Naspers Ltd and Prosus NV (PROSY) Q2 2022 Earnings Call Transcript

Naspers Ltd and Prosus NV (OTCPK:PROSY) Q2 2022 Earnings Conference Call November 23, 2022 10:00 AM ET

Company Participants

Bob van Dijk – CEO & Executive Director

Vasileios Sgourdos – CFO, Financial Director & Executive Director

Charles Searle – Non-Executive Director, Tencent Holdings Limited

Romain Voog – CEO of Classifieds, Naspers Limited

Eoin Ryan – Head, IR, Naspers Limited

Conference Call Participants

Cesar Tiron – Bank of America Merrill Lynch

William Packer – BNP Paribas Exane

Silvia Cuneo – Deutsche Bank

Christopher Johnen – HSBC

Warwick Bam – Avior Capital Markets

Catherine O’Neill – Citi

Lisa Yang – Goldman Sachs

Operator

Good day, ladies and gentlemen, and welcome to the Naspers and Prosus Interim Results Presentation. [Operator Instructions]. I’d like to turn the conference over to the CEO, Mr. Bob van Dijk. Please go ahead.

Bob van Dijk

I just want to make sure you can hear also right because we had some audio issues. Operator, can you hear us all right?

Operator

Yes, we can. So you can go ahead.

Bob van Dijk

All right. Thank you, and thanks, everybody, for joining the call today. I’ll be relatively brief with my remarks today because we will provide an in-depth look at our business when we get together for Capital Markets Day on December the 6th. Vasileios will come off to me and will discuss our financial performance — and then after that, I have the rest of my management team on the lines as well, so you can ask them any questions that you will have. So let’s start on Slide 5 with the key highlights of a tough but successful year. And we navigated a quite volatile environment. So we drove solid execution with a strong balance sheet, which actually got progressively stronger through the period.

So first, we delivered a strong set of results with just over 40% revenue growth across our e-commerce business. Second, times have fundamentally changed, and we are adapting quickly. As we told you we would, we invested in the future growth of our business during the period. This is fundamentally the right thing to do for the long-term health of those businesses. Now that we have achieved scale across our portfolio, we will accelerate the path to profitability while maintaining our leading competitive positions. So my ambition is for the consolidated e-commerce portfolio to reach profitability in H1 of financial year 2025. And this will require us to rethink priorities and adjust our investments accordingly.

Third, we launched an open-ended buyback program that is unlocking tremendous value and I’ll speak more about it shortly. Fourth, our financial position remains excellent. So we sit in a net cash position with plenty of liquidity, and we have very attractive rates on our debt. And I believe this will be a strategic advantage for us, while many others may face funding issues. Finally, we continue to make significant progress on our sustainability initiatives, which are core to our strategy. Now let’s turn to Slide 5. It’s one…

Operator

Ladies and gentlemen, please hold. We are just reconnecting the presenters on a different line. Please hold. You can continue on the slide, please sir.

Bob van Dijk

All right. Sorry, folks. We had some audio issues here. Let me start again from Slide 6. Slide 6 is one that you’ve probably seen before, but it’s worth repeating because it’s really foundational to what you should expect from us as a group. So we have a unique portfolio of consumer Internet businesses that are led by great entrepreneurs and great leaders. And some we own and operate like OLX, like iFood, PayU and some our associates like Tencent or Delivery Hero. And in volatile times like this where the market struggles to form a consistent view on valuation.

Our position as an operator as well as an investor is actually increasingly an important advantage. We have a strong track record of identifying opportunities at an early stage and then scaling that opportunity into really valuable and sustainable businesses. And going forward, as we drive our business to profitability, we will also be more structurally focused on how we best crystallize value and do this in a systematic and in a repeatable way. We are focused on growing net asset value per share. And as valuations have dropped globally, we have progressively repurchased shares.

I’m very comfortable continuing to do this as long as our assets trade at a significant discount. The discount has created a unique opportunity for the group to leverage its returns in a low risk way. Longer term, we have grown our net asset value from a net invested capital base of around $15 billion to over $127 billion, and I’m confident we will continue to create and crystallize even more value over time.

Now if we turn to Slide 7, you will see strong execution across our segments with each delivering between 30% and 64% growth. And this is despite tough year-on-year comparisons and a clearly weaker macro backdrop. Support to all of this is leveraging our online platforms to make off-line transactions more efficient, and we’re building deeper ecosystems around our core products. All our large classified markets now operate fully integrated vertical service in real estate and autos. And in addition, we have well-established pay and ship options. This takes us beyond the position of facilitator and right into the heart of the transaction and recorded over 100,000 auto transactions in the last 6 months.

We made similar progress in food delivery, where iFood and Swiggy are expanding beyond rents from delivery into groceries and convenience. And this helped our portfolio to drive $4.5 billion of GMV for more than 400 million orders in the first half. So our payments and ad tech teams are also making excellent progress showing revenue growth of 57% and 30%, respectively, with a clear strategy for scale and profitability. As I mentioned a bit earlier, we are adapting to a changing macro environment.

And you can see here on Slide 8 that we have prioritized balance sheet strength and investments in our own business and stock over external M&A. So first, we deployed less capital overall, and we evolved our approach towards increased organic investments in areas of our business with highest potential, notably Autos, at OLX convenience and food and credit in payments. We will continue to look at all external opportunities, but the bar is high, and it will require great conviction and lower risk. And actually, a good example of this is our purchase of the remaining 33% of iFood. So I’m really confident this will generate an exceptional return. And as you can see from today’s results, iFood is firing on all cylinders.

And finally, we are investing in Tencent and the rest of our businesses by buying back our stock every day, and this is constantly enhancing our net asset value per share. Now we get often asked what we are investing in. And Slide 9 gives more detail on the specifics of this investment. So at the Capital Markets Day, we will dive into each of these initiatives in greater detail. So today, I’ll just make 3 important points. So first, the investment is mainly in businesses we own and operate, which is where we have strategic control and the ability to calibrate spend. Second, in the past years, we invested to ramp up customer…

Operator

[Operator Instructions].

