profit improvement.

Moving to Slide 24 and the improvement in free cash flow. The Group's free cash outflow, including the impact of OLX Autos was $410 million, a sizable year-on-year improvement of $167 million. Excluding OLX Autos, which the Group is exiting, improves the free cash outflow to only $30 million. The efforts to accelerate profitability and the focus on free cash flow delivered a significant improvement in the second half when compared to the first half of the year.

So, let's move to the balance sheet and funding of the business on Slide 25. We have a solid balance sheet, comprising approximately $15 billion of central gross cash at the year end. We received listed Meituan shares from Tencent, valued at a sizable $4.7 billion. In the new financial year, Tencent increased its dividend by 50% and we have received $750 million in June of 2023. Debt capital markets are important to the Group, and we continue to manage the balance sheet to support the investment grade rating.

And finally, I'd like to take you through the proposal to simplify the Group's structure, which is depicted on Slide 26. You will be familiar with the share exchange in 2021, which right-sized both Prosus and Naspers for the respective stock exchanges. While the resulting cross-holding was necessary to sufficiently reduce Naspers' size on the Johannesburg Stock Exchange, it did add a layer of complexity to the Group. The solution we propose today eliminates the cross-holding, allowing for the Naspers' open-ended share repurchase program to continue.

The Prosus open-ended share repurchase also continues and is not impacted by the elimination of the cross-holding. But touching (ph) on the mechanics, both Naspers and Prosus will do a capitalization issue to the existing free float shareholders. The Naspers and Prosus entities won't participate in each other's issuance. The final step, Prosus will sell its very small residual holding in Naspers, unwinding the cross-holding. These steps ensure Naspers' ownership of shares in Prosus aligns with its current economic interest of 43%. The remaining 57% ownership in Prosus will continue with the Prosus free float, whose ownership also aligns with its existing economic interest.

The ownership of Naspers will remain unchanged. Naspers will remain JSE listed and a South African domiciled and tax resident company. It will retain a 72% voting interest in Prosus, and Prosus will remain a subsidiary of Naspers. This is a good solution to a complex problem and also has minimal cost for the Group. We will ask shareholders for their support of this proposal in a vote targeted for August to then completely unwind in the third quarter of the calendar year.

I will close with the following messages. We are delivering on the key commitments to our shareholders. We made significant progress in the second half of the financial year ended 2023, maintaining growth while accelerating profitability improvements. We remain committed to achieving consolidated ecommerce profitability during the first half of financial year 2025, and our confidence to do so has increased significantly. The robust balance sheet is a key strength in the current climate and provides significant flexibility and optionality. Capital allocation will be disciplined and focused.

Finally, with the shareholders' support, we can now remove the cross-holding. This is a significant step, enabling continued execution of the open ended share repurchase for Naspers and delivering simplicity for all shareholders. This action has delivered a reduction in the discount during the financial year of 2023 of 17% and created $29 billion of value to date. The Group's ambition is to compound these strong returns.

With that, I'll hand you back to Bob.

[Bob van Dijk, CEO]

Thanks, Basil. Now, we've covered a fair bit of ground, and I'm looking forward to answering any questions you have. It was a turbulent year, and I'm actually really proud of our progress. And in the coming year, you should expect us to continue to focus on what we can control and to follow through on our commitments. And if we do that, we will further strengthen the company and will deliver excellent returns.

We will stick to our strategy. We will continue our open ended share repurchase program and compound its impact. We'll better evidence and crystallize the value of our assets, and we will continue to support Tencent as we firmly believe in its future. And finally, we plan to simplify the structure of the Group to the elimination of the cross-holding, and we would really appreciate your support and vote to get that done.

So, with that, thanks for your time so far. And Chris, let's open up the lines for questions.

[Operator]

Thank you very much, sir. [Operator Instructions] Our first question is from Joseph Barnet-Lamb of Credit Suisse. Please go ahead.

