Slides
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Capital allocation to build and crystallise NAV per share Ervin Tu | Group Chief Investment Officer
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Our defining principle is to build NAV per share Actively manage portfolio and grow NAV NAV Shares outstanding 1 2 3 Manage share count New investments Manage existing portfolio Re-evaluate and reshape 4
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Our approach to capital allocation Actively evaluate new investments by leveraging the full depth and breath of the firm’s expertise across geos and verticals. New investments Periodic reviews of our businesses to assess progress of the existing portfolio – and whether to deploy more capital given returns outlook. Manage existing portfolio Periodic reviews of our business to assess whether transactions – both buying and selling – can drive further value beyond what we can achieve organically. Re-evaluate and reshape Assess opportunities to provide further leverage to shareholder returns on a per share basis by managing share count; decision based on facts and circumstances related to return potential. Manage share count
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Our approach to capital allocation Actively evaluate new investments by leveraging the full depth and breath of the firm’s expertise across geos and verticals. New investments Periodic reviews of our businesses to assess progress of the existing portfolio – and whether to deploy more capital given returns outlook. Manage existing portfolio Periodic reviews of our business to assess whether transactions – both buying and selling – can drive further value beyond what we can achieve organically. Re-evaluate and reshape Assess opportunities to provide further leverage to shareholder returns on a per share basis by managing share count; decision based on facts and circumstances related to return potential. Manage share count
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Our approach to capital allocation Actively evaluate new investments by leveraging the full depth and breath of the firm’s expertise across geos and verticals. New investments Periodic reviews of our businesses to assess progress of the existing portfolio – and whether to deploy more capital given returns outlook. Manage existing portfolio Periodic reviews of our business to assess whether transactions – both buying and selling – can drive further value beyond what we can achieve organically. Re-evaluate and reshape Assess opportunities to provide further leverage to shareholder returns on a per share basis by managing share count; decision based on facts and circumstances related to return potential. Manage share count
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Potential returns (IRR) NAV accretionHigh Balancing the numerator and denominator We allocate our capital so that we can drive the highest risk-adjusted return. At the moment, invest in things we know well and shift capital to buyback given market conditions and level of discount Investment Buyback Discount to NAVElevated VS. Opportunity-specific Risks are up
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Potential returns (IRR) NAV accretionHigh Balancing the numerator and denominator We allocate our capital so that we can drive the highest risk-adjusted return. At the moment, invest in things we know well and shift capital to buyback given market conditions and level of discount Investment Buyback Discount to NAVElevated VS. Opportunity-specific Risks are up
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Our returns performance
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Valuations have fallen in the last year Note: Based on a set of >300 public tech companies across segments Source: C apital IQ Market cap weighted segment indices (indexed: Dec 1st 2021 = 100) Segment Change Edtech -33% Travel -40% Classifieds -48% B2C -49% FinTech (non-payments) -50% HealthTech -51% Payments -55% Food -65% Media -66%
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Our returns have been impacted Historical capital allocated and returns by Ecommerce segment, as per H1 FY23 (US$bn) Note: A vito included in “Exited A ssets”, iFood includes the recently acquired 33%; V aluation of ecommerce portfolio derives from a combination of ( i) prevailing share prices for listed assets; (ii) consensus sell -side analysts’ estimates for unlisted assets; (iii) most recent post -money transactions valuation where analyst consensus is not available; and (iv) internal valuation for remainin g assets. V aluation date is 25 November 2022 US$bn % of total US$bn % (Valuation + Cash inflows) / Capital Invested) % of total US$bn % of total Valuation H1 FY23Cash inflowsCapital invested (gross) IRR H1 FY23 Multiple of invested capital Group ex Tencent 31.2 8% 1.3X11.332.0