Bob van Dijk

I’m sorry about the — we’re having some real connectivity issues here in Capetown. We’ll try to get a fix, hope it works now. So I think I just lost you at Slide 8 where we are. I think it’s worth repeating actually investing in Tencent and the rest of our business by buying back our stock every day. And I’m sure you noticed, but this is actually constantly enhancing our net asset value per share. Now we move to Slide 9, we often get asked what we’re investing in. And Slide 9 gives more detail on the specifics of this investment. And at the Capital Markets Day, we will dive into each of these initiatives in greater detail. So today, I’ll just make 3 important points.

So first, the investment is mainly in businesses we own and operate, which is where we have strategic control and the ability to calibrate spend. Second, in the past year, we invested to ramp up customer adoption to relatively underpenetrated markets. So that means that we invest in branding, we invest in incentives. We invest, for example, in marketing, in our Indian credit business. We also have been setting up new dark stores at iFood and new inspection centers at OLX Autos.

But as these businesses are gaining traction, you will see operating leverage. And in cases where we’re not successful, we’ll make sure that costs will rapidly be cut. But either way, we see a clear cost to significantly lower spend over the next couple of years. Third, you can see we’re generating great traction from this investment. So OLX Autos have seen revenues tripled over the last 2 years. PayU grew its credit revenues by close to 3x and iFood has more than doubled GMV on convenience orders.

So as I mentioned earlier, I believe repurchasing our own stock is a great use of our capital right now, and you should expect the buyback program to continue for the foreseeable future. And Slide 10 shows you why. So each day, and you probably noticed that each day, we sell a small amount of Tencent shares and immediately buy Tencent, but also our own e-commerce assets back at effectively at 40% discount. That significantly improves our net added value per share and creates permanent value, which will compound over time. So to date, we’ve invested $5.8 billion buying back shares.

And Prosus has sold 4% of its NAV and at the same time, reduced its economic share down by 7%, that results in a 3% net per share uplift so far. It’s a good start, and as long as the discount remains elevated, the impact will increase cumulatively as we have shown on the left-hand chart. We are on pace to invest about $13 billion by June 2023, and that would bring the accretion to 7% for the first 12 months. And if we win the program at the same pace and discount level for another 24 months, the accretion will be close to 25%.

Another important benefit is when conditions eventually approve when we start to grow NAV again, then the enhancement will be even greater. So on the right-hand side, we show that if our portfolio generated a 20% IRR for the next 3 years, the buyback program would enhance this to over 29% as we are reducing the share count at a faster pace than the NAV. Now finally, before I close off on the share repurchase program, I want to be crystal clear on one thing. So 100% of the value created by this program is from us arbitraging the value of our assets against our market capitalization. The bigger the discount, the bigger the benefit, and it has nothing to do with Tencent’s prevailing valuation as we sell and buy almost simultaneously.

In fact, the key benefit is that to date, we have increased our exposure to Tencent by 1.4 on a per share basis, as you can see in Slide 11. So Tencent is a phenomenal business. It has a unique position in the China Internet landscape. Has been led by a world-class leadership team and has a proven track record of operating through all types of environments. And from our perspective, we remain absolutely committed to being a very large shareholder for a long time, and we see still tremendous upside potential over the long term.

On November 16, Tencent announced it will distribute Meituan shares to its shareholders in March in next year. When we receive these shares, we’ll consider them as held for sale, and we will evaluate market conditions, timing and pricing to optimize value for our shareholders to any transaction. Now in summary, I’m confident with our execution in a difficult environment and the steps we take is actually get the company ready for better times ahead.

In summary I’m confident with our execution in a difficult environment and the steps we take is actually get the company ready for better times ahead. And if Tencent remains grounded and we are confident that it will. The process should benefit in an accelerated fashion and there’s basically 4 initiatives that underlie that become drivers of our valuation. So first, the compounding effects and the continuation of the share repurchase program; second, a consistently improving profitability profile of our e-commerce portfolio while maintaining our sale and competitive position; number 3, the crystallization of assets over time and 4 further simplification of the group’s structure over time.

So that’s where I’ll finish. I hope the call will be more stable from here, and I’ll turn it over to Vasileios.

Vasileios Sgourdos

Thank you, Bob. Hello, everyone, and thanks for joining us today. It’s pleased for us to discuss. So I’m going to get right into it. On Slide 13, you’ll see the highlights of the 6 months financial performance. First, I call up a stellar growth of 41% year-on-year of our e-commerce businesses. This is differentiated, given the macro backdrop. It delivers increasing scale in the e-commerce extensions, we are investing to build and progress their path to profitability.

Our reported results and growth were materially impacted by negative foreign currency translation. Its impact on revenue was quite significant, 7% or $1.2 billion, but less renounced at 3% or $93 million for trading profit. To get a true operating view of the results, our speed to organic growth, excluding foreign exchange and M&A. Group revenue measured on an economic interest basis grew 9% to $16.5 billion. The strong e-commerce growth of 41% was offset by lower growth from Tencent.

We too were not spared the impact of the sharp market connection, and we had to record impairments of $1.5 billion on our listed assets and a few private investments, too. Impairments are excluded from core headline earnings and trading profit. We remain confident in the long-term potential of Delivery Hero and other listed investees. Group trading profit of $1.4 billion and lower core headline earnings capture a reduction in caps and profits, the investment in the new e-commerce extensions and higher losses from e-commerce associates. Investment was primarily to scale and newer extensions in e-commerce subsidiaries. They are autos in classified, convenience in food delivery and retail and then credit in PayU.

The fast growth is evidence of the rapid path to reaching the financial scale. As they scale further, our focus and attention is on delivering an accelerated path to profitability. We are prioritizing the strongest opportunities and taking action fast where things don’t work. We are also very focused on driving efficiencies and cost reductions in our core consolidated businesses and driving margin expansion there. The benefits of these measures will be seen in the second half of this year and beyond.