[Joseph Barnet-Lamb, Credit Suisse]

Hi, team, and thanks for taking my question. I'll stick to one longer one, if that's okay. I guess, I wanted to ask a bigger picture portfolio and balance sheet question. So, you obviously have circa $20 billion of cash, including Meituan. You also have the rolling buyback, funded by Tencent's share sales, and you said the cash will be used for M&A. You've also been pretty explicit about your desire to conduct M&A in your sort of four existing operating areas. However, over the last six months or so, we've sort of seen you pull out of BillDesk, ex OLX Autos and then, obviously, rumors around non-India PayU and the exit of some Classified territories, I think India and a couple of others.

So, I guess, the question is, has there been any shift in your balance sheet approach or M&A priorities? For example, are you more likely to acquire larger, profitable businesses versus earlier-stage targets? And I obviously don't expect you to state specific target areas, but are there any areas of focus you would draw out? It sort of feels you're exiting more than you're deploying, and it's not entirely clear to me which areas of focus will allow you to deploy many billions of dollars. So, any color you can give on the evolution of your thinking would be much appreciated. Thank you, team.

[Bob van Dijk, CEO]

Yeah. Thanks for the question and actually, thanks for asking one question, because it's a lot easier to remember when -- than when you had three or four. Now so, I would say, when I look at the way we think about building our business, there's not been a fundamental things. Like, I think we communicated quite clearly that the bar is high and we also have been very clear on our commitment to get ecommerce to profitability. That remains true. I think within that, there are certainly very specific opportunities that we've demonstrated, for example, by buying the remainder of iFood, a great business, we think, at a good price and it's a significant allocation of capital, that I think fits both those dimensions of -- it will not deviate us from the path to profitability and it meets a hard – a high bar for expected return.

Now, if I look into the future, I think we are at a very difficult moment, right? I think we have been very close to generative AI long before ChatGPT became a publicly available resource, and we see that both sort of the operationalizing of GenAI in our businesses, as well as new business models that will be powered by GenAI is a transformational shift in technology. I must say that going into a transition period like that, where I know technology adoption will be at the speed of light with a substantial cash flexibility is a fantastic position to be in, because I'm convinced there will be newer companies that will embrace GenAI better than many incumbents. I think those will be companies we'd be very interested in.

And I also think it will create massive opportunities for potential other M&A, so both early stage and potentially business that are getting real traction. So that's the way we think about it. I hope it answers your question.

[Joseph Barnet-Lamb, Credit Suisse]

It does. Thank you, Bob.

[Operator]

Thank you very much. The next question is from Cesar Tiron of Bank of America. Please go ahead.

[Cesar Tiron, Bank of America]

Hi. Good afternoon, everyone. Thanks for the call and the opportunity to ask questions. I have two, if that's okay. The first one is operational and it relates to the pace of reduction in ecommerce losses. Looking at the 2H '23 losses, I wonder if the FY ‘25 guidance isn't conservative. Maybe you can comment on the trends you're seeing during 1H '24. And so, for example, will losses decrease sequentially in 1H '24 as much as it decreased in 2H '23? Just trying to figure out, basically, if the ecommerce breakeven might happen before 1H '25. That's the first one.

The second question is around value creation. So, of course, the buyback and the ecommerce breakeven will deliver value. But does management contemplate other self-help measures? So, for example, in the past, the company has unbundle assets. Is that something which you might consider in the future? Thank you so much.

[Bob van Dijk, CEO]

Yeah. Thanks, Cesar. And what I suggest is that I will answer your question on value creation and I will ask Basil to speak more to the pace of profitability improvement in ecommerce. Now, I think you're right, Cesar, in the past, we have unbundled assets when we thought they were maybe no longer a good fit, and MultiChoice was sort of the biggest example of that. I would say, besides the continued buyback and getting the business to profitability, we are very keen to demonstrate and crystallize the value of assets in our portfolio, and it could take several forms. That could be an IPO of several of our businesses, which we think is definitely possible when the environment improves.

It could also take the form of a sale of assets. It could be M&A. It could be an unbundling. So, we really take a perspective on it that we have valuable businesses. Several of them are, I think, in a position to be properly valued by the market and we look at a broad range of ways to crystallize that value and potentially give some of that back to our shareholders. Maybe, Basil, you can take the point around the profitability improvement base?

