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Naspers goes on a charm offensive

But shareholders vote against remuneration policy despite improved disclosure, among other issues.

A charm offensive by Naspers directors quelled shareholder discontent at this year’s AGM, but corporate governance and remuneration remained high on shareholders’ agendas.

Naspers has improved its reporting of remuneration and was more willing to engage with shareholders on their concerns, but shareholders aren’t yet satisfied with the extent of its advancements.

Among their concerns is the independence of directors like Rachel Jafta and Fred Phaswana, who have been on the board since 2003.

With Jafta earning $512 000 (R7.3 million) as a director, a shareholder pointed out that this was essentially, if not her primary source of income, certainly her largest, making it difficult for her to be independent. Company secretary Gillian Kisbey-Green said in terms of King IV, duration of tenure is not the only thing to consider when judging independence, and that Naspers valued continuity, history and knowledge.

PwC also came under the spotlight, given that it has been Naspers’s auditor for 25 years.

Naspers chairman Koos Bekker was widely criticised for his combative responses last year and rephrased his words, blaming his “inability to articulate” for last year’s comments.

“If you have a good company you can go wrong in two ways – screw up against good governance or lose by being outcompeted by competition. We want to emphasise both,” he said, but indicated Naspers found it hard to do both simultaneously.

“We support King IV fully, and our commitment to King is not conditional,” he said, but added that to win a soccer game, you have to do things – play within the rules and beat the opposition, and it is “a tricky thing to do both at the same time”.

Answering shareholders’ concerns, Naspers has recomposed its remuneration committee and disclosed a lot more, he said.

Asked why Naspers had not published its investigation into MultiChoice’s payments to the Gupta’s ANN7, legal counsel David Tudor said the investigation revealed no irregular payments, but “the report is privileged and confidential and we intend to maintain that privilege.”

Despite improving disclosure on remuneration, 56.96% of ordinary N shareholders voted against endorsing the company’s remuneration policy, 47.76% against approving the implementation of the remuneration policy, 84.91% against the authority placing unissued shares under the control of the directors and over 20% against reappointing PwC as auditor and the reappointment of directors Ben van der Ross and Jafta.

At the AGM, directors justified exorbitant salaries. “We have to invest in our entrepreneurs,” Bekker said, adding that they were sometimes socially dysfunctional but they were “the lunatics that really make it happen” and want to share in the wealth they create.

Addressing the issue of the “sum of the parts” discount that Naspers trades at, Bekker said this was largely out of the group’s control as investment funds limit their exposure to a single company in their portfolios. When Naspers goes over that percentage, they sell down shares and that drives down the price. When Naspers grows faster than the market, their exposure goes up and they sell again.

Secondly, he said, there is the political discount. An investor buying in Hong Kong assesses risk and tax in Hong Kong and in South Africa and wants a discount if there is more tax or more political risk in South Africa. “Those two factors – that we are too big for the exchange and the political discount – we can do little about.”

Addressing the suggestion that Naspers break up into separate companies, he said the big tech companies in the US and in China have grown while smaller companies have declined because bigger companies’ size gives them the platforms and the market power, and he questioned whether “being 10 little units is the best policy long-term” rather than a powerful group.

CEO Bob Van Dijk said Naspers has adapted and changed itself, from deriving 90% of revenue from media and video entertainment a decade ago to 80% from online – which will move to 100%.

The group has reorganised into segments in 2014, clustering assets that worked well together, and has weeded out a number of assets which were not so promising. It has prioritised assets that had potential, focused on execution and done a number of fairly significant transactions.

Today Naspers is seeing value coming in from these moves. Ecommerce is growing fast and its “loss margin” has reduced drastically, while this year the classified business is profitable for the first time.

Proceeds of the sale of a portion of its holding in Tencent will be directed towards accelerated growth and to take advantage of opportunities in classifieds, online payments, and food delivery.

Listen: Michael Treherne, Portfolio Manager at Vestact discusses Naspers’ AGM and prospects on Classic Business Breakfast. 

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Why not list Naspers’ Africa businesses separately from all the rest? Have a second listing somewhere in the world (Netherlands? Hong Kong?) to house all the non-Africa parts of the business? Then you address both perceived concerns: being too big for the JSE and the political risk. In other words, Naspers can address some of the above concerns, it is partially within its control.

As for continuous criticism of Naspers, surely this is uncalled for? It is arguably the most successful of all the companies ever listed on the JSE.

True, but mostly due to Tencent so far, which now appears to be losing value.

It is the luckiest company on the JSE … but the directors, like Julius Caesar, have been sleeping on their laurels. Strip out the Tencent holding and what have you got?

To all the Naspers ‘’naysayers’’

Yes, Naspers is not a platinum, diamonds, gold or silver mining company, or even extracting oil, or even producing beer – but an Internet company!

They did not lose shareholders an arm and a leg like Steinhoff, neither did they get up to the Ponzi scheme shenanigans of Resilient/Fortress, where someone like Magda Wierzycka had to call the JSE/auditors to alert them!