Finally, our balance sheet remains strong with an excellent liquidity, which is another significant strength given the broader market backdrop. Slide 14 shows an e-commerce revenue growth of 41%, which is significant given the market context and the scale base that we’ve already built over the years. Etail was the only business to decline year-over-year, pressured by a challenging macro environment in Eastern Europe as a result of the war in Ukraine.

eMAG is scaling new initiatives to return the business to growth, while simultaneously driving efficiencies to limit the impact of the macro environment on its profitability. Turning to Slide 15. We break out the numbers — the consolidated revenue and revenue from associates. Both sets grew nicely during the period. Consolidated revenue grew 33%, tempered by eMAG, as I mentioned earlier. Excluding eMAG, though, consolidated revenue grew by a very strong 55% year-on-year. On Slide 16, you can see the increased organic investment in our consolidated businesses and the higher losses in the associates. Very important to understand that the cash needs of our business are only on the consolidated businesses. Associates and investees take care of their own funding via fund raisers.

The consolidated trading losses increased by $209 million to $449 million. This increase is driven by investment in the earlier stage e-commerce growth expenses on autos, credit and convenience delivery. The extensions account for $483 million of the consolidated loss, which means that our consolidated core businesses are, therefore, profitable in the aggregate. These extensions were all nascent businesses just a year ago and required investment to scale. They offer significant promise. They’re growing very fast and with that driving operating leverage. We are tracking capital to the best opportunities. Stepping back from the individual points, I’d like to conclude my comments on this slide by emphasizing that our financial flexibility, particularly during these times is differentiated.

Continued growth and cost action will yield benefits, which you will see in the second half of this year and in subsequent reports. Now let’s turn to each segment. Our focus on the consolidated businesses, which we directly manage. Lets start with food delivery and iFood on Slide 17. iFood in Brazil continues to scale and is delivering profitable growth in the core and a significantly improved margin. Revenue grew 39% as orders grew 14% to more than 400 million orders. This order growth and the higher average order value grew the GMV by 23% to $4.5 billion. This is healthy growth and more notable for the fact that we’re lapping COVID-19 tailwinds last year. Trading losses dropped by $38 million to $70 million as the core business became meaningfully more profitable. In the core restaurant food delivery business, iFood delivered trading profit of $45 million with a trading margin of 7%. So that’s an 8 percentage point improvement year-over-year.

Reduced customer acquisition costs, larger and average basket sizes and the benefit of introduction of new revenue streams drove this good improvement. In convenience, iFood operates a hybrid model of grocery marketplace and quick commerce delivery. iFood’s new initiatives grew orders by 153% to $46 million and GMV by 102% to $715 million. Revenue moved to $57 million as we invested to scale the business. Quick commerce now accounts for 9% of iFood’s revenues, and that’s essentially from lapping a year ago. Trading losses for the new initiatives increased only by $9 million to $95 million despite iFood’s increase in coverage to 55 cities and delivering around $1.9 million. Scaling revenue and gross margin improvements enabled expansion of the footprint without increasing losses too much.

There is still work to do to get to profitability, but we’re getting there faster due to tighter investment approach. We’re incredibly proud of what iFood team have achieved, and we expect significantly more shareholder value to be both in coming years. Following takeaway shareholder approval, which was obtained last week, we have subsequently concluded the 33% minority buyout of iFood. So let’s turn now to Slide 18, where classified for strong growth driven by OLX Autos.

The graph from this slide exclude Avito, which was a discontinued operation due to its sale in October 2022 for $2.4 billion. Classifieds overcame several significant challenges in the past 6 months and demonstrated healthy growth at 64% year-over-year with the revenue for consolidated segment totaling $1.2 billion. Excluding Ukraine, the core classified business grew revenues by 20% to $217 million. Trading profit of $59 million represents a 9 percentage point improvement in margin to 27%.

This was driven by strong execution and by the team beginning to monetize our paying and ship initiatives. Operating metrics across our core classified business remained stable with 89 million active listings, 80 million monthly app users and 2.1 million paying listers. OLX Autos grew revenue by a very strong 84% to almost $1 billion. The business benefited from an acceleration in OLX Autos B2C and consumer financing initiatives. During the first half of the year, OLX Autos supported 18,900 average monthly transactions. And that totaled 114,000 cars sold, so up 60% year-over-year. OLX Autos is still a young business, and we’re investing to scale it. Trading losses increased to $206 million as we built out our retail B2C infrastructure, scaled our consumer financing and positioned the brand in key markets and scale the tech platform.

We’ll go about seeding the opportunity as we’re dealing with everything else in the balance of thought for manner and will increase our efforts to improve productivity, efficiency and cut costs to both a sustainable long-term business. So moving to payments and Fintech on Slide 19, where we continue to deliver growth and are seeing very positive momentum in our credit initiatives. PayU revenue grew 57% to $412 million, driven by a strong performance in the payments businesses in India and Turkey and a scaling credit business in India. Total number of transactions grew 17% year-over-year, and total payments value grew to 49%. Sorry grew by more than 49% to $46 billion. Trading profit was negatively impacted by a once-off provision of $18 million related to a Brazilian merchant facing financial difficulties.

We have adopted additional controls to ensure such events don’t reoccur. Excluding this provision, the business reported a trading loss of $7 million compared to a trading profit of $9 million in the prior period. This decline reflects a change in the payment mix and investment to build additional revenue streams. PayU is focused on driving future profitability by further diversifying its revenue streams and reducing costs. In credit and new initiatives, the business continued to scale quickly to reported revenue growth of 227%, which is significant and is also delivering an improved margin. We see a fairly rapid path to profitability for this business. Metrics for the business remained strong with loan issuances growing 209% to a total of $678 million on the back of robust demand for our transactional credit and personal loan products.

