Jun 25, 2018
Executives
Meloy Horn - IR Bob van Dijk - CEO Basil Sgourdos - CFO
Analysts
David Ferguson - Renaissance Capital Lisa Yang - Goldman Sachs John Kim - Deutsche Bank Ziyad Joosub - HSBC Andrea Rafael - Morgan Stanley
Operator
Good day, ladies and gentlemen, and welcome to the Naspers FY18 Results Conference. All participants are currently in listen-only mode and there will be an opportunity to ask questions later during the conference.
[Operator Instructions] Please also note, that this call is being recorded. I would now like to turn the conference over to Meloy Horn.
Please go ahead, ma'am.
Meloy Horn
Thank you, very much and hello, everybody. On behalf of Naspers, I'm happy for you to join us on this call today.
Representing Naspers is our CEO, Bob van Dijk; and our CFO, Basil Sgourdos; and we also have the rest of our executive team on the call for Q&A towards the end. I would like now to hand it over to Bob to start the presentation.
Bob van Dijk
Yes, so welcome everyone to our financial year 2018 results call. So I will start out today, I will provide you with an overview of our performance for the year and also share with you how we think about creating value for the future.
Then Basil will take over and he will update you on the financials for the year. As Meloy said, we will present but there others, they are available for your questions.
So we look forward to that later. So let's start on Slide 5; have we delivered well on our objectives in the last year.
It was a good year for the group, it was characterized by strong financial performance, we allocated capital effectively and we made really good progress on our growth strategy. You see a number of goals that we set ourselves, and we delivered well on those, so I'll go through them one by one.
So we delivered strong financials, and for the year revenue was up 39% year-on-year to about $20 billion, and represents significant acceleration of growth. For the period, trading profit was up 52% to $3.4 billion.
We saw free cash outflow of $242 million as outflow is not where we want to be long-term but it's in line with the development path of our assets. In terms of our ecommerce portfolio, we have reached an inflection point and as well demonstrated by our classifieds business.
So classifieds activity actually turned profitable in the year as well and delivered $63 million trading profit and is also free cash flow positive. Letgo in the United States achieved leadership on key metrics versus OfferUp, and it shows very strong growth in metrics at reduced spending rates.
So look at payments; we also grew very substantially on our payment segments. So the total payment value was an extra $25 billion, and it was up more than 50% year-on-year.
At the same time, again, we managed to reduce trading loss by 42% on existing footprints [ph]. Now the PSP or the Payment Service Provider business we're in is not yet profitable but Imtiaz [ph] and his team are making very good progress towards that.
Also in the year that was -- we made a number of investments and expansions into credit business. We look at our online food delivery operations, we've seen substantial expansion, so organically iFood's grew by more than 100% year-on-year.
We also made significant investments, notably in Delivery Hero where we invested $1.3 billion for about 23%, and I Swiggy in India, where we invested more than $200 million for about 24%. And finally, we've managed to grow our video entertainment business and at the same time have cut costs meaningfully.
So those are our objectives for the year and how we've done against it. If I move to Slide 6; I wanted to pause a little bit and talk to you about the Flipkart cares [ph].
I think it's a really good example on how as a group we create value. So the bottom-line is that we delivered really strong returns by investing early behind great entrepreneurs.
We've been consistently diligent in our capital allocation and we've actually capitalized [ph] value when it made sense. So we identified India as a really exciting growth market very early on, and the investment in Flipkart first one was in 2012 when we invested initially at a $1 billion valuation.
And it's typical for us, when we see things work, we double-down our existing investments; so we followed a number of subsequent Flipkart funding rounds at higher valuation as you can see on the left hand side. And that shows a disciplined approach to capital allocation as well, so we didn't participate in all funding rounds; it was in some case we didn't expect to derive an above average returns and we lost.
Besides funding, we offer significant strategic involvement at the board level; then we helped Flipkart over at times to scale of target leadership. As an example; GMV increased a factor of 12 [ph] over the time we were invested.
Now when Walmart wanted to buy a majority in Flipkart, we realized that in the new situation we wouldn't any longer be a strategic investor and then we took the opportunity to lock-in an extra return for our shareholders; so we decided to sell our stake for $1.2 billion, and when -- during that we locked in a 32% IRR. So if I take you to Slide 7; it shows our core ecommerce segments.
So we believe the most compelling growth opportunities for us to invest in, and to scale further are classifieds, online food delivery and payments of fintech. Now we already have reached an inflection point and we've reached substantial skill across all of those segments, and we have the largest classified user base in the world, and we have a leading global position in online food delivery, and we have leading positions in payments of fintech and key growth markets like India.
And our plan going forward is to build them onto large multi-billion dollar businesses overtime, and we have the balance sheet to fully develop these segments to scale. So in the next few slides I'll actually dive into each of those and I'll tell you what excites us about the opportunities there.
So if I look at Slide 8; I think it's a good indication why we like classifieds so much. So it's the most developed segment in ecommerce and it has turned profitable this year.
Now, going forward as a great deal of further opportunity to grow on great value front here. We can leverage these market leader persistence we have further and we can get to deeper penetration levels, like you see; for example, for Russia and Poland, on the left hand side.
We also believe we can grow monetization across all markets. In the middle you can see, while letgo actually has already shown very impressive growth -- it was in fact the second fastest growing app of any app and any capital [ph] in the U.S.
last year, the further market opportunity in the U.S. is actually massive.