[Basil Sgourdos, CFO]

Thank you, Bob. Hi, Cesar. Hello, everyone, again. So, Cesar, the past year, there was significant work by everyone in the organization to really get us on track for this profitability target and everyone pushed hard and the ambition is always to do as well as we can. And you've seen that in the second half performance, where the trading losses decreased by 40% odd. So the businesses are growing well, as Bob has outlined in the presentation and I repeated, and that continued to grow well in the start of the New Year. We continue to manage costs well and we remain focused on driving that profitability measure as soon as possible. Of course, there's lots of volatility in the market and it's difficult to predict. So, our focus -- we've said that we have significantly increased confidence in achieving that number, and our focus is on doing it as soon as possible. We don't give guidance, as you know. So, that's about as much as I can say on this topic.

[Cesar Tiron, Bank of America]

Thank you so much, Basil. Can I just also ask, does -- will it involve either shutting down or selling more businesses? So, for example, I think we've seen some news around potentially selling PayU outside of India. I'm not sure if that was confirmed or not by the company. But in any case, the breakeven target, does it require selling or shutting down additional assets, or is it all kind of organic?

[Basil Sgourdos, CFO]

No, it doesn't require the selling or shutdown of assets.

[Cesar Tiron, Bank of America]

Thank you so much.

[Operator]

Thank you. The next question is from Christopher Johnen of HSBC. Please go ahead.

[Christopher Johnen, HSBC]

Yeah. Thanks very much for the opportunity. A quick one on the last point, just as a follow-up to keep it smooth. I understand you don't want to give a specific guidance, but could you at least comment on whether the savings that you'll have from no longer having the loss of OLX Autos would be reinvested or not? That would be interesting.

A second quick one also on the 43% share that Naspers will have in or will keep in Prosus. Can you maybe talk about your intention? Is there sort of a self-imposed lockup or anything? Any color on that going forward post deal would be interesting. And then the final one, if I may, on the stake increase in Delivery Hero. 29.9% is obviously quite a magical number, if I may say so. Bob, you said that you believe the stock is undervalued. Can we get a little bit more color on what the strategy for the investment is, if possible? Thank you.

[Bob van Dijk, CEO]

Yeah. So, thanks for the questions. I think, on the first question, will we reinvest the savings from OLX Autos, the plan is to not do that. So, that's the short answer. Then on the two other points, I think, Basil, if you wouldn't mind commenting on the 43% share and our intentions there, and maybe I can say a bit around Delivery Hero and, Larry, I would love for you to jump in as well. You will have, indeed, seen that we've come to below 30%. We have actually a lot of conviction around Delivery Hero and we think that the business is on a good path to profitability.

We also believe that that growth that has obviously been impacted by lapping effect is foundationally actually quite strong, and we do think the market doesn't give sufficient credit to the strength of the asset. That's why we bought more. It is not we -- if we would go over the 30%, it would trigger a variety of effects that would make it a very different story, and that's why we're at this point. But Larry, maybe you want to say something more about it.

[Larry Illg, CEO, Prosus, Food Delivery & Edtech]

No, I think you covered it well. We continue to be impressed by the execution of the team and the strategic vision, and going any further is an entirely different set of considerations. But I think you covered it well.

[Bob van Dijk, CEO]

Thank you. Basil, you want to talk, yeah. Thanks.

[Basil Sgourdos, CFO]

Yeah. Thanks, Bob. And then on the 43%, no, we have no intentions of changing that. So, that will remain as it is post the unwind.

[Christopher Johnen, HSBC]

Is it possible on the last point to get a bit more color whether there is any sort of agreement that's been put in place, maybe with SARB or anyone that you can share at this point?

[Basil Sgourdos, CFO]

Yeah. So, if you -- for those who aren't aware, right, in South Africa, the filings that you make with the SARB are confidential, as are the responses. So, we're not actually allowed to discuss the filing itself or the response.

[Christopher Johnen, HSBC]

Got it. Thank you very much.

[Operator]

Thank you. The next question is from William Packer of BNP Paribas Exane. Please go ahead.

