Piet Viljoen lays into Naspers management

Veteran cash supervisor Piet Viljoen has been on the warpath in opposition to Naspers administration within the run-up to Tuesday’s launch of the group’s monetary outcomes. He ripped into them in a social media put up, which sparked an interview with Alec Hogg the place the supervisor of the Service provider West Worth Fund elaborated on his views. Viljoen will not be alone. A pair years again, a gaggle of South African cash managers issued an unprecedented public assertion attacking administration’s method. Given the impairments that might be disclosed with the outcomes on Tuesday, these essential voices are more likely to be heard once more within the week forward. – Alec Hogg

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Related timestamps from the interview

00:55 – Piet Viljoen on the millionaire Magnus vs Piet problem
04:09 – On his feedback on twitter relating to Naspers
07:21 – Naspers false commerce assertion
11:40 – Destroying shareholder worth
13:45 – Lightning doesn’t strike twice relatively distribute to shareholders
16:00 – On what’s more likely to come by means of subsequent Tuesday
16:57 – On meals supply and categorized promoting probably being taken out of the portfolio
18:06 – On being confirmed incorrect in the long run
20:45 – Finish

Edited transcript of the interview:

Alec Hogg: Properly, through the years, Piet Viljoen and I’ve had many conversations in fascinating places, however I haven’t seen him as outspoken as recently. So we’re going to seek out out why right this moment. Piet’s Twitter account (@pietviljoen) is one thing to behold (see his tweet on Naspers under). He actually does communicate his thoughts. However right this moment, our focus is on Naspers. Piet believes that the administration group is extra centered on serving themselves than serving shareholders. Let’s dive into that. Pete, you handle the Service provider West Investments Worth Fund and are collaborating in our million Rand Magnus v Piet (Offshore v Onshore) Problem. How’s that going for you, Piet?

Piet Viljoen: 5 years is a very long time. t’s been 18 months since we began this problem, and it has had its ups and downs. However what provides me confidence is that the returns from investments are primarily decided by the value you pay once you make the funding. Presently, the value of South African shares is kind of low, and low-cost belongings typically present good returns. That’s the place we’re in South Africa proper now, and I consider it should solely get higher.

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Alec Hogg: That’s good to listen to. You’ve at all times emphasised the significance of not shedding cash in investing, and it looks as if you’ve been profitable to this point. In the meantime, Magnus’s offshore portfolio has skilled volatility. However let’s discuss your Twitter account. You’ve made some sturdy statements about varied subjects. For instance, you criticized the administration group at Naspers and accused them of serving themselves relatively than shareholders. Care to elaborate on that?

Piet Viljoen: Completely. Naspers has an advanced company construction with huge cross-holdings between firms. The entire construction appears to be based mostly on their preliminary funding in Tencent, which turned out to be extremely profitable. Nevertheless, they’ve made questionable choices since then. They’ve invested a good portion of their funds into start-up ventures which can be largely shedding cash and have questionable worth. Not too long ago, they needed to admit that the values of those belongings are decrease than they beforehand believed, leading to impairments. Furthermore, they’re now promoting Tencent shares to purchase extra of those enterprise capital belongings, which looks as if a poor resolution. The entire scenario raises issues about their capital allocation and the worth they’re creating for shareholders.

Alec Hogg: I see your level. It’s not the primary time we’ve heard criticism about Naspers’ funding selections. They’ve claimed important progress in these start-up companies up to now. Nevertheless, current buying and selling statements recommend in any other case. It looks as if they might have overvalued these belongings, and the losses have gotten evident. Are you able to present some examples?

Piet Viljoen: One notable instance is the OLX Auto on-line enterprise. Naspers acquired it for $1.1 billion, nevertheless it has been working at a loss since then, with cumulative losses of great magnitude. They’re now promoting it for $700 million, displaying that it hasn’t grown as anticipated. There are different belongings of their portfolio with unsure values, and it’s troublesome to find out their true price. Naspers’ administration is now beginning to realise that these investments will not be price as a lot as they initially believed.

Alec Hogg: It’s harking back to different tech firms that confronted related conditions up to now, the place investments didn’t stay as much as expectations. Jogs my memory of the Jeff Liebesman saga with Corp Capital. It looks as if Naspers could have fallen into the same lure. However why hasn’t there been extra pushback from shareholders or a change in administration if these points persist?

Piet Viljoen: Properly, it’s laborious to say. I don’t perceive the remuneration coverage. It’s very sophisticated. I do know administration are properly remunerated. The issue I’ve with the remuneration is that what drives it, is the share value. And the share value reacts to all types of issues. However the capital allocation is poor when it comes to taking money from Tencent and allocating it to startup enterprise capital. It’s as in the event that they’re throwing the cube and hoping to get one other Tencent.

Tencent is a once-in-a-lifetime, once-in-a-world-lifetime end result. Even if you happen to throw the cube one million occasions, you’re not going to get it once more. So it appears to me from the impression I get, that’s what they’re attempting to do. They’re attempting to throw the cube, unfold out the cash, and see if they will give you one other Tencent. This has actually failed. It hasn’t occurred, and it’s extremely unlikely, the chances are stacked in opposition to them.