And finally, we're actually extending the classifieds business model by investing into highly monetizeable vertical and convenient transaction formats that have really high ARPUs. If I can take you to Slide 9, it shows the opportunity in online food delivery.
So the food delivery market is still really underpenetrated globally and it presents the growth opportunity many dimensions [ph]. So the market expects there is at least a 4x growth opportunity in online food delivery in the next few years, and we believe that our growth may actually be substantial higher than that.
So we could see the food delivery is now at about the same early stage where ECO [ph] was in 2005. So we specifically like the segment because even in the most penetrated markets, we see an annual order frequency in a low double-digits and that means only like a 1% penetration of meal occasions and we believe there is very significant upside from there.
We also like the fact that at-scale it's a very differentiable model and it drives great economics at our iFood business is an excellent illustration of that. So to give an idea of our footprints, Slide 10 shows that the leadership positions we have across the world.
And we increased our footprints in the last year with two significant investments; we did the investment in Delivery Hero and actually leads already in 36 countries in the world. As mentioned earlier, we invested in Swiggy and it's leading the online food delivery segment in India, and we see really explosive growth.
In Latin America, we've been investing in iFood for a while, it continues to grow very, very strongly on all key metrics, it's growing in order volumes but also in take rates and in customer retention. So I move on to payments on Slide 11; it is clear that payments represents one of the largest ecommerce opportunities globally by value.
And if you just look at the fee-based payment industry, that is said to grow to $0.8 trillion in revenue in five years' time. Now if you look at the broader fintech's basis, clear to complex and a fragmented and a competitive business, but typically it's quite local in nature and it makes positions that you can build up very defensible.
Now we're pursuing attractive opportunities which we know will further strengthen and leverage the footprint we have; two good examples are cross-border. And cross-border payments are actually expected to grow about 2.5x in the next three years and will become a $1 trillion segment.
And if you zoom-in on that two-thirds, that will actually come from the kind of high growth markets where we have a strong presence. And finally credit, net credit again is a massive opportunity where the revenue pool in lending is about twice as large as -- of that a fee-based payments, and for the revenue pool set we are pursuing [ph].
If you go to Slide 12, it demonstrates our footprint and the growth in payments showing that we are at an inflection point in this business. So we already have strong positions in 17 markets, and we're leveraging that core PSP business to transaction into broader fintech businesses.
And as mentioned, we're expanding into credit and remittances, and we invested in two companies to help us with that, Kreditech and Remitly. So the payment segment is growing very strongly, our payment volume, our TPV was up 53% year-on-year, now close to $26 billion, we punched out [ph] 650 million transactions in the last year.
Within the portfolio, India is a really important market for us, and it now comes for about 47% of the total volume. So I hope you agree that there is a significant opportunity in our focused segments and which you can trust us whether to approach further investments in this space with the same care and same diligence that we've always liked through our capital allocation in the past.
So with that, I actually want to hand over to Basil who will talk about our financial results.
Basil Sgourdos
Thanks, Bob. So, good morning to the Americas, good afternoon South Africa and Europe, and good evening Asia.
It's good to be talking to all of you again. So as Bob mentioned, I'm going to take you through the financial highlights.
Folks, a couple of reminders before we get going. As before, the presentation includes the percentage so that isolates the impact of currency translation and M&A; this provides the sense of the organic growth in the business.
Through the deck I'm going to focus on this organic growth. Finally, [indiscernible] on an economic interest basis.
If you could turn to Slide 14, you see the key financial highlights for the year. Broken revenue accelerates by 10% year-on-year, and trading profits by an even faster pace of 15%.
All key businesses delivered ahead of their budget and that's an exceptional achievement all around. I'm particularly encouraged by the progress in ecommerce, classifieds excluding the investment in letgo turned profitable, the PayU PSP business scaled past, and is also approaching profitability, and then iFood delivered exceptional topline growth.
The video entertainment segment delivered steady results managing to stabilize the losses in South Africa [ph], and grow overall segment profitability. And noted extremely strong performance by Tencent also boosted earnings.
And [indiscernible] stake in March, we have a strong balance sheet to pursue our growth ambitions. We want to sustain the current excellent returns embedded in the portfolio, and our core objective always remains strong returns over the long-term.
If I turn to Slide 15, you will see the synopsis of financials. There you can see the 39% year-on-year revenue growth, and our revenues are at $20 billion.
Trading profit is at strong 52% year-on-year, the major drivers who have reduced losses in ecommerce, strong growth in our profitable ecommerce businesses, a boost from Tencent and a turnaround in the video entertainment profitability. This has translated into very strong core headline earnings growth of 72% taking core headline earnings to $2.5 billion.
The trading profit in core headline earnings for the full year '17 or adjusted numbers were fit in the change in the groups treatment of Tencent's digital content amortization costs. More details will be included in our training segment and that's available on our website, and the Board is recommending a 12% increase to the dividend.
So on Slide 16 we analyze the drivers of our strong topline performance. As I mentioned earlier, the 39% year-on-year is 10% more than we did for the prior year.
Ecommerce led the charge with 36% year-on-year and that's 9% higher than the prior year. The exceptional growth of 56% from our social and internet platforms, mainly driven by Tencent was also a key contributor; this is a further 9% acceleration of last year's 47%.