Meanwhile, the business also expanded our preapproved base to 66 million users and 52,000 merchants. With a sharp focus on risk, delinquency rates remained low at 3.25%. Credit now accounts for 8% of total payments from FinTech revenues, up from 2% in the prior period, and we expect that to continue to scale for GAAP. So let’s turn to our apex segment on Slide 20. Here, we are reinvesting to expand our offerings. Fast overflow and good habits were acquired during the first half of full year 2022.

The numbers in the prior year incorporate 2 and 4 months, respectively, of operating activity. Excluding the impact of M&A and foreign exchange, edtech revenue grew 50% to $63 million, and trading losses increased to $68 million as we invested behind new products and expand to more countries. Tech overflows metrics remained very strong with an average 200,000 new registrations to its community site every month. Total bookings growth was also very strong at 53%. The business grew revenue to 33% to $45 million, driven by stack overflow for teams, which contributed 49% of total revenue for the company. This compares to 32% in the prior year. Increased investment in engineering, product development and sales and marketing initiatives mainly to stack over local teams contributed to the trading loss of $42 million.

GoodHabitz revenue grew 27% to $18 million, while its geographic expansion drove the trading loss high to $11 million. The business is now focusing on these existing markets and returning to profitability. Education remains a significant and high potential sector, and we remain very excited about the potential for value creation from here. Across the group, we are managing our costs. On Slide 21, I set out some of these initiatives. The first, we’re focused solely on existing investments. We’re not taking on new challenges or new business models. The focus is on solidifying our positions in the markets we already have leadership in and where we see the most potential to create value. On the back of good growth, we will drive profitability and cash flow generation. Second, we are optimizing our already breakeven and profitable core businesses to grow their profits and expand their margins.

We are driving efficiencies, improving productivity and reducing costs. For example, at iFood, we’re driving larger basket sizes via a minimum order value, incorporating dynamic pricing for delivery fees and becoming more targeted in our discounting. Our artificial intelligence capabilities are strong and are delivering significant financial benefits for iFood, but also our other businesses. Third, while we already run the lean corporate structure, we’re examining costs and have committed to reducing costs at the corporate level. Our operating units are also doing the same and reducing their costs. Fourth, we will exit underperforming businesses. We have closed operations where we believe profitable growth cannot be sustained. We’ve closed food delivery business in Colombia and OLX Auto businesses in Peru and Ecuador and the focus is on optimizing our more successful businesses.

The folks rolling all of this up with the measures we’ve put in place, we expect core classifieds will sustain revenue growth and improve its profitability versus the first half. This will be different to prior years. In the past, you will recall that seasonal trends drive lower profitability in the second half of the year. This will no longer be the case. iFood’s core revenue and profitability will continue to expand in the second half of the year, and the core of PayU will return to profitability in the second half of the year. And as Bob mentioned, it’s our ambition to reach aggregate consolidated e-commerce profitability in the first half of the financial year ending 2025.

On Slide 22, we will reflect core headline earnings, which is an indicator of the after-tax operating performance of the group as it adjusts for nonoperating items. Core headline earnings decreased for 3 reasons: First, due to lower contribution from Tencent. Secondly, due to the investment to scale e-commerce expansions; and thirdly, due to increased investment from the eComms associates. So moving to Slide 23, where we deal with free cash flow. The decline reflects the investment to scale eComms expenses. Working capital investment reflected scale credit and auto businesses that we have both. Tax paid was lower, driven mainly by lower dividend taxes as no dividends were rescued from Avito. Increased CapEx reflects investment in E-Max distribution centers in Romania and Hungary.

Finally, pension remains a meaningful contributor to our cash flow with a dividend of $565 million. Our efforts to accelerate profitability and added focus on lessening working capital investment will also improve free cash flow outlook in the coming years. So moving to the balance sheet and funding of the business on Slide 24. We have a very strong balance sheet, comprising $15.8 billion in gross cash, growing a net cash position of just over $600 million. We have financial flexibility and acquisition sides well through the current climate, but also over time to capture any excellent opportunities if they appear.

Announcement on November 16 delivers a sizable $5.4 billion investment in listed makeline shares around March of 2023. As Bob mentioned earlier, we intend to classify them as held for sale, and we’ll evaluate our options based on market conversions to optimize value for you, our shareholders. To conclude, I’d like to leave you with the following key messages. The period to end September 2022 represented the peak of investment.

Moving into the second half of the year, we expect trading losses to reduce as we realize the benefits of our initiatives and of cost reductions. The opportunity for each of our business segments is significant, and we’re investing in a focused manner. We will scale the earlier-stage extension and improve margins in these and in the core businesses. Our ambition is to deliver consolidated e-commerce profitability in the first half of 2025. These actions will be a catalyst to crystallize and return value to shareholders. Our balance sheet is strong, and we are well positioned for the future. Over time, while the bar is high, we will capture any additional opportunities that might appear.

Finally, as Bob underlined, we will continue with the buyback program. It has created tremendous value. It’s enhancing the NAV per share, and that will compound over time. With that, I look forward to seeing you at our Capital Markets Day in just under 2 weeks’ time. We’ll dive more deeply into all our businesses and discuss a path to profitability. I hand back to Bob to close us off on the presentation and open the Q&A.

Bob van Dijk

Yes. Thanks, Vasileios. And to summarize, let’s have a look at Slide 26, our key priorities. So first, we will continue to be open in the buyback to take advantage of the discount permanently unlock value for shareholders, and we’re committed to reducing the discount and will continue to both NAV and NAV per share. Second, the fundamentals of our business remains strong, and we will continue to invest in a focused way to go more valuable businesses. At the same time, we’ve taken significant action to reduce costs across portfolio, and we have already passed the peak.

