Annual Report 2017

Chairman's report

Dear shareholders,

The net operating profit achieved by Trade Me in the 2017 financial year was $93.0m. This is 12.0% more than last year, and a new record for us. Earnings per share grew by 25.9% in the year.

The final dividend for 2017 will be 10.0 cents per share. Added to our interim dividend of 8.5 cents per share, the total dividend payment for 2017 is 18.5 cents per share - an increase of 10% on 2016. The final dividend will be payable to shareholders on our register as at 7 September 2017 and the dividend will be paid on 20 September 2017.

Revenue in 2017 grew by 7.7%. Our Classified businesses grew strongly, growth in our Marketplace business continued, and our other businesses (advertising, payments, travel, dating and insurance) were flat year on year. In this latter group of smaller businesses, our payments business is showing encouraging growth, advertising continues to do well and we still see opportunities in insurance comparison and online insurance broking. Our dating business continues to battle global competitors.

There is more on the performance of all our businesses, particularly the Marketplace and Classified businesses, in the Business Update section of this report.

Trade Me operates in changing and competitive markets. Our Marketplace and Classified businesses are characterised, and to an extent protected, by scale, brand, trust and network economics. These are powerful competitive advantages, but like all established businesses, Trade Me remains vulnerable to new competitors.

There are two types of competitor we need to be on the lookout for. The first is the competitor who has the same type of offer as we do, but offers more in the way of scale, brand, trust or network economics than we do. This sort of competitor competes head-to-head with the same business model and type of offer to consumers. The prospective competitor we have our eye on here is Amazon which will compete with our Marketplace business.

Amazon is, we understand, planning to begin operations on the ground in Australia later in 2018. We won’t be able to match Amazon for product breadth or on price for all products, but in many other aspects of the experience of buying and selling online we can be highly competitive. This includes on-platform user experience – search, recommendations, checkout, payments, listing ease, inventory management and so on – and off-platform user experience – principally logistics and payments. Our local brand, the trust we have built with New Zealanders over the last 18 years and our local network economics will remain powerful competitive advantages.

The second type of competitor we need to be aware of is the competitor who comes up with a different type of offer to ours. We have seen (and continue to see) many competitors with different types of business models aimed at our Marketplace and Classified businesses. Some are based on building local communities, others on selling through social networks, others purely mobile, still others focused on subsets of a total market. We cannot predict exactly what the next challenge will be or where it will come from so we remain alert, agile and ready to respond quickly and try new things. In the meantime, the best defence against these potentially disruptive competitors is to do as good a job as possible for our customers.

CEO Jon Macdonald talks in some depth about our strengths, why we can be confident about our future, and what we’re doing to compete and grow as these big global companies become more active in our part of the world.

In December 2016, Sam Morgan, founder of Trade Me and a director since the IPO of Trade Me late in 2011, retired from the Board. Sam has been an excellent director of the company. We thank him for all he has contributed and wish him well with all his other interests, including his early-stage business investments and charitable foundation.

Simon West joined the board as an independent director and replacement for Sam in December. Simon is an experienced and successful retailer with deep online experience at DealsDirect and EziBuy, amongst other companies.He is currently the executive director at Max Fashions.

In F17, Jon and his team have again done a wonderful job for shareholders. On behalf of all shareholders, I thank Jon and the whole Trade Me crew for all they have achieved throughout the year.

Finally, our annual shareholder meeting this year is again in Wellington on 9 November. My fellow directors and I look forward to seeing as many of you as are able to make it.

Yours sincerely,

David Kirk
Chairman
Trade Me Group Limited