I think that's remarkable given Tencent's size, and it's a great parameter for why we remain confident in the long-term future of Tencent. Video entertainment added 1.5 million subscribers in the year and sustained revenue growth of 7% in a tough climate.
Internet revenues now account for 79% of the total revenues, and that's up from 73% year ago. So we roll-on tech to becoming a 100% online business in the coming years.
84% of our revenues are now outside of South Africa. On Slide 17 we unpack the ecommerce growth for you.
So revenues of $3.6 billion as I mentioned earlier, that's a 9% acceleration in growth year-on-year coming in at 36% growth. This growth was driven by each of our key segments, and also by the sale of slower growing assets such as letgo [ph].
Classifieds continues to grow strongly with a much higher base delivering 35% growth year-on-year. MakeMyTrip grew it's revenue 21%, it's important to understand that the growth rates in the prior year benefited significantly from successful scaling of the hotel booking business of a very low base.
I'm very encouraged by what the payments [indiscernible] accelerating it's growth by 5% at this point to 37%, underpinned by the strong performance in India. We also see a mock acceleration in etail from 21% to 36%.
Takealot had an exceptional year growing it's GMV by 70%. It also expanded it's reach outside of it's core categories through [indiscernible] vertical, and Mr.D Food, South Africa's leading food delivery business.
EMaC also had another strong year outpacing the market growing extremely by 34%. And then iFood was the substantial driver of the 121% growth in the food delivery segment.
On Slide 18, we analyze the development spend trend. So again, a brief reminder, development spend is not R&D and it's not CapEx, it reflects the pricing of a current operating losses included by businesses yet to reach scale.
The investment will dive growth in revenue and in profitability into the future. So a real encouraging trend to see the total spending is on 12% year-on-year, a natural reversal of several years of increases.
And on the older investments, it's down by similar level and amounted to $584 million. Many of our earlier bets in ecommerce are moving towards profitability.
Moving to the newer investments, we also saw a decrease there in the overall investment of $372 million, and that's the first time that that's happened. Letgo's development spend is down by meaningful 29% year-on-year, MakeMyTrip's investment in the hotel category is down by 18% as it continues to skew it's topline and reduce [indiscernible].
Please note that we will be including Delivery Hero and Swiggy into the new investment schedule going forward, those will not be in full year '17. So moving to Slide 19, we reflect the drivers of the 52% year-on-year growth in trading profits.
So as I mentioned earlier, that's 15% higher than the year before, reflecting the benefit of increased scale in ecommerce with several businesses turning profitable or narrowing their investments. In fact, ecommerce bottom-line improved by a very strong 24% which is a much difference to the 5% decline in full year '17.
Losses reduced by meaningful $193 million for $673 million. We also saw similar trend in video entertainment with profits improving 24%, and remember, that's after 32% decline in full year '17.
On Slide 20, we reflect the progress we have made in improving margins in the ecommerce segment. The negative trading margins in ecommerce improved from 35% last year to 19%; that's substantial, it's a halving of negative margins in just one margin.
You will notice an improvement in margins across the portfolio with food being the only exceptions as then with the size to step-up our investment to expand our market share. In Classifieds, strong revenue growth and high EBITDA margins resulted in halving margins improvement by a massive 59%.
Our share of MakeMyTrip losses reduced by 19%, the business benefited from the merger with Ibibio in healthy growth. Payments improved it's margins by 18%, following real strong improvements across the portfolio.
Then on Slide 21 we unpack the financial performance of our profitable ecommerce entities. Just to point out that the full year '17 numbers excludes disposed-off assets such as letgo, so the focus is on the performance of the current portfolio.
Profitable businesses demonstrated [indiscernible]. Revenue was up 77% to $1.7 billion, so these are sizeable businesses.
And then the trading profit increased 52% to $352 million. So see the large jump in revenues and that's due to EMaC in Romania turning profitable, and that's quite a big business.
And notable milestone is that the total ecommerce profits are now similar to those of the video entertainment segment. During ecommerce, the profitability in the aggregates remains a key focus for us.
So Slide 22, we breakout the financial performance of classifieds. We've stripped out these numbers investment in letgo.
As you can see, the revenues are at $624 million, and that's a 35% year-on-year growth. That was driven by a very strong performance from [indiscernible]; they grew their revenues 28% year-on-year.
Then we saw growth -- very strong revenue in many other markets including Poland, Ukraine, Romania; in fact in Poland, revenues grew 60%. Letgo [ph] had an outstanding performance growing their revenue 69% year-on-year.
The segment reached an important milestone of becoming profitable and also free cash flow generative in the past year. The trading profit amounted to $63 million, and that's compared to the loss of $78 million in the prior year.
So that's a swing of $141 million. We though reached breakeven which is another important milestone; so the aim going forward is to sustain the current trajectory as we leverage our strong market positions and expand the service and offerings.
On the following slide, Slide 23; we'll see the financial headlines of the payment segment. Revenue growth was a very strong 37% and that's a 5% acceleration year-on-year driven by 28% increase in the number of daily transactions, and then as Bob mentioned, 53% growth in the total payment value which now totals more than $25 million.
India, makes up more than 47% of that total, so this is potentially a very sizeable business for us. Besides increased scale, the segment benefited from automation and platform consolidation.