So you should expect a significant improvement in the second half of next — and in next year. Third, we have adjusted to new market realities by setting an even higher bar for M&A returns and preserving liquidity and taking all actions to manage expenses and free cash flow generation. Fourth, we will work towards simplifying the group structure over time increase life value through a transparent, predictable and releadable process. And fifth, we’ll continue to drive sustainability initiatives within our businesses.

I’m excited about the prospects of our strategy, and I hope we’ll see many of you in 2 weeks on Capital Market Day. We’ll go into a lot of the needs of the business. We’ll talk about capital allocation strategy and give more information on path to profitability and talk about how we think about. With that, I think we are done with this part, and we can open up the lines for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question is from Cesar Tiron of Bank of America.

Cesar Tiron

I have three questions, if that’s okay. The first one is really on operations. Just wanted to understand which of the verticals you expect to breakeven first. Is that okay? And if you can just remind us the key drivers — the second question is on M&A. So obviously, the balance sheet of the company is much stronger than it was in early 2022. And it will be even stronger since you’ve decided to put NetOne up for sale. I wanted to understand better the potential use of cash. Are you potentially going to take advantage of lower valuations for Internet assets and accelerate M&A? And then linked to that question, do you see new verticals that could emerge in the process portfolio? Or would any additional M&A be focused around the existing verticals?

Bob van Dijk

Yes. Thanks, for those questions. I will have the first go, and I’m sure Vasileios will complement in a few areas. So if you look at the drive to profitability, there’s a few things to mention there. I think first of all, it’s around scale, right? So I think important is to remember that our core key comments business are already profitable, right? So — or breakeven. So that’s the starting point. And then we have a number of adjacent businesses that are still in the investment phase. They were small before, but they’re getting actually quite sizable now. And as they scale, you will see operating leverage. And I think that’s a really key ingredient for us on our path to profitability. But we’re also very actively managing our cost and has a number of components. So I think if you look at our history, and I know you follow us for a while, we’ve typically gone and invested in many more adjacencies and other businesses around our core. And our focus is now really to stay within the footprint where we are today.

So a lot of our further investment results always from branching out much further into other areas. And we’re seeing now quite deliberately that we want to focus on where we are and building out these business models and seeing the operating leverage come through. Now I think the other part is that we obviously addressing cost at all levels in the group. We’re focusing on seeing where we can reduce indirect expenditure. And also, we have already taken action in recent months on some business we thought were subscale, we’re not going to get there. For example, Food Colombia and there is a few other small examples.

So a lot of our further investment results always from branching out much further into other areas. And we’re seeing now quite deliberately that we want to focus on where we are and building out these business models and seeing the operating leverage come through. Now I think the other part is that we obviously addressing cost at all levels in the group. We’re focusing on seeing where we can reduce indirect expenditure. And also, we have already taken action in recent months on some business we thought were subscale, we’re not going to get there. For example, Food Colombia and there is a few other small examples So if you add that all up, we start from a profitable core, we are getting operating leverage in our adjacencies and addressing cost and not branching out into further say, externalities or adjacencies, then we’re confident that we are going to get there. I think the — those actually are the same drivers across all verticals, if I think about it carefully. And where exactly you’ll see the quickest impact? I think it’s not that useful, but I think all of them are relatively close, that’s fair to say.

On the second question, Vasileios, maybe you want to have a first go I can start, and then you can come in. So what we’ve always done, I think, is this be very deliberate and careful on capital allocation. You shouldn’t expect that to change at all, even though we have a very strong cash position. I think the bar is high for investment at this point in time. Capital is more expensive than it was before, and we have to act accordingly. So I think what you can expect from us is a good example of something that fits a high return potential, relatively low-risk opportunities on buyout of the remainder of iFood, right? And I think we did it at a price of $1.5 billion, while a year ago, the price was — the asking price was about $3 billion.

Operator

The next question is from Will Packer of BNP Exane.

William Packer

Firstly, as you flagged the very welcome news that Tencent has announced plans to distribute their Meituan stake. With the buyback at capacity, how should we think about the potential use of proceeds? Could you distribute yourself with a dividend? Or is it going to be more M&A focused? And I suppose this is particularly important considering other states like Pinduoduo and Kuaishou we could speculate could come in due course. Secondly, within the OLX Autos business, the GPU was down notably in H1. Could you talk through the reasons behind that? Was it a mix of growth? I see the prices come down a little bit. It doesn’t look sufficient to drive the entire move. And then finally, perhaps a bit of a wider question on the classified space. We have a big focus on the transaction opportunity, pay and ship and digital retailing in autos. Could we get an update on how advanced you are product-wise and investment-wise, as a kind of key growth priority for the future?

Bob van Dijk

Well, thanks for the question. I got the first one and the third one, and I’m going to ask Eoin to answer your third question, if that’s okay. But would you mind speaking a little bit louder and repeating the second question because we didn’t get it.

William Packer

Sure. Absolutely. Within the OLX Autos business, the GPU contracted sharply in the first half of the year. Could you talk through the reasons behind that? And was it the mix of growth? Was it pricing? Could you just kind of update the factors at play.

Bob van Dijk

Now I heard it. I didn’t quite get it, but I think that question will also be for Romain. Let me talk a little bit about NetOne. So the decision was announced by Tencent the shares will be coming, I think, end of our first quarter or first calendar quarter. I think what we said today is that we hold those shares as an asset for sale, and we will look for the best way to find and crystallize value for our shareholders over time. And no, we have not announced any specific purpose for what we might do with it. Eoin would you mind having a go at the 2 other questions.

Operator

Sir, Romain is just rejoining, his line had disconnected. Romain you can continue.

Romain Voog

Thank you. Sorry, I dropped. Are you done, Bob, I address the second question. GPPU has decreased this first semester versus last year. There are 3 main reasons for that decrease. One is mix of countries where — the mix of countries have been de favorable. We used to have a bigger U.S. business. And as our other business grew more strongly and because our business is where we have lower margin, we have a negative mix effect on our GPPU margin. That is one reason. The second one is that you’ve seen the ISP upticking slightly in U.S. dollars. And finally, I would say FY ’22 was an exceptional year, and we called it out last year, and that has been through the entire industry.