[William Packer, Exane BNP Paribas]

Hi, Bob. Hi, Basil. Thanks for taking my questions. Firstly -- two, please. Firstly, I wanted to talk through market perceptions of your Tencent sell-down and buyback strategy. I think it's fair to summarize that for investors that know the Prosus story well, the sell-down and buyback is very popular and has helped reduce the discount. However, when I speak to Tencent holders, particularly in Asia, there is palpable skepticism.

They worry that Prosus is pursuing a strategy closer to SoftBank of its Alibaba holdings and gradually heading for the exit. Prosus selling will therefore be a semi-permanent overhang on Tencent, which is pressuring their share price and in turn, a drag on Prosus. Do you have any comments to reassure those investors? For example, would you stop the sell-down if the discount reached a certain level? Could you comment on that level?

And then the second question is, there have been various press reports of you exploring exits beyond OLX Autos within your Classifieds segment. Could you comment on how you see your Classified portfolio in the medium to long term? Which geographies and segments are you looking to retain exposure to, e.g., Eastern Europe or not Auto versus generalist Classified, et cetera? Thank you.

[Bob van Dijk, CEO]

Yeah. Sure, William. I'll take both of those, as actually Lydia couldn't join the call. Otherwise, I would hand the Classifieds question to her. When it comes to Classifieds, no, so yeah, there were a few rumors in the market a while ago. Those rumors were exactly that, rumors, which is why we typically just don't comment on them. I think Basil actually covered it well. The OLX business that we retained is a significant business that is growing much ahead of its peers. It has a -- both, a very strong horizontal, but also very strong verticals in, actually, all the key markets it is in, and it has good margins and it's able to increase those margins at above market growth. That's the kind of assets we love.

And I think it's a valuable asset that fits well in the Group, and we have a lot of confidence in the leadership team because, frankly, just to call it out, it's been obviously a rough year with the invasion of Ukraine, the changes that that brought to the team, the fact that we had to sell our Avito business, then the decision around orders, but the team had worked through it really well, has retained exceptional motivation and has delivered excellent results on the business that we have, and the future looks really bright.

Now then, on the market perception of the open-ended buyback program, I'm aware that there are some rumors around that. What I can say and Basil and Ervin can comment is that we love our Tencent stake. The reason why we do the open-ended buyback is to make use of a market inefficiency that helps us create value for shareholders. And in fact, on a per share basis, which is in the end what matters, our shareholders have more exposure to Tencent, not less and this really matters to us, right? We believe firmly that the Chinese consumer Internet market remains to be the most exciting place -- one of the most exciting places in the world to deploy capital, and we think Tencent is going to do exceptionally well in that context.

So, the program doesn't in any way reflect on our views in Tencent. We will be very large shareholders for a long time and there is no intention whatsoever to do anything like what SoftBank has done, because we believe in the business and we actually are increasing the per share exposure.

[William Packer, Exane BNP Paribas]

Thanks very much for the color.

[Operator]

Thank you. The next question is from Andrew Ross of Barclays. Please go ahead.

[Andrew Ross, Barclays]

Great. Good afternoon, everyone. I wanted to ask about quick commerce within Food Delivery. It looks like iFood is making very good progress both in terms of growth and margin on this part (ph) of that business. Can you talk about your expectations into FY ‘24 and whether we should expect quick commerce that were for the iFood to be profitable on a standalone basis, as we go through this year? And then more broadly, can you talk about how you see the space globally? What have you learned through this year around the viability of its business model as you exit out of pandemic across your various investments? What gives you confidence that this will be an attractive space going forward? Thanks.

[Bob van Dijk, CEO]

Yeah. Thanks, Andrew for the question. It would be a miss not to ask Larry to talk to this, because he spends his every waking hour on this business. So, Larry, do you want to give answer -- an answer to Andrew?

[Larry Illg, CEO, Prosus, Food Delivery & Edtech]

Yeah, happy to give it a spin. I think the -- we tend to talk about this space like it's the same model everywhere, and I think quick commerce became a shorthand, but really, we're talking about grocery and I think we see the model play out differently depending on the geography. I think it's important to remember we covered some of this on the Investor Day that this is structurally a local business. So, the version of quick commerce that you might see within iFood and that would be in terms of who's picking the order, who's packing it, who's delivering it and, frankly, the nature of the inventory would look -- might look different than what you would see in Swiggy's version of quick commerce or Delivery Hero's or, frankly, some of the companies that we're not invested in. It's a structurally, it is a local business.