The combined benefit of revenue growth and the lower cost base grows at 53% reduction in trading loss. 2018 was a pivotal year for PayU as it transformed from a payment business to a broader fintech group.
As part of this journey, PayU invested $99 million from Kreditech, a credit scoring business; and then it also invested $100 million in Remitly, a tech-driven remittances business. So on Slide 24, we reflect the strong growth in the online food delivery segment.
iFood led the charge, revenues more than doubled to $117 million with full strong order growth with 116% year-on-year growth. We moved from a trading profit in the five years of trading loss as I mentioned earlier is a deliberate decision driven by our confidence, and as a result, we were able to increase our market share considerably.
iFood now leads many of it's competitors and is pulling away from players like UberEats. We increased our stake in Delivery Hero from 10% to 23% in effects of March 2018.
Delivery Hero also grew very strongly delivering 60% revenue growth, and a 48% order volume growth. They are also delivering strong operating leverage.
So as Bob mentioned earlier, we acquired our initial 16% in Swiggy in June 2017, and last week commenced an additional $80 million taking our total stake to 24%. We are really encouraged by the progress that Swiggy is making, we are bringing a significantly differentiated opposition to the Indian consumer.
Then on Slide 25, we show the performance of the video entertainment business for the year. Revenues increased by 7% to $3.7 billion.
We're really proud of what the team has done achieving $1 million DTT subscriber growth and 528,000 DTH subscriber growth in what I mean earlier being a very tough macroeconomic backdrop. I think that's an exceptional job by Imtiaz and his team.
The trading profit increased by meaningful 24% to $369 million; this reverses two-years of declines. In addition to adding subscribers, the focus of the business remains on optimizing it's cost structures.
We were able to reduce operating expenses by $70 million which boosted trading margins from 8% to 10%. Despite continued upward pressure on sport content right, and our decision to increase investment in local content, we've only seen a marginal increase of 5% in the programming cost.
The strongest South African rand impacted positively but that was offset by a negative impact of another 25% devaluation of the naira, and we've now started to see devaluation in Mongolian coins or two [ph], having come down 7% year-on-year. Cash flow liquidity remains [indiscernible] in Angola but conditions improved in Nigeria considerably.
At the end of the year we had cash balances and trade receivables of $131 million exposed to currency weakness, but that's a significantly improved position given that we're now attracting cash out of Nigeria, so that balance is down 55% year-on-year. So on Slide 26, we outline the performance of our social and our internet platforms, both Tencent and mail.ru are investing in a number of new opportunities.
Tencent in payments, video, cloud amongst others; and in mail.ru in food delivery and in [indiscernible], it's fast growing marketplace business and in classifieds. Tencent's strong performance continues reflected in the 56% topline growth, operating profits grew a sizeable 41% sustaining a three year CAGR of 40%.
So as we've mentioned earlier, to maintain balance sheet flexibility we've trimmed our Tencent holding by 6% in March for net proceeds of $9.8 billion; that's the first time we've sold a share of our initial investments which took place in 2001. Tencent remains one of the very best growth enterprises in the world and we therefore remain firmly committed to the investment.
As part of the trim, we gave the commitment that we will not sell any further shares for at least three years. Mail.ru results were also solid.
On a non-GAAP basis, revenue grew 34%, so that's a significant pickup year-on-year that benefited from strong gaining revenues, a rise in advertising revenues and strong growth in the food delivery business. EBITDA increased 15% impacted by continued investment in new growth opportunities such as Delivery Club [ph], it's food delivery business.
So both these companies covered their financials in some detail and you can go to their websites for more information. Then moving to free cash flow generation at the center on Slide 27, you will see that the strong growth in our profitable ecommerce businesses which as I mentioned earlier was 52%, up year-on-year, drove greater contribution from the ecommerce segment to central cash flows.
Free cash inflows from these profitable units and the Tencent dividends amounted to $1.1 billion. So these [indiscernible] are now accounting for 53% of the total inflow in central cash flows, that's up from 42% last year.
The classified segment generated 77 more cash compared to last year. Then on Slide 28, we reinforced the message around our strong balance sheet.
As I mentioned earlier, the $9.8 billion raise with the Tencent trim has given us a very strong position of which to invest. At least $2.5 billion of that, and possibly more, if these assets continue to appreciate, we'll go towards sampling, put options from minority investees.
With the side we staple these in cash rather than in net cash shares to prevent dilution for our shareholders. During this change we've decided to also bring the quick option liability onto the balance sheet.
So continuing with the theme of limiting further dilution, we will also no longer be issuing new shares to cover share options for the employee share teams. We'll implement the share buyback program for the shares needed.
So we're going to use the rest of the cash to seek out investment opportunities in our three core segments and also look for guidance of long-term growth. On Slide 29, you can see we've had a very busy year in terms of M&A with new investments starting $2.2 billion.
[Indiscernible] continued posted year end and year-to-date, we've announced another $394 million of investment. We've now increased our stake in the business to 100% paying $190 million for the top act [ph].
In OLX, we invested $89 million, in the online car marketplace, Frontier Car Group, as part of our claims sustains a classified business model. [Indiscernible] invested $35 million in online care network, a fast growing company providing technology-driven home care solutions to the elderly.
Then folks, what is that investment returning for us? That's laid out nicely on Slide 30.