So we had much higher ISPs and actually much higher margin. And what we’re seeing in this first part of the year, and we expect that to continue probably in the second part of the year is a lower ISP and a contraction of demand, which put pressure on our margins. So if you put all of that together, that would explain this GPPU decrease year-over-year. The third question you had was around classified, and there was a question around transaction chip and our product, how do we — how we were progressing on products. So let me address first PMC because that’s a strategic enabler of our classified business and an amazing opportunity for us to access a larger profit pool and revenue pool. So I’m very pleased to report that PMC been showing very strong progress and both progresses, we are measuring against 2 criteria.

One is, obviously, the number of transactions we’re able to conduct every month, and we are now at a stage where we conduct 2 million transactions through our PMC network every month, which is a 65% increase year-over-year, which is quite impressive. The second thing I’ll say, when it comes to transaction is that when we look at the number of our customers who are actually using PMC now in the category where it’s eligible, we have now one customer out of 2 choosing PMC as the way to get their product home. That option rate in such a short time frame.

Lastly, we made your success on unit economics. It is critical for us that we can deliver that product at a positive unit economics and positive margin. And I’m also very happy to report that we’ve done strong progress year-over-year, still working towards being profitable, but already have been able to triple the level of monetization and reduce our losses by 2 in percentage of our revenue. So very strong progress on improving our unit economics on PMC. Product wise, it’s a very long discussion, but I’ll summarize maybe in 1 or 2 sentence.

As our products are becoming more technology enabled, as our customers asking for more services and more category-specific products. We are, as the rest of industry face with the need to develop more and more tailored products to our customers. As we do so, it is critical for us to make sure we leverage the scale of single platforms. We are making our tech evolve into a single platform. You might recall, we already have a single platform on auto. We’re also creating a single platform for PMC across our 3 countries where we operate. So we have a unified single platform for PMC, which creates a tremendous leverage when it comes to pricing automation and experimentation.

We are also very much advanced, if not almost there on creating a single platform for real estate and on the way of doing it for our auto vertical business. So you can see about on the product side, we are creating the technology that enable us to ship and deliver more product more efficiently and be for scale. I’ll stop there because it’s a very long topic. Thank you.

Operator

And the next question is from Silvia Cuneo of Deutsche Bank.

Silvia Cuneo

I also have three. Regarding the trading profit progress in economies. So we are assuming that H1 was a big loss for all call segments so that we should polysequentially improve in terms of absolute last year. And age that are going to improve more rapidly perhaps within the midterm. Why? The second question about your ambition of consolidated economic profitability in 2025. Can you please discuss what assumptions as you factor tend to grow for the next 2 years given the current macro environment? And then third, do you put up talk a little bit more about the drivers of OLX before making the core classic business for countries that type Ukraine, maybe some color diabetic would be helpful.

Bob van Dijk

Could you repeat that please.

Silvia Cuneo

Which one?

Bob van Dijk

The one about — I heard Ukraine and — but I didn’t hear quite what you were asking.

Silvia Cuneo

Okay. It’s just about some caller about OLX business outside Ukraine for the other countries.

Bob van Dijk

Okay. Excellent. Thanks for that. I’ll ask Romain to answer that one. I’ll ask Vasileios to answer the first one, and I will take the second one. Vasileios, you want to go.

Vasileios Sgourdos

Your first question was whether the trading profit improvement in the second half of the year will be across each of the segments. And the answer is yes. We’re looking to drive improvements in each of the core segments. I think you asked about the pace of improvement and there, I can’t give you specifics, right? So we haven’t put our specific number for each. As you know, we haven’t — we don’t historically give guidance. But we do expect the improvement to be meaningful across the board.

Bob van Dijk

And I’ll try to answer your very interesting question on sort of our growth outlook for the segments in the next few years. So to be fair, I think there’s a lot of uncertainty in the world today, right? So we’re looking at sort of a heavily inflationary environment, an increasing rate environment, predictability is relatively low. But what I think I can say is that several of our business models have turned out to be relatively resilient for inflation. So I can ask Laurent to comment, but actually one of our most successful payer markets is Turkey, where obviously, inflation is a very significant issue in the market and has been for years now. I think also in classifieds, even if sort of there is a recessionary environment.

Typically, people still need to trade, and they still need to exchange goods. So while it does leave people worse of an economy as a whole, often classifieds ends up doing quite okay in a more difficult trading environment. And maybe the third sort of directional consideration is that most of our business grow a lot faster than the economies they operate in, right? So as an example, e-commerce grew 40%, while I think the average economic growth in the markets is probably 2% in the last half year.

So most of our growth comes from increased adoption, better monetization, whether the market growth plus 2% or minus 2% is usually not devastating for our growth rates. So I expect growth where it exactly pans out, it’s extremely hard to say, but most of our models, I would say, are reasonably robust for inflation and sort of at least mild recession. I hope that answers your question. And then Romain, as I heard the question from Silvia was around it, can you talk not so much about the Ukraine business, but about your other key markets in your core classified business.

Romain Voog

And I understand the question was around our vision of how we could improve profitability. Is that correct?

Silvia Cuneo

Here just about the rate performance. You talked about in the call, I was wondering if you had any other key in on development for the other verticals in the core classified.

Romain Voog

All my apologies, but you’re coming — it’s very hard to understand the question. I understand you want to understand the vertical as part of a core classified and how the profitability of both will improve.

Silvia Cuneo

Yes.