And in the case of iFood, iFood has explored on the margin more of a marketplace type model that leverages grocery -- external grocery and logistics providers that allows for different economics than you might see in other markets. So, I think as a general rule, we do see a path to profitability for the model, but the form that the model will take looks different by geo.

[Bob van Dijk, CEO]

Yeah. And if I may add something to that, I think one of the other learnings that we have, and I think it's profound one is that sort of if you are a standalone pure-play quick commerce player, it is a tough model to make profitable. If you are a food delivery company that is going into grocery, you, A, have all the customers already, because they are the same customers that order food from you. You also have a very well established logistics network that you can leverage and you don't have to build from scratch. So, I would say the other learning that we have, which I think pretty much holds everywhere, Larry, is that you have a massive advantage if you have a strong food delivery footprint and you're going into the grocery delivery business.

[Larry Illg, CEO, Prosus, Food Delivery & Edtech]

Yeah. Spot on. We've gone through the hard work of figuring out who the valuable customers are in the food delivery side and what the valuable neighborhoods are and how best to serve them. So, that gives us a huge leg-up versus people that are starting from scratch.

[Andrew Ross, Barclays]

That's helpful. Thank you.

[Operator]

Thank you. The next question is from Lisa Yang of Goldman Sachs. Please go ahead.

[Lisa Yang, Goldman Sachs]

Good afternoon and congratulations again on the results and on the simplification. I have a few more questions, please. I think, Basil, you commented earlier about some of the trends you've seen, for instance, ecommerce, and you said eMAG is now seeing a better sort of trading performance. I was just wondering if you could make similar comments for maybe the rest of the portfolio, how maybe the macro is currently affecting operations and, obviously, where we could enter much easier comps when it comes to, like, post-COVID normalization? So, should we expect an acceleration in growth in FY ‘24? That's the first question.

The second question is, Bob, I think you mentioned in the possible times that products valuations are still way too high relative to public. I wonder if you could maybe give us an update? And at what point do you actually see maybe more opportunities [indiscernible] coming out, whether it's in quite public and which segment today would probably look the most of the undervalued to you?

And the third question is, you obviously have a stake in Meituan. It looks they want to expand out for the China. I think they just recently entered Hong Kong and it feels like an investors thinking, you're not going to stop there and might expand elsewhere internationally. So I'm just thinking, given your presence in international sort of expertise and obviously, your stake in Meituan, do you think that there might be ways to sort of collaborate with them going forward? Thank you.

[Bob van Dijk, CEO]

Yeah, Lisa. |Thanks for the questions. Basil, I think I'll leave the first one to you to answer without giving guidance, so good luck with that. And I will have a stab at the second, two. So, let me start with Meituan. We think Meituan is actually a great company. Besides some international expansion, I think their progress in China has been really, really strong, excellent execution. So we, at this point in time, are supportive. There has been increasing contact between the companies, but we have a relatively small stake there. So, it's a very different relationship than the one we have with Tencent, where we are on the board and we are very close -- very close links at every level of the company. But we feel it's a great and well-run business.

And to maybe say a little bit more about the private valuations, look, I think the -- if I look at public markets, I still think there are pockets of undervaluation and food, as an example, I think public food companies are undervalued, Delivery Hero in particular, because they have fantastic assets that are improving well and growing. So, I think in public markets, we see it. In private markets, the dynamic where we've seen a lot of fundraising while rates were low and money was flush, that hasn't entirely shaken out, I would say. So, what I see is that many companies that raised that high valuations basically have managed to not raise capital. The ones that did have to raise capital, typically, have seen a fairly significant haircut to their valuations.

I think in the next sort of six months, I expect that situation to occur more often, where companies that have previously raised but are running towards the end of the funding they had put aside are going to have to come back to market. And then I do think we'll see further correction in private valuation, because a lot of it has actually not shaken out. But maybe, Ervin, you want to comment, because you spend a lot of your time on this particular topic?