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Our returns have been impacted Historical capital allocated and returns by Ecommerce segment, as per H1 FY23 (US$bn) Note: A vito included in “Exited A ssets”, iFood includes the recently acquired 33%; V aluation of ecommerce portfolio derives from a combination of ( i) prevailing share prices for listed assets; (ii) consensus sell -side analysts’ estimates for unlisted assets; (iii) most recent post -money transactions valuation where analyst consensus is not available; and (iv) internal valuation for remainin g assets. V aluation date is 25 November 2022 US$bn % of total US$bn % (Valuation + Cash inflows) / Capital Invested) % of total US$bn % of total Valuation H1 FY23Cash inflowsCapital invested (gross) IRR H1 FY23 Multiple of invested capital Group ex Tencent 31.2 8% 1.3X11.332.0
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Our returns have been impacted Historical capital allocated and returns by Ecommerce segment, as per H1 FY23 (US$bn) Note: A vito included in “Exited A ssets”, iFood includes the recently acquired 33%; V aluation of ecommerce portfolio derives from a combination of ( i) prevailing share prices for listed assets; (ii) consensus sell -side analysts’ estimates for unlisted assets; (iii) most recent post -money transactions valuation where analyst consensus is not available; and (iv) internal valuation for remainin g assets. V aluation date is 25 November 2022 US$bn % of total US$bn % (Valuation + Cash inflows) / Capital Invested) % of total US$bn % of total Valuation H1 FY23Cash inflowsCapital invested (gross) IRR H1 FY23 Multiple of invested capital Group ex Tencent 31.2 8% 1.3X11.332.0
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The recent environment has also affected our exits Historical capital allocated and returns of exited assets in the Ecommerce segment, as per H1 FY23 (US$bn) US$bn % of total US$bn (Valuation + Cash inflows) / Capital invested) % of total US$10.2bn Cash inflows US$6.7bn Capital invested (gross) 1.5X Multiple of invested capital 2.2X adjustedUS$14.8bn adjusted In addition: US$37.5bn cash inflows from Tencent (US$6.9bn from dividends including JD, and US$30.6bn from sales as of November 25, 2022) Hypothetical if A vito would have been exited at US$7bn (valuation FY22)
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The recent environment has also affected our exits Historical capital allocated and returns of exited assets in the Ecommerce segment, as per H1 FY23 (US$bn) US$bn % of total US$bn (Valuation + Cash inflows) / Capital invested) % of total US$10.2bn Cash inflows US$6.7bn Capital invested (gross) 1.5X Multiple of invested capital 2.2X adjustedUS$14.8bn adjusted In addition: US$37.5bn cash inflows from Tencent (US$6.9bn from dividends including JD, and US$30.6bn from sales as of November 25, 2022) Hypothetical if A vito would have been exited at US$7bn (valuation FY22)
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Our largest positions and highest priorities Valuations of existing Prosus portfolio H1 FY23 Total valuation: US$31bn V aluation of the Ecommerce portfolio derives from a combination of ( i) prevailing share prices for listed assets; (ii) consensus sell -side analysts’ estimates for unlisted assets; (iii) most recent post -money transactions valuation where analyst consensus is not available; and (iv) internal valuation for remaining assets. V aluation date is 25 November 2022.
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Our largest positions and highest priorities Valuations of existing Prosus portfolio H1 FY23 Total valuation: US$31bn V aluation of the Ecommerce portfolio derives from a combination of ( i) prevailing share prices for listed assets; (ii) consensus sell -side analysts’ estimates for unlisted assets; (iii) most recent post -money transactions valuation where analyst consensus is not available; and (iv) internal valuation for remaining assets. V aluation date is 25 November 2022.
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Our relative outperformance 1 Reflects Ecommerce SARs scheme valuation peers per disclosure in renumeration report at FY22 year end; A vito valuation of $7bn reflects last third -party valuation completed at the end of year FY21. Source: P rosus, Bloomberg Total Return (CAGR %) of Prosus Ecommerce portfolio vs peers1 3-year horizon March 31st 2019 – March 31st 2022 Rank #10 / 22 Rank #6 / 22 2-year horizon March 31st 2020 – March 31st 2022 Rank #6 / 22 Rank #5 / 22 1-year horizon March 31st 2021 – March 31st 2022 Rank #7 / 24 Rank #6 / 24
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Our relative outperformance 1 Reflects Ecommerce SARs scheme valuation peers per disclosure in renumeration report at FY22 year end; A vito valuation of $7bn reflects last third -party valuation completed at the end of year FY21. Source: P rosus, Bloomberg Total Return (CAGR %) of Prosus Ecommerce portfolio vs peers1 3-year horizon March 31st 2019 – March 31st 2022 Rank #10 / 22 Rank #6 / 22 2-year horizon March 31st 2020 – March 31st 2022 Rank #6 / 22 Rank #5 / 22 1-year horizon March 31st 2021 – March 31st 2022 Rank #7 / 24 Rank #6 / 24
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Managing share count