Romain Voog

So the first thing — so a couple of things I want to stress out first. The first thing is really stress out the improvement in profitability we are seeing in the core classified when you exclude Ukraine and associate, we moved from 18% of trading profit last year to 27%, which is a strong improvement. I would comment in general stating that we see a lot of opportunity for further improvement of our margin as we strongly focus on profitability improvement and coming both from higher monetization. We will share with you during the Capital Market Day, the fact that we are, I would say, halfway in the monetization journey in countries where we have a very strong position and are now in a great place to further monetize our platforms. At the same time, we see a lot of opportunity for operating leverage on our cost. The mix of those 2 should lead us to be able to improve at an accelerated pace, the type of profit we’re seeing on coclassified and bring us to the level of higher upper side of the range of peer companies within a couple of years time frame, and 2-year time frame.

Now when it comes to vertical , this is always a very complicated question because the reality of the way we operate is we really operate as an ecosystem. Customers come from horizontal cross-sell them to our vertical. They come from vertical, they end up shopping in horizontal. So the way to look at OLX in the core classified is really a set of services and assets that really fuel in travel. Now historically, I would say from a profit margin standpoint, vertical business such as specialized real estate or specialized category have historically been more profitable because it’s more towards business sellers and hence is have a higher monetization pool. Now when you look at the overall profit margin and the absolute U.S. dollars, horizontal plays a very important role in delivering our bottom line profit. I would summarize by saying our vision and our strategy is that both businesses are complementary, and we look at profitability as a whole.

And we believe that through better monetization, better cross-selling, stronger leverage of our operating cost and scaling of our technology on unique platforms, we will actually achieve upper end side of a range for key company profitability in core classified.

Operator

Next question is from Warwick Bam of Avior Capital Markets.

Warwick Bam

Good evening, everyone. Thanks very much for the opportunity. Just 2 for me. Does your acquisition of the iFood change the way you think about funding iFood’s growth? And second question, just around your ambition to reach profitability in the consolidated portfolio. Does it require material restructuring costs? And perhaps you can contextualize the answer, giving us an understanding of what it costs to close, iFood’s Colombia, OLX Autos in Peru and Ecuador and restructure eMAG’s Hungarian operations. And then probably embedded within that answer, if you could just give us a sense of what percentage of revenue is at risk of rationalization sale or closure in the simplification plans.

Bob van Dijk

Yes. Thanks for those questions. Let me start. Let me have a go at both. I think now we have full ownership of iFood. I don’t think we’re thinking about changing anything in the way that business is funded. We see and very encouraging to see that both the 1P and the 3P food business is now profitable. We’re still investing in the grocery sector, but also there, we think we are now getting to some meaningful scale and we can get that business to profitability over a reasonable time frame as well. So I would say, all in all, that won’t change and the production business is on is also such that it will not be an endless funding scenario. The second question is around the cost that would go with any sort of changes in cost reductions we would do, I don’t expect them to be changing our trajectory nor actually, are we going to see a very meaningful impact on our revenue growth. And the examples that we gave Colombia and — or Food Colombia and autos in Peru, Ecuador are tiny compared to the overall.

So I don’t think you should expect very significant revenue impact of it, and there may be some one-offs involved in it, but also I don’t think there will be a transformation. So to get there, our plans don’t involve closing down businesses to be clear, right? So we’ve taken the action we need to take. We’ve got good businesses and now it’s about scaling them and driving those margin improvements and managing our costs well, and that’s the path for getting there.

Operator

The next question is from Lisa Yang of Goldman Sachs.

Lisa Yang

The first one is a follow-up on the question on capital allocation. So indeed, including NetOne, you’re going to end up with close to $10 billion net cash. The assets also turn to profitability and will also require less cash as well and the Tencent obviously, is a buyback is obviously studied by the Tencent selldown. So I’m just wondering, like over the medium to long term, like at what point you would consider funding your buyback partly through your own cash as opposed to selling down $0.10 — so that’s the first question.

Secondly, I think, Bob, you mentioned how the confidence you still were in the auto. Could you maybe just give us a bit more color in terms of what drives the confidence? What are you seeing on the ground today in China, what makes you optimistic? What do you think the market is missing today? And the third question, it looks like you’re focusing more on consolidated profit as opposed to proportionate. Obviously, Tencent, you’re basically selling it down gradually. What does this mean in terms of how you’re thinking about your other associates over time? Like are you aiming to do something with them, gaining control, selling them down? How should we basically be the sort of changing focus to what’s consolidated.

Bob van Dijk

Thanks, Lisa, for those questions. So on the first one, I don’t think I have a lot to add with what we said previously. Yes, we have a strong cash position. We have no intention of changing our buyback program. So I can be very clear about that. We think it’s the right thing to do, and we intend to continue it, going forward. And look, we’re in a period of relative uncertainty and having a strong balance sheet, we think, is a real advantage. If you don’t know exactly what the world is going to do, right? So if you look back in the last few years, we picked up a lot of debt at very attractive rates, and that allows us to be in this position now.

And we’re very glad we did it at the time and a great complement to Vasileios and team for making the move at the time when it was possible to raise long money at very attractive rates, which now shores up our balance sheet in a very, very nice way. It’s not — as I think we mentioned on the call, we will look at the right opportunities that the bar is high, and maybe there are opportunities for us to deploy capital in something like the buyout of iFood. So that much I can say, but we’ll be diligent in capital allocation, and we should be sure that we can manage the risks well in the current environment of anything we would do.

Then on the second question, we’re actually lucky to have Charles here who is very close to it. And if I can give Charles an opportunity to answer.

Charles Searle

Thanks very much, Bob, and thank you Lisa for your question. Yes, I think as you had and you say we stated this sort of for many years, and this continues to be true. We’re very strong believers in Tencent of the business, its management team, its ability to continue to innovate to drive change and to build growth throughout its long history. We that — nothing has changed in that at all. The — where is this positioned in terms of particular growth opportunity that might come through would be around business services and smart industries where they have potentially a real opportunity in terms of assisting the digitization of the off-line world within China. We remain positive around particularly in international markets and global markets and in new. And then within the existing formats, such as long and short-term shortfall, there are incremental monetization opportunities, which you’ve also heard about.