[Ervin Tu, Group Chief Investment Officer]

Happy to, Bob. I think you said it well already. The market is not fully adjusted in the private setting, and we expect it will. As to whether it's six months or 12 months or what the precise timing is, I don't think anyone really knows. There are a number of good businesses out there, though, and we have a lot of gross cash on our balance sheet. We will remain patient to wait for the opportunities that are most attractive for us.

[Basil Sgourdos, CFO]

And then, Lisa, on your first question, I'll say a couple of things. So, first of all, it's impossible to predict how the macro is going to impact the world over the next year. We don't know where interest rates are going to sit, or we don't know where inflation is going to sit, or we don't know what's going to happen in geopolitics. So, it's an impossible thing to try and predict. But what we do want to do is sustain the trends that we've been delivering in the second half of this. And one of those -- one is, we want to continue to outgrow our peers. So if the world's impacted and growth slows down, what you will see from our businesses is that they'd continue to meaningfully outgrow and outperform their peers.

Then from there, we've set plans for the year, right and we're -- it's still very early in the year. We're basically almost three months into the year, and the businesses are hitting those plans, both on the topline and the bottom line. So, we're confident. And I think that's about as much as I can say. One, we don't issue guidance, but even if we did, it's impossible for people to predict, given everything that's going on in the world right now.

[Lisa Yang, Goldman Sachs]

That's really helpful. Thank you.

[Operator]

Thank you very much. The next question is from Catherine O'Neill of Citi. Please go ahead.

[Catherine O'Neill, Citi]

Great. Thank you. I wanted to ask you, Bob, about your comments on generative AI and the investments there. If you could give us more color on which areas you've been invested in and are most interested in for your business? And separately, but slightly linked to that, Stack Overflow, what they're doing in that space? Because, I guess, that's the one where there is potentially sort of most near-term impact on generative AI. Secondly, on Delivery Hero, it looks like you increased the stake from what I can see more recently, between December and March. I wondered if you could give us a bit more detail on the timing of that and what the highest price was you paid in the last six-month period.

And then finally, just on the balance of your portfolio, really, where you're selling Tencent in a sort of measured way at steady pace and you're planning to crystallize value of unlisted assets. That, I guess, means a balanced portfolio shift further towards Tencent, theoretically. So, I wondered if you could give us a bit more of an idea of the pipeline, businesses you've got in Ventures. Previously, it's been quite obvious about where Edtech was coming through or Food Delivery. It seems less obvious now. So, I just wondered if you could give us an idea of what you see coming through you think is interesting from a scalability perspective.

[Bob van Dijk, CEO]

Yes, that was four questions, if I kept count, which for my brain is, is that the far end. And so, let me try to answer or ask for an answer all of them. Let me start with the rest. So, I think what is important to say when it comes to crystallizing, crystallizing doesn't actually mean that we get out of things, right? It also could be a listing, it could be a merger. It could take several different forms. So, the idea that we were exiting businesses at scale is not necessarily the right conclusion. So, if we, for example, would list one of our businesses in the next 12 months, we'd probably not get out completely, but rather put a business on its own legs and remain a significant shareholder to make sure we benefit. So, I think that's one point.

The other thing I would call out is -- Ventures, actually, has been steadily investing in some magnificent companies. That's been in a number of exciting areas, but in particular also in one very exciting geography, which is India. If you look at the capital that the Ventures team has deployed, the vast majority of it has been deployed in India. And if you take sort of the top 10 of the most exciting, fastest growing startups in India that are still private, I think we're probably in seven out of 10 of those. And frankly, I could talk about them for hours, but we don't have hours. But if I can call out one, I think Meesho, for example, is a spectacular business that has -- in terms of the number of active users, has actually surpassed both Flipkart and Amazon in a very short amount of time, seeing spectacular growth and very rapidly improving unit economics.

Then there's a business like ElasticRun, Eruditus. We have the Urban Company, which is doing something very unique, which is getting to scale. There's PharmEasy, which we're very excited about. So, we've deployed a lot of capital into highly promising Indian business, where I think we'll see a lot of scaling in the next few years. And I think we'll also see the value of those companies actually rise quite significantly over the next couple of years, and we continue to look for new opportunities with the Ventures team that's still very active. Now, on Delivery Hero, I think we can be -- I think we don't disclose the information. So I don't think I can give you more color on that.