As you can see, if you consider all the internet investments since 2008, but excluding Tencent, advanced current market valuations the implied IRR is 17%. If you include Tencent, then it's close to 50%.
Now if you only look at the existing assets in the portfolio, then IRR is even stronger, 23%, which is significantly ahead of the NASDAQ and many of our peers. This track record is reinforced by the 32% IRR from the sale of Flipkart.
Our disciplined approach to capital allocation for [indiscernible] so that we continue at great returns through additional investments going forward. Folks, now on Slide 31 we summarize our approach to dealing with the holding company discount.
So as I've said before, we understand and acknowledge that this can induce [ph] a source of frustration, it's equally frustrating for us. We've taken several steps in the year to lock-in value.
We've seen increased profitability, disciplined capital allocation, and our ability to lock-in great returns with the Flipkart sale. We both did the balance sheet through asset sales to fund the future growth and we've taken further steps to remove dilution for our shareholders.
We've been held by disclosure, we've increased our engagements with our shareholders too. So the discount is not a capital allocation problem, a substructural issue, namely our file from the JSE; we make up more than 20% of the JSE Top 40 Index.
So this creates concentration for trends [ph]. We've got the newly introduced capping index which limits the participation of a single-line in the index with 10% if they find continue to be fore sellers of NASDAQ.
Now a significant amount of work has gone into uncovering further solutions to solve this structural issue. Dealer complex methods with significant implications for the long-term; they need detail and thorough analysis so they could make the right choices.
There are couple of good ideas that could have a significant impact, and we're at hard at work on these. If that prove viable, and then should have order proven, we'll come back and let you know more.
So finally on the subject of share buyback; as I've said before, we're not principally opposed to buybacks. There are useful way and an efficient way to return existing capital to shareholders.
We also acknowledge that a buyback can create an uplift in the intrinsic value given our discount. It may have a discount in the short-term but it doesn't solve the structural issue that causes the discount.
So it's quite possible that the discount will widen again without a more sustainable solution to our size [indiscernible]. But given our strong returns, short-term action that limits our future flexibility will hinder long-term returns.
As I've told you before, this is something we're just not prepared to do. If we can't find opportunities to invest at good returns, we will start returning cash to shareholders.
So folks, that concludes the financial section. I hope you [indiscernible] our excellent financial results, and particularly acceleration of revenue and trading profit growth, the excellent returns on invested capital to-date, reinforced by the planned Flipkart sale, our disciplined capital allocation which we hope inspire confidence in our ability to uncover great opportunities going forward.
Thank you for your attention, and your continued support which we really do value. I will hand it back to Bob.
Bob van Dijk
Alright. Many thanks, Basil.
So, I will close this off before we go to questions. So quickly, let's go to Slide 33.
I'd like to share some of our thoughts on the future. And as you see, we're on an inflection point with respect to the development of our ecommerce portfolio.
What we're planning to do is use our balance sheet to further accelerate growth in those core segments. Also selectively, we'll continue to look for new growth opportunities.
And all this is essential that we will continue to scale organically and will drive for profitability in everything we do. So we'll prioritize and have across the board technology and particularly, application of machine learning.
And finally, as Basil has laid out, we will take message to address discounts. So with that, thanks for your time.
And the operator will give you brief instruction on how to ask questions and how to take them.
Operator
[Operator Instructions] Our first question is from David Ferguson of Renaissance Capital.
David Ferguson
First, on OLX. Clearly, big achievement reaching profitability last year, but also quite a sharp contrast in the profitability between the first half, 19% and I think 2% in the second half of the year.
So maybe you can just talk a little bit about what sort of growth that stapled in investments in the second half? And why do you see the run rate in the current year; is it closer to the first half or the second half of the last year?
So that would be the first question. And then maybe second question, to talk about the discounts.
On Basil's last slide, work in progress, primary listings; what work would need to be done or maybe what would you like to see happen for you to push the button and go down that would -- what would your criteria be?
Basil Sgourdos
To go with the classified question first, so we always see as another thing classified, right, first half to second half, generally the second half of the year is where we invest further. Also, we're evolving our global tech platform in Panamera [ph] and that picked up momentum in the second half of the year but that investment will replace the marketing investment.
So the technology-driven growth will come through stronger. And I wouldn't read too much into it, I think the outlook for classifieds look strong, we'll continue to see strong revenue growth and margin expansion and profitability in the year ahead; so it's not like we're going into another deep investment cycle again.
And then remember, I also pointed out that we've also seen a reduction in the letgo development spend year-on-year, so that's another positive for the overall profitability of the segment. And to deal with your second question; we're not waiting for anything from the market and there is lots of work to do in bringing the potential options that we would like to follow preparations.
So there is many things to unpack and to deal with. Once we've done that work and we're ready, we'll go to our board and then we'll come back and let you know what we'll be doing.
Operator
The next question is from Caesar [ph] of Bank of America Merrill Lynch.
Unidentified Analyst
The first one is on ecommerce, obviously on the classified you've made significant progress to invest cluster into profitability but the ecommerce still consolidates -- remains loss-making. What can we expect going forward?
Second question would be on letgo; it seems that the lead that you have versus the number two in the U.S. is kind of stable.
When do you think is a good time to start monetizing this asset? And then third question would be on the potential changes to executive compensation, have you done some work on that and is there anything to announce?
Thank you so much.
