This is a season of earnings report and many figures are juggled on thousands of pages. One that all of us should be interested in is AIG, the parent company of Jumia Africa.
In its recently released Q1 2016 financial report, Rocket Internet only reported earnings for 2015 full year and no detail on 2016 Q1. I will not bore you with lengthy analysis. I have scanned through the report and here are the facts and figures you might find interesting.
Jumia Africa Is In A Huge Debt
Jumia is AIG’s flagship brand in Africa and to all intent and purposes, the health of Jumia adjudges the performance of AIG in particular and Rocket Internet in general.
To give credit to the company, Jumia has tried in building a brand with bold moves. The company grew its total orders from 500k in 2014 to 1.6 million in Q4 2015. The margin between its active customers (1.2 million) and lifetime customers (1.6 million) is just 400k, so 75% of their lifetime customers were active as at 2015 year end. Its gross revenue also grew by 205.6% from EUR 61.8 million in 2014 year end to EUR 134.6 million in 2015 year end.
But all the same, Jumia’s administrative expenditure is its major problem. With an impressive revenue, Jumia Africa is still indebted to the tune of EUR 111 million as at 2015 year end.
Options for Jumia
Some few weeks ago, AIG announced that it raised about EUR 380 million from its stable investors and new entrants. The company is looking towards using the funds to bolster Jumia into profitability by “Raised funding round of EUR 380 million from existing investors and new blue chip investors AXA, GS (sic) and Orange”.
Jumia is also counting to use its new investments and alignment to expand “New investors support expansion both in category (AXA-Insurance) and regional (Orange) expansion”.
While this is a good move, there are roadblocks on its way. Insurance in West Africa, particularly Nigeria is under-performing compared to Southern Africa where Jumia is not present in any form. Net premium for Nigeria is estimated at USD 1 billion compared to South Africa’s average of USD 50 billion net premium per year. The deal with Orange and MTN has its challenges. Increased taxation, regulations and competitive landscape is making business difficult for carriers.
According to Rocket Internet’s projection, Jumia alongside two other companies in the group are seeking to start reporting profit in Q4 2017. This is a tall order given the fact that the operating environment for Jumia is getting tough. With Nigeria’s sluggish economy, it is delicate to make such forecast. Godwin Emiefele, the Central Bank Governor said Nigeria’s economy would recover in 2018. Should Rocket listen to him?
To make its shareholders understand its approach going forward, Rocket Internet outlined a three-pronged capital allocations road map namely: Investment, Exits and Close downs. AIG (Jumia), is currently in the investment phase. Rocket plans to:
- Find new & existing business models if capital allocation criteria are met
- Relentless focus on being early
While it may soothing to Jumia staff that they have been given a long rope, it is instructive that Jumia’s expansive operations across Africa might start witnessing exits and shut downs should its 2017 profit forecast misfires.
In all, is Rocket Internet taking too much of a bet on eCommerce and scaling too fast? Should the group reduce its leverage and focus on building strong companies in a case by case method rather than super-imposing the same business model to different markets? Only time will answer these questions.
Facts About Rocket Internet
Rocket Internet is an eCommerce focused holding company with over 100 companies operating across over 11o countries in Africa, South East Asia, Middle East and Europe. The company is headquartered in Berlin Germany. Its staff headcount is over 36,000 globally.
Featured image: dignited.com
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