Let me talk a bit more about gen -- generative AI. So, what I think about generative AI is that it is a -- and I mentioned it earlier when we talked about sort of firepower. I think it's going to be a generational shift in technology that will do a number of things. I think it will increase productivity in many, many parts of the -- of any profession, frankly, if well adopted. We intend to be on the absolute forefront of that. And with our PlusOne product suite, we are actually at the absolute forefront of it. I think it will also improve not just productivity, but will improve business models, like what we're starting to see happen with in our food and in other businesses. The business model will adjust. It will incorporate GenAI elements, and it will become foundationally better as a result of it.

And then the third category, which I think will be very interesting from an investment point of view is, is new companies or newer companies are -- that are going to use GenAI to disrupt existing business models in the space they're in, in the same way as Uber has changed the taxi business, the way that Spotify has changed the music business. I think we will see a generation of new companies come out that are formed now and that will scale in the next few years that will be the new challengers to existing business models that will not be able to deliver on what GenAI can do for the world, because I think the step-change in technology is probably even larger than that of the mobile phone. It's probably the order to the magnitude of the Internet. So, big changes ahead. There will be new winners, and those new winners are the companies we're looking for.

Then maybe, Larry -- I've been talking too much already, but I get very excited about this topic. But Larry, you can say a little bit more about what is going on with Stack Overflow.

[Larry Illg, CEO, Prosus, Food Delivery & Edtech]

Yeah, happy to. And I think you touched on it -- a lot of it, but for Stack, specifically, we think that GenAI is going to be important evolution how developers work and learn in the future, helping them to be more efficient and also learn tech -- new techniques while they're in the flow of work. We think the -- and the Stack team believes the developer community can play a crucial role in how AI evolves and accelerates, ultimately, with the community being helpful in ensuring the quality of GenAI offerings.

And Stack itself sees its role as bringing the power of its developer community, and it's important to remember, this is -- they have assembled one of the biggest developer communities in the world, bringing that community together with the technology power of AI with the goal of creating highly trusted solutions to technology problems. And the team is working and launching a variety of AI solutions, and more to come here.

[Bob van Dijk, CEO]

Yeah, I think that's well put, Larry. Like, sort of user feedback to improve models is one of the essential ingredients to the quality of GenAI and when you have 100 million users that are critically looking at your content that is a tremendous asset in building the best GenAI solutions in the technology space. And what is also important to call out is that Stack Overflow has an absolute wealth of proprietary data on how software developers solve the problems, right? There is no other company that has the wealth and the depth of data on how developers who are confronted with an issue actually go through different steps to solve, which should be probably one of the most valuable data assets to actually build the best GenAI software engineering solutions.

[Catherine O'Neill, Citi]

Okay. Thank you very much.

[Operator]

Thank you very much. The next question is from Warwick Bam of RMB Morgan Stanley. Please go ahead.

[Warwick Bam, RMB Morgan Stanley]

Good afternoon, everyone. I just got a few here. First topic, probably for Basil, in terms of cash flows. It's [Technical Difficulty] has been a large cash drag on the business, especially when you look at disclosure excluding OLX orders for 2023. Do you still need to contribute further cash to OLX Autos prior to its sale, or can we consider the $380 million a non-repeat item? And then just on the same topic, just in terms of other once-off items, understanding [Technical Difficulty] some restructuring costs, some of which fall into the prior year, some of which fall into 2024. Can you call out any once-off items, which could assist us in understanding the sustainability of that $30 million cash outflow excluding OLX Autos? And then lastly, just a simple question on the removal of the cross-holding structure. Does the proposal to shareholders require an ordinary or special resolution? Thanks.

[Bob van Dijk, CEO]

Basil, I think these are mainly questions for you, and maybe the last question is one for David, if David's on the call.

[Basil Sgourdos, CFO]

I'll take the first two and then David can deal with the votes. So, on the cash flows, remember, we haven't fully exited and OLX Autos as a going concern. So, yes, there is cash consumption in the current year. And what that will be and how it will be, will really be driven by how we actually engineer the exit. So, that's an ongoing process and I can't really give you a definitive number until we have a definitive outcome.