Bob van Dijk
So on the first question, sort of the progress on profitability; I think if you look carefully at the other segments, I think you will see -- and Basil presented it, very significant progress in the profitability profile across all segments, right. So in aggregate you see a very meaningful reduction of that trading loss margins at almost half in the year that was, and that's actually trajectory -- I can't give you an exact forecast but the direction of travel is certainly going to be the same going forward.
And that's mainly because the bulk of these core business are just -- it's scaling properly and are seeing their cost base stabilize while revenues are growing quite quickly. And your second point around monetization in letgo; I would like to clarify, I think one of the things that we -- particularly, if you look at the last periods, as we've seen, letgo actually grow very significantly and it's achieving this by the same time reducing it's development spend year-over-year and that growth is very encouraging, certainly significantly less and actually gaining on the competition.
And at the same time, [indiscernible] team has actually started monetization effort, so it has introduced number of monetization features and so far it's actually, meaningfully ahead of the plan that they have submitted to us. And finally, for your question around compensation; so directionally there are three categories of changes that we're making.
First of all, what has been implemented already and what you may have seen is that we've changed the composition of the committees that deal with remuneration to make them much more international and also have directors in those committees that are of much lower tenure; so we hope that is appreciated by our investors. And there will also be a number of structured changes in our compensation around clawbacks and older requirements that you will read in detail in our remuneration report which will come out in July.
And finally, what you will also see in those reports that we've made a really significant stuff up in disclosure. I think we've heard the feedback that we provided not enough insights into particularly the correlation between performance and compensation outcomes, and I think we've done a good step-up.
So that reported part of integrated report comes out in July.
Operator
The next question is from Lisa Yang of Goldman Sachs.
Lisa Yang
Now with the profitable ecommerce assets contributing as much of HD, I'm just wondering that tends to your view regarding the strategic options for video entertainment, and does it make a potential disposal more likely in the near-term? Secondly, I think there were some comments in the press from you Bob saying, we're making some progress towards separate listing of some of the ecommerce assets.
So could you may be give us a bit more color on the timeline that you're thinking about the whole or part of the business? And given obviously your M&A ambitions, I mean do you need to consider some of the existing positions before listing those assets?
And the last question is regarding the MSCI proposal to reduce the waiting of companies with job holding structure; just wondering your initial thoughts on the likelihood of that going forward? And what could you do to -- meeting that impact on Naspers if the rule is implemented?
Thanks.
Bob van Dijk
I think if you look at -- you're right, so if we see a significant demand of cash coming from our off-ecommerce businesses -- and I think that's a very encouraging development, it talks to the inflection point that I mentioned earlier. I think what the priority is for the team on video entertainment is that we are -- we've made progress in the turnaround in Sub Star [ph] in Africa but that work is not done, so I think there has been good subscriber growth, there have been cost reduction but the parts will have to continue.
And I think if that's executed well, it gives us a lot of strategic options and flexibility. On your second point around this, I think actually Basil was relatively clear on that and there is nothing further I can add to what Basil already covered.
And Basil, maybe you can talk us through the index.
Basil Sgourdos
You said, you know, the MSCI is being down the chart a couple of times before and stuck with it's current approach. And I guess it's right to ask the question again, at the end of the day, we've made the submission despite many many others, expanding like this wouldn't be the right thing to do.
It would basically exclude some of the best returning companies out there, what reduced the participation in the index and I'm not sure if that makes sense. And even if they would just go ahead, there is a three year window that they think that they would allow for this transition to happen and then we would adjust accordingly.
But at this stage we made up -- we're not too concerned about it.
Operator
The next question is from Tim Rose [ph] of Jefferies.
Unidentified Analyst
Firstly, you've stressed the importance of capital allocation and the returns you're generating and the results for gratifying -- the capital markets that you produced in the latter half of FY17, and undertook to sort of repeat that in coming years. When should we expect to kind of update?
I imagine Flipkart has only helped, so it will be good to see. And the second question just regarding the accounting now, for the put options, the founders have -- quite a big increase in the item from the half year to the full year, and [indiscernible].
Is that revenue growth of the businesses in net hold of value that you would have to pay going out? And should we therefore expect to see that number kind of spiraling up even though it's contingent liability?
Basil Sgourdos
Just as a headline number, we've just updated our computation relying IRR, they -- we remain on text for the numbers that I've communicated at Investor Day are the same as they are today. What we genuinely would like to do is going to come out with those numbers -- post on the second half results of the large view plan, to update your models and update some of the parts maybe actually we can use that to put in, and we'll update the numbers.
So we will be able to act in the second half results. Then on the accounting put-off [ph], of course, it's the value of the underlying business that goes up.
So then will reliability and these businesses are doing really well, they are executing well, I spoke to some of the highlights earlier and that's driving the increase in value.
Operator
The next question is from [indiscernible].
Unidentified Analyst
On Slide 17, for the first time mentioned a $2 billion kind of a revenue target for the classified businesses; can you comment if that's a realistic -- let's say 3 to 5 year achievable target or would it be more of a 5 to 10 year aspirational number, the $2 billion? If you can comment on that.
And then just on Slide 31, where Basil commented on the discount; you mentioned that you've invested [indiscernible] and that's not possible. But then in the final column, you commented primary listings are still being invested [ph].