Naspers represents 20% of the JSE, and all reputable funds will have invested a major share of their funds in them, as they are the benchmark for lots of big companies to follow.
Sasol methinks is currently the ‘’jack in the box’’ as their share price ‘’Jo Jo’s’’ with the oil price. Their share price went down more than 50% from the highs in June 2014, which must have cost a plethora of investment funds in sunny SA an arm and a leg!’
Daily reports of poor net returns elsewhere on investments funds are impacting badly on poor pensioners etc.
Meanwhile, back at the Sasol ranch, Sasol is currently the main driver for a case-study on the exclusion of white people in general, by their exclusion of white employees from a staff share scheme, despite the rule that applies to staff share schemes at other companies, especially in the mining industry, that all employees are included regardless of race.

this is like Alice in Wonderland : “Loss Margin” is a serious business metric

Before people compare Naspers ecommerce to almost trillion dollar Amazon, consider for a brief moment how much equity and debt Amazon has needed. Very little, because even while it was reporting “loss margins” at times, Amazon was always a “Cashflow from Operations” machine. You can backtrace Amazon valuation to almost perfect fit of 25-30 times trailing twelve month cashflow from operations. Does Naspers value its ecommerce ventures on that Amazon benchmark for purpose of the R700m portion of the CEO’s R1,600m package?

Contrast Amazon positive cashflow with at least five billion runts pumped into just kalahari takealot.

Oh and another weird thing for an investor to go look at : how on earth in the past five years can Naspers have paid out MORE in DIVIDENDS to minorities in their associates than the LOSSES in those associated companies. Think about that carefully before you explain

Anyway, I own no Naspers so not sure why I bother – investors get what they deseve

Johan, explain please?
‘paid out MORE in DIVIDENDS to minorities in their associates’.
You talking Multichoice/Media24?

JBS7: That quote is an extract from Naspers AFS.

Nobody is comparing Naspers to Amazon except you, J_B. You and every detractor hammer on about Takealot and other bad investments. Nobody says anything about the sales of Allegro, Flipkart, Konga and Souk. That is the business model here. Maybe Walmart will consider buying Takealot too.

Also you should consider elocution classes. Your grammer and punctuation is non-existent. You make up for lack of diligence with incoherent mumbling. You are not Donald Trump so stop pretending that plays here.

Jan de Jager

OK, why don’t YOU unpack for us, on publicly available information:

1. On what rational basis was the growth in Naspers’s non public ecommerce business sufficent to award its CEO R700,000,000 in stock options, while at the same time said same ecommerce ventures AND old economy businesses are in combination valued at 30% less than the tangible value of Naspers interest in TenCent and continue consuming free cashflow. Think very carefully before you prepapre a response…

2. The dividends to minorities exceeding profits in associates is a quote from the AFS. Maybe you have insider info on the journal entries but most others raise an eyebrow. Those are certainly journal entries not cashflow because the group cashflow statements do not support the stated values.

3. If one momentarily ignored the share structure of uneven votes, the majority of shareholders voted against the pay policy, its implementation and against the directors being able to issue more shares. Anywhere else that amounts to the BoD dismissed. Shareholder wishes were overriden because the old mafia voted against the shareholders and against the documented intention of the voting structure being restricted to change in control.

4. The company is valued at a third less than one of its assets. Does that mean that the rest of the business is valued negatively? The ONLY part of the group managed by this Board is the rest of the business. naspers has zero call on TenCent cashflows, zero input to its tactics or strategy. This board is overpaid to look after a share certificate, clipped as it is by the sales to prop up negative cashflow from the rest of the business. The rest of their efforts are valued negatively. Yes, no. coherent argument?

My sincere apologies for offending your grammar and elocution sensitivities. If you want to compare financial analysis, let me know where and when

Anyway, as I said I am not a shateholder. Over 1, 2, 5, 10 years I am way better off anyways in real tech shares overseas

1) Naspers got its cash injection from selling Tencent shares and dividends only, not some sort of group structure redistribution of Tencent’s running balance sheet. This seems an appropriate course to follow, but I would have preferred keeping those shares or borrowing against them as collateral. If you look at Bain Capital their business model is extremely debt-leveraged which causes problems sometimes, but frees up the scope for much higher returns.

2) You should make a distinction between subsidiaries like Media24, Multichoice and Novus which have their own BEE empowerment share schemes not on the JSE (google Phuthuma Nathi or Welkom Yizani to access their share platforms), and majority owned businesses which fall outside the ambit of Naspers shares dividends and don’t comply with BEE obligations.

3) You mentioned the Naspers discount, but this is directly related to its management performance. If BvD were to leave, it would indelibly widen that divide. Which is also why share options is the best compensation for a man who is clearly doing all the work on that board. And there is zero dissent from them or the 970,000 A-share holders about the renumeration packages. What do normal over-the-counter N-share holders know better? The biggest ones Sanlam, Alan Gray and PIC seem to agree publicly with their deliberation.

4) As for BvD’s renumeration: he has been CEO for 3 years during which Tencent’s shareprice has trebled. We cannot rule out that he had a hand in that (or that any other CEO would have less of a hand in that). Naspers has 2 non-executive directors on Tencent’s board but why use your influence if it’s not prudent or necessary? There may be reciprocity expected from the Tencent board when requests are made to them.

You haven’t offended me and I appreciate the effort you have put into your questions/points of discussion.

Correction: Allan Gray is opposed to the renumeration package. Sanlam has long been associated with Naspers and the A-shares they hold unanimously supported it. The N-share largest holder, the PIC, is mum about it but likely abstained or opposed: judging by the overwhelming numbers not supporting the renumeration policy (including abstentions) of 60%, 75% and 76% in 2015-7. In 2015-8, it’s 55%, 63%, 66% and 57% opposed (without abstentions).

You can’t ignore the numbers but they have dropped this year. Maybe their stuffed pockets cushioned the fall.

Johan_Buys is a man after my own heart……
I’m holding my breathe over this share…if it fails, it will be the end of the JSE. And it’s been proven that nothing is too big to fail!
I don’t own Naspers either but I’m holding thumbs it continues to succeed – even if it’s success is artificial.

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