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Open-ended buyback accretes NAV per share Illustrative value accretion of US$6bn buyback to date Pre-buyback Impact Current % change NAV1 (US$m) 127,500 (5,600) 121,900 -4% Net shares in issue (m) 1,420 (102) 1,318 -7% NAV per share (US$ p/s) 89.8 2.7 92.5 +3.0% Approx. NAV per share accretion in 5 months 1. NA V per share prior to buyback based on NAV on 25 November 2022 adjusted for Tencent shares sold. A ssumption that NAV was unc hanged except for the impacts of the buyback on number of Tencent shares owned. 2. A nnualization impact calculated by scaling buyback at current run rate for 12 months. Annualised Impact2 Pre-buyback Annualised impact Pro forma % change NAV1 (US$m) 127,500 (13,000) 114,500 -10% Net shares in issue (m) 1,420 (228) 1,192 -16% NAV per share (US$ p/s) 89.8 6.3 96.1 +6.9% Approx. NAV per share accretion in 12 months
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7% 15% 24% 0% 5% 10% 15% 20% 25% 30% Year 1 Year 2 Year 3 NAV per share accretion compounds over time 1. Annualised buyback value and discount assumed to remain constant across years. NAV per share prior to buyback based on NAV on 25 November 2022 adjusted for Tencent shares sold. Assumption that NAV was unchanged except for the impacts of the buyback on number of Tencent shares owned. Assuming buyback continues based on annualised value1
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Investment IRRs are improved, and per share exposure to Tencent increases 1 IRRs measured over three years based. P ortfolio IRR represents return on underlying assets. 2 Tencent value per share prior to buyback based on Tencent value on 25 November 2022 adjusted for Tencent value sold. A ssumpti on that NAV was unchanged except for the impacts of the buyback. 10% 20% 30% 18% 29% 39% 10% IRR 20% IRR 30% IRR Without buyback With buyback NAV per share IRR with and without buyback at various portfolio IRRs1 $68 $70 Prior to buyback Annualised +3.1% Illustrative Tencent value per share2 Buyback increases our exposure to Tencent Enhances our returns
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Investment IRRs are improved, and per share exposure to Tencent increases 1 IRRs measured over three years based. P ortfolio IRR represents return on underlying assets. 2 Tencent value per share prior to buyback based on Tencent value on 25 November 2022 adjusted for Tencent value sold. A ssumpti on that NAV was unchanged except for the impacts of the buyback. 10% 20% 30% 18% 29% 39% 10% IRR 20% IRR 30% IRR Without buyback With buyback NAV per share IRR with and without buyback at various portfolio IRRs1 $68 $70 Prior to buyback Annualised +3.1% Illustrative Tencent value per share2 Buyback increases our exposure to Tencent Enhances our returns
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Summary: the benefits compound over several years NAV per share accretion IRR leverage Tencent per share accretion
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What’s next?
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We are committed to building a “cycle of value creation” 2 Continue open-ended share repurchase 1 Accelerate Ecommerce profitability 3 Simplify the group’s structure 4 Expect strong recovery from Tencent Invest Scale to value Crystallise value Repeat
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We are committed to building a “cycle of value creation” 2 Continue open-ended share repurchase 1 Accelerate Ecommerce profitability 3 Simplify the group’s structure 4 Expect strong recovery from Tencent Invest Scale to value Crystallise value Repeat
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Crystallising value is core to our strategy Invest Scale to Value Crystallise value We are committed to continue crystallising value Listed positions Sales Repeat Public companies Transactions Including: Including:
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Crystallising value is core to our strategy Invest Scale to Value Crystallise value We are committed to continue crystallising value Listed positions Sales Repeat Public companies Transactions Including: Including:
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Focused on growing NAV per share over time and actively managing the numerator and denominator of the NAV per share calculation Current market conditions have affected our returns, but our ambition is to return to our historic relative outperformance Committed to our open-ended share buyback programme which accretes NAV / share on a standalone basis and magnifies returns on our NAV Building a repeatable process of investing towards crystallisation and return – this will define the next generation of value creation Key takeaways Significant financial flexibility enabling us to act quickly on opportunities, but the bar will remain very high for external investment
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Focused on growing NAV per share over time and actively managing the numerator and denominator of the NAV per share calculation Current market conditions have affected our returns, but our ambition is to return to our historic relative outperformance Committed to our open-ended share buyback programme which accretes NAV / share on a standalone basis and magnifies returns on our NAV Building a repeatable process of investing towards crystallisation and return – this will define the next generation of value creation Key takeaways Significant financial flexibility enabling us to act quickly on opportunities, but the bar will remain very high for external investment