So I just want to clarify, is that primary listings refer to listings off subsidiaries or is that the primary listing of overall listeners group?
Bob van Dijk
I think the $2 billion is a directional number, right. I think the growth part you've seen, I think that's encouraging and I think when I talk to Slide 8, I hope you will see that actually on a number of dimension, both in operational penetration, as well as monetizations, as well as the more extension; there are still a great significant amount of runway.
So it's not a forecast but it's an illustration I think how much further opportunity we see in the second.
Basil Sgourdos
On your second question, I really can't go into much detail until we've actually been through all the work, despite of what it is that we're going to do, how it's going to look, get our board approved, and then we'll come back and we'll communicate in great detail as to why we choose A over B over C and what might follow that. So I appreciate your patience, just know that we're hard at work here, we're doing lots of work and we're trying to move this forward as quickly as we can.
Operator
The next question is from [indiscernible].
Unidentified Analyst
Very simple question on both, ecommerce and classifieds. I mean hither to [ph] you've been investing in growth assets; and in both cases I think the market is looking longer term in how these sectors will consolidate.
Is there any chance now that you obviously have a much larger more chest in terms of capital resources? You would shift to potentially acquiring more mature businesses and looking to consolidate some of those sectors on a global basis or should we expect that you will continue investing mostly in early stage assets?
And if that's the case, maybe you could talk about the competition for those assets given the many other funds out there that are chasing them?
Bob van Dijk
I think it's important to say that we are still a growth focused investor, and yes, that hasn't changed. So the probability for us investing in very mature businesses, even in this space I would say is not the most likely outcome.
We are still looking for high growth opportunity and I think it's fair to say that lot of capital pursuing these opportunities -- I think we've been demonstrating that we -- because we understand certain segments really well, we're able to catch opportunities quicker than most and actually derive a great return. And I think examples of a company like Swiggy is one where -- yes, there are ideally race into space but we've also managed to catch investment opportunities early and benefit from that.
Operator
The next question is from John Kim from Deutsche Bank.
John Kim
Quick question on ecommerce; when we think about divisional profitability, it is still impromptu [ph] as a clump, there is a portion of the market that may not be giving you credit until the cluster is profitable. In some sense we're trading profitability for growth; if we back out the profitable parts of the business, the unprofitable bits I think are running fairly constantly at a negative 50% margin.
My question to you is, how do you think about the trade here? And what timeline should we think about -- what timeframe should we use for divisional breakeven?
Bob van Dijk
I think within the loss-making part of the businesses, I think there is some really early stage business that will take some time but also our businesses that are improving quite rapidly, and I think the portfolio as a whole -- I mean, it's hard to predict the future but the overall profitability of, say the larger business is growing quicker than the cash consuming newer bets and aggregate. So I think that direction I expect to continue, it's hard to know where the new things come along [indiscernible], I think that is going to continue.
So profitability growth from the profitable businesses will outstrip some of the investments in the earlier stage businesses.
Basil Sgourdos
When we think about the forward outlook of that capital allocation, we really assessing against the revenue opportunity and the return from the table, and particularly, in businesses that we've been in for a couple of years, we're able to increase our confidence and make us cold [ph]. And if we don't see the opportunity and we don't see the returns, we set them down and we've done that this year, we've done that in prior years.
So we will continue to remain very, very disciplined.
Operator
The next question is from [indiscernible].
Unidentified Analyst
Through budget and from results and your final results, you've achieved fantastic growth in your core headline earnings relative to that of Tencent. You've obviously achieved sale on profits within segments of the classified business and your development spend is coming down.
How do you see that playing out going forward? Do you think that you will continue to be able to grow the core headline earnings ahead of that of Tencent's given that your development spend is eking out?
And again, maybe tied into the core dividend per share that you declared of going up 12%; or do you see perhaps that as you continue to shape your investments then in fact it tends to be more prudent when it comes to your capital and to your dividends?
Bob van Dijk
We don't give guidance, it is hard to do. I think we have the aspiration to allocate our capital well.
I think directionally see that we have won again [ph] the overall ecommerce segment to profitability and we make really good progress on that which that's really what I can tell you at this point of time.
Basil Sgourdos
Look, at the another day what drives us is the scale of our businesses and the opportunity that's in front of us. So we've got -- we started off early in the segment and we're now getting some really sizeable businesses, and those five revenues and profits and this one execution bodes well for the future trajectory, we'll continue to look for opportunities that can deliver good returns to our shareholders.
If that come along, it may change the financial profile, if not, then you will see strong cash flows, strong profits, and then on reclining [ph] basis, begin the stock returning to shareholders.
Unidentified Analyst
Maybe Basil, if you could just elaborate at the New York conference in December you talked quite a lot about the J-curve [ph], in two or three years you get to profit. Given where -- how the portfolio has evolved over the last six months, has anything changed in terms of that guidance?
Basil Sgourdos
No, so -- look, we didn't give guidance but what I can tell you is -- what I can say is that as we look at the three year outlook of the group and we did that again as part of the current budget cycle and the three year outlook remains on-track; and in fact, better in some areas.
Operator
[Operator Instructions] Our next question is from Ziyad Joosub of HSBC.
Ziyad Joosub
I'd just like to ask a question on capital allocation into your three key verticals for nice [ph] food and classifieds you've got a very extensive portfolio [indiscernible] countries in both verticals; and in the payment space we're seeing a huge concentration in one country, India. If you could maybe just give a little bit more color over the next few years when you're investing to these three key verticals -- are you looking at growing this footprint or do you think your footprint is pretty attractive?