All of this is taking place in a market which we are very firm believes that China remains a massive opportunity. The management team, we’ve been taking actions, as you know, to position the company for a return to growth on the revenue side as the Chinese economy starts to return to growth. So we think the company is very well positioned for the future, and we remain very excited about the business.

On your third question around consolidated growth. Actually, in response to feedback we’ve got from the analysts and shareholders asking us to speak to put together the business that we manage and operate ourselves and the ones we invest behind. And you shouldn’t read into that any change in strategy. We like to invest and we like to operate and that and our intention is to continue to do so.

Bob van Dijk

I think what we did call out is, and I think it was in your part of the presentation Vasileios. Obviously, we have a higher degree of control over our consolidated businesses. And I think that’s also why people actually asked us to look at the business in this way.

Operator

The next question is from Catherine O’Neill of Citi.

Catherine O’Neill

Firstly, just coming back to cash usage. I know you said you raised debt on a good rate. I just wondered if that’s trading at a discount, whether that’s something you would consider in terms of buying back debt? Secondly, I think in your concluding remarks, you talked about simplifying the group structure as one of the opportunities you’re looking at. I Just wondered if you could just give any more detail on the options you have to endeavor to do that or the level of progress you feel you’re making there? And then finally, on private markets or privately owned assets, I just wondered if you could give us any color on what you’ve been seeing in terms of behavior from some of those businesses where you compete any markets or verticals where you’ve seen a notable change either to your advantage or disadvantage?

Bob van Dijk

Would you mind repeating your last question because I heard the beginning of it, but not the end, to make sure we answer properly.

Catherine O’Neill

Yes, it’s on sort of, I guess, privately owned businesses that you compete with across your various businesses. I just wondered if you’re seeing much of a change in behavior there and whether that’s had any impact or created any advantage for some of your businesses in any of your verticals or markets in particular?

Bob van Dijk

Okay. Yes. No, I got it. Vasileios , do you want to take the first one and you can also take the second one, or I can take it.

Vasileios Sgourdos

I’ll take the first and you can start with the second. I’ll see if I can supplement. We worked very hard to raise that debt and we — that is an important position for us now, right? We have this cash on the balance sheet and times are turbulent. And as we’ve emphasized throughout the call, right, that positions us well for the future. So right now, we have a very healthy position. Our balance sheet is strong. Our investment-grade rating is solid. So our intention is to preserve the cash and see how things pan out over the medium and longer term. And so right now, no, there’s no plans to buy back bonds.

Bob van Dijk

Okay. So let me start on the second question. I think — what we are thinking about as a group and actually spending a fair amount of time on is to see how we best set up the structure for the group where it can last for years and decades to come. I think it’s important to stress that we want to be very considerate about doing that, make sure we think through many different aspects around us and end up with a proposal that we think our shareholders will love. Again, we’re spending time on it. But we want to do this work properly and come back to you when we have something that’s done on us, then will take some time.

So I can’t tell you any more about that than that. I think it’s a good question you asked around, hey, do we see a difference in our competition, which is you often privately funded. And I would say the short answer is yes. And I think one of the reasons why we’re also comfortable on setting ourselves on an accelerated path to profitability is that we see that our investments go a long way. So some of the things, we even see that the growth we’ve delivered now, right, which is far in excess of market growth. We’re seeing indeed that some of our competitors in private markets are pulling back and are being much more careful with spend. And I expect that situation to actually continue for a while. There is — I think the funding climate in particularly late stage, private market is still, I would say, valuation is still higher comparatively than to public markets.

And I think a lot of companies are actually not attracting capital because in order valuations would come down a lot. So I think there’s a real type in available funds. Ryan, you want to comment on that?

Eoin Ryan

That the reckoning of the private markets will happen later. It hasn’t happened yet. I would just echo what Bob said, our businesses are well positioned to take advantage of hesitancy that perhaps their competitors are expressing because they need funding because they’re trying to be more disciplined. So we feel good on both dimensions. We feel good in terms of our businesses embrace our current portfolio because of that and also our ability over time, you heard every one of the bar is high to perhaps pick up some good assets when prices do fall.

Operator

The next question is from Chris Johnen of HSBC.

Christopher Johnen

Just one for me, but an important one, I’d like to think. On one of the slides you suggest that you’re trying to look at sort of building a simpler group structure. I mean there’s no complexity of the group is a topic quite often. I’m just trying to pick your brain as to what sort of options you have. The exchange offer last year obviously created a bit of an issue. I would just really open question, pick your brain as to what you think you can do and over what period.

Bob van Dijk

Just one for me, but an important one, I’d like to think. On one of the slides you suggest that you’re trying to look at sort of building a simpler group structure. I mean there’s no complexity of the group is a topic quite often. I’m just trying to pick your brain as to what sort of options you have. The exchange offer last year obviously created a bit of an issue. I would just really open question, pick your brain as to what you think you can do and over what period.

Vasileios Sgourdos

And maybe to add, in fact, we’re looking really broadly what the opportunities could be. We’re leaving no stone unturned. And I think that is something you can expect from us, and that’s what we’re spending our time and energy on.

Operator

Thank you very much, sir. That concludes our Q&A session. And I would like to hand back to Mr. Van Dijk for closing comments.

Bob van Dijk

Yes. Thanks, everybody, for joining today. The connectivity was a little wobbly we got much better later. I hope you share my excitement about the path ahead. And I think we’ve really gotten the business in a place where we’ve gotten to scale. We are on a path to profitability. And we have a very strong balance sheet to weather the storm and deliver further value for our shareholders. So thanks for joining. Thanks for your questions. And I hope to speak to you soon. I hope to see all of you on December 6 in Amsterdam, where we go into a lot more detail on our segment businesses on crystallization, et cetera. So I think that will be all. Thank you.

Operator

Thank you very much. Ladies and gentlemen, that concludes today’s event. And you may now disconnect.