On the once-offs, of course, there were once-offs in the prior financial year, particularly with regard to retrenchment costs and other restructuring costs. And again, how it plays out this year also depends on how the exit in OLX Autos plays out. But I think the largest chunk of that has already been captured in H2. And what we hope to see from here is fairly stable operating environment as things stand now. Of course, the world changes, things change, and that's why it's very hard to give a firm guidance. So, overall, the bulk of the costs happened last year. There may be a bit this year, depending on how things play out. And then we have a fairly stable operating environment.

[Bob van Dijk, CEO]

Thanks, Basil. Very helpful. Sorry, David, is actually on the call, but he is in the listen-only mode. So, he can't answer the question. Luckily, there's -- there are several other people who can. And Ervin, maybe you can cover the question, while we can't ask David?

[Ervin Tu, Group Chief Investment Officer]

Happy to do that, Bob. For the Prosus vote, the answer is, it's a simple majority vote. That's for Prosus. For Naspers, there will be certain manners [Technical Difficulty] so the answer differs by Prosus versus Naspers. This will all be laid out, of course, crystal clearly in the shareholder circulars that go out ahead of the vote.

[Warwick Bam, RMB Morgan Stanley]

Thanks very much.

[Bob van Dijk, CEO]

I think we have time for one more question, Chris.

[Operator]

Yes. Thank you. Then our last question will be from Silvia Cuneo of Deutsche Bank. Please go ahead.

[Silvia Cuneo, Deutsche Bank]

Good afternoon, everyone, and thanks for taking my question. I just have one follow-up on the Classifieds business. Can you provide a little more context around your strategic decision to exit OLX Autos and your view for the segment? I'm curious to hear if, beyond the immediate impact to profitability, you also considered exiting, since it is still possible to improve the consumer experience by adding transactional features with a capital light approach going forward, like some of your peers are doing. Thank you.

[Bob van Dijk, CEO]

Yeah. Thanks, Silvia for the question. It's actually, I think, a very pertinent one. So -- and I spoke about it actually quite a bit in the last few days. I think what happened with the OLX Autos was two things at the same time. One, cost of capital went up a lot. And as you indicated, like, this business model typically has a certain level of inventory and particularly, if you want to improve your margins, having a certain level of inventory and doing the sales of the vehicles yourself rather than being fully asset light is actually really helpful. So, when cost of capital went up a lot, I think the economics of the business model deteriorated. And I do think that if you go much more asset light, you will potentially have a consumer experience issue, as you indicate, but I think what you also will have is that it's harder to generate the margin that you require to achieve profitability in the model.

The other thing that, obviously, happened sort of in the post-pandemic year was that second hand car prices came down quite meaningfully, which means that even if you manage to run at similar gross margins, you end up with lower sales prices, so, therefore, with less metal margin to work with, which also puts real pressure on the ability to cover your fixed costs. So, with all those factors combined, we believe that the business case had just been significantly eroded and we were better off by exiting the business, not that there is no traction, several of the businesses have traction and consumers like it, but the economics have been made -- much more tough.

[Silvia Cuneo, Deutsche Bank]

Okay. Very clear. Thank you.

[Bob van Dijk, CEO]

I think that was our…

[Operator]

Thank you very much.

[Bob van Dijk, CEO]

Yeah. Thanks, Chris. I think that was our last question. So, if okay, I'll close from here. First of all, I really appreciate that people take the time for this, because we also take a lot of time to try to do our best to present it well. Great questions today. It was a turbulent year, and I'm very proud of the progress we made. I think we -- we're on the right path to really strengthen the company and deliver excellent returns, and we will continue with our open-ended share repurchase program.

We will look to better evidence and crystallize the value of our assets. We'll continue to be huge believers in Tencent and of the potential upside there. And we plan to get the circular out that details the simplification to the elimination of the cross-holding, and we really appreciate your support to get that approved. And with that, I want to thank you all and wish you a great morning, afternoon, or evening, depending where you are.

[Operator]

Thank you very much, sir. Ladies and gentlemen, that then concludes today's event, and you may now disconnect.