And now maybe through organic investments you're just going to scale this footprint or is there still scope for some large-scale M&A in these three key verticals?
Bob van Dijk
It's a fair question but I think it's generally, really -- first hard and unwise to expect really about future M&A. I think what we see is that directionally I think there is a lot of opportunity in adjacent formats in classifieds, I think I've mentioned it when we spoke through the segment.
For example; more convenient transaction formats, verticals are all things that customers really want, and where we also see very significant synergies with the core business we have. So I think you will see more of that.
In payments, again, we invest in credits -- first of all, because it's a big opportunity but also there are very significant synergies with our PSP business, right, we generate data. Now, we generate lots of data on what customers buy, how they buy it; and allows us to be in a position to scale that credit business.
So I think what we're looking for is high growth opportunities that will give us good return, where we can also leverage the footprint that we already have and I think that's directionally where you will see most of the activity.
Ziyad Joosub
Just a quick follow-up; on the specialized convenient transactions in the classified space; could you maybe just give a bit more color how these particular transactions drive higher ARPU than let's say the traditional virtualization [ph] of laptops?
Bob van Dijk
Absolutely. I will give you a specific example; so we brought a company in the Emirates that does exactly that, in fact, we bought two.
So what happens in a normal classifieds environment, when you want to sell a vehicle, you make a listing, you post it, and then you get reactions, and hopefully you select a buyer and you come to a transaction. You typically pay a listing fee for the vehicle, it can be anywhere, depending on the market -- say $10, and in the high end, maybe $50, $60, $70.
Now in this -- say cash at for me model [ph], what typically would happen is that there is a fee that is a percentage of the value of the vehicle. Now where the ARPUs can easily run into several hundreds of dollars or closer to a $1,000 because you're actually offering a much broader service, you're actually helping somebody to inspect your vehicle, you hope to actually sell the vehicle and people get immediate cash payment for their car.
So that's why the ARPU is so much higher in that transaction format.
Operator
The next question is a follow-up from Ken Rose [ph].
Unidentified Analyst
And question on working capital; obviously this relates to the consolidated business and the balance there as you observe is shifting with classifieds increasing in scale versus video entertainment. You made a couple of comments about why working capital has gone up for buying sporting rights and so on that you implied with kind of bit of a one-off or maybe a multi-year point; but also promotional activity.
What is ecommerce relatively speaking even if video entertainment recovers a bit, if ecommerce business continue to grow what's the impact on that sort of terms of trade and the shape of working capital?
Bob van Dijk
Right now the substantial drive of working capital is our video entertainment business, and it's driven by -- as we say, prepayments and content acquisition of decoders, and these are fairly lumpy things that don't happen every year and we buy rights three years ahead. We did a number of key renewals last year, so we did the EPL, the Champions League, and a couple of other key rights.
And then also the year before this one, we actually had lots of decoder inventory because we've accumulated stock and as we having anticipated the macroeconomic downturn; now that inventory was fully utilized, that we had to buy part of it last year to deliver the strong that you see now and that growth continues. So really it's a swing, it's hard to predict because lumpiness [ph] is really driven by how much we grow and what are these content deals we go into but it should hopefully be better in the year ahead.
In terms of our core ecommerce businesses, the working capital investment is very, very low; classifieds, payments -- almost no working capital investment, in fact in some cases they actually generate working capital. And then on our two etail businesses; so Takealot and EMaC, we've also seen big improvements.
Like EMaC is already networking capital positive, so as it grows, it actually generates working capital; Takealot will get there in time. So overall, I think the investment in working capital is going to be really low.
Operator
Ladies and gentlemen, our last question will be from Andrea Rafael from Morgan Stanley.
Andrea Rafael
Now that you have a much higher sort of cash balance that you've had in the last few years, has your tolerance for larger ticket sizes increased? Related to that, I mean some of the sort of larger deals that you've done recently have been for minority stakes, including for companies like Delivery Hero, Swiggy, Kreditech, Remitly; is that a function of the sort of broader funding environment that we see right now?
Would you prefer to sort of take controlling stake, does it not matter because you can still sort of influence them?
Bob van Dijk
I think what I would say is it changes your appetite, it does change your ability to set up to higher ticket sizes. It doesn't at all change our requirements for a return, so they are absolutely nothing change, it will be diligent as before.
If we see a great opportunity upscale, it will be easier for us to pursue it now than it previously was. When it comes to minority stakes, I think if you look back, we have a good history of investing minority stakes with great success.
So I think if you look at our Flipkart investment, it's probably the best example of that. We actually did that in 2012, so we've had two people engage with their board and we've had an excellent relationship that's been very strategic.
It's changed now but I think control is not necessary to be -- to have significant strategic influence, and we've been demonstrating how that can work well.
Operator
Thank you very much. Gentlemen, we have no further questions in the queue.
Do you have any closing comments?
Bob van Dijk
No, I wanted to thank everybody for listening, for great questions and I hope you'll be as exciting about the results that we've just presented and I hope to meet some of you in the next meeting [ph].
Operator
Thank you very much. Ladies and gentlemen, that concludes today's conference.
You may now disconnect your lines.