And the worst factor about it’s now they’re promoting Tencent shares, the jewel within the crown. They’re not simply taking the dividend, they’re promoting Tencent shares and utilizing that money to successfully purchase extra of those enterprise capital belongings. They’re promoting Tencent shares, taking that money, and shopping for Naspers shares plus these enterprise capital belongings, which nobody is aware of their price. They’re loss-making and have added no worth. So they’re truly simply taking that money move and incinerating a portion of it. And within the course of, there are many prices concerned. Funding bankers receives a commission some huge cash. There’s a lot of troughs and snouts within the troughs on this one. So it is extremely properly defended out there. No one will ever criticise this. There are too many livelihoods that depend upon this factor persevering with, not solely the livelihoods of the administration of Naspers but in addition all their helpers and advisors.

Alec Hogg: I remembered one of many Berkshire Hathaway annual common conferences, Warren Buffett spoke all about these helpers and the tremendous helpers. In different phrases the intermediaries between the shareholders and the businesses and the way in which that always they destroy shareholder worth. What you’re saying is that there’s a traditional case of that having occurred right here?

Piet Viljoen: Yeah, over the previous 4 or 5 years, the share value of Naspers is principally flat. For the reason that itemizing of Prosus, the share value in euros is decrease than it was when it listed. So there’s no worth being added, apparently. However there are lots of helpers which can be getting very wealthy from advising the administration group. And the administration group itself is getting very wealthy.

Alec Hogg: That doesn’t appear to make lots of sense in a capitalist system the place shareholders needs to be voting dangerous managers out or managers who’re being excessively paid out. Why isn’t that occuring in Naspers’ case if what you’re saying is right?

Piet Viljoen: Properly, Naspers shares are non-voting shares. All of the votes sit with a management construction, which is unclear. One doesn’t know precisely who controls it. However if you happen to purchase a Naspers share, you purchase a non-voting share.

Alec Hogg: So what’s occurred right here, once more, getting again to your story of Naspers and Prosus, Koos Bekker and the late Antoine Roux made a heck of a guess in 1990 in shopping for 50% of Tencent $32 million {dollars}. At that stage it was a startup in Hong Kong. It was like shopping for Google earlier than it received well-known.

Piet Viljoen: It’s top-of-the-line investments ever.

Alec Hogg: I feel the blokes from Sequoia stated that it was the most effective personal fairness funding ever. In order that confirms what you’ve stated now. And it’s been a case of, look, we made the funding, we made you guys wealthy. Now simply shut up. We all know what’s greatest. However what you’re saying is that they maybe ought to have listened within the first place and stated, it was a lightning. Lightning doesn’t strike twice. Let’s relatively distribute all of this money to shareholders. Is that what you’re agitating for?

Piet Viljoen: Sure, let’s relatively unbundle Tencent’s shares. Let’s give shareholders what they earned with Tencent. Unbundle Tencent and eliminate all these helpers and advisors and managers who’re taking the money move from Tencent and losing it on speculative ventures.

Alec Hogg: However they did okay in India with Flipkart, you keep in mind. They made $1.6 billion on that.

Piet Viljoen: Yeah.

Alec Hogg: So that may have made them really feel like, hmm, you already know, we will win generally when rolling the cube.

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Piet Viljoen: Yeah, once you roll the cube, generally you’re going to win, however on the finish of the day, the home at all times wins. Whenever you stroll into the on line casino, the home at all times wins. You may roll the cube. The extra occasions you roll the cube, the extra the home wins. However generally your numbers will come up and also you’ll win one thing. So it’s no shock that these guys have unfold the love all over the world so much. It’s no shock that once in a while a winner comes up. However if you happen to have a look at the portfolio of belongings in complete, what has contributed… And now it’s being marked nearer to the approximation of honest worth. I don’t assume that’s. In reality, if that they had simply held on to Tencent or unbundled that to shareholders, not completed any of this, I feel shareholders would have been so much higher off.

Alec Hogg: However the reality is that they’ve been shopping for again shares and that, based on administration, has added large worth to the Naspers share total price.

Piet Viljoen: Properly, sure, I feel the announcement says it’s added $29 million of worth. Keep in mind, the place does that worth come from? It comes from the low cost at which the shares are buying and selling at, closing that low cost. Why is it buying and selling at such a reduction? It’s due to administration actions of investing into these enterprise capital kind companies that nobody is aware of what they’re price, however they’re loss-making, that’s the one factor you may see. So administration creates the NAV after which does the buyback and reduces the low cost to NAV to perhaps 40% and says, “Look how a lot worth we’ve created” Properly, all they’ve completed is that they’ve lowered the quantity of worth they’ve destroyed. That’s all that’s occurred. They’ve lowered the quantity of worth destroyed, however the worth destruction continues to be a big quantity of worth.

Alec Hogg: You may’t actually blame them for what occurred with Mail.ru in Russia after the Russian invasion of Ukraine with Mail.ru, however are different Mail.ru-type investments more likely to come by means of when the outcomes are launched on Tuesday?

Piet Viljoen: Most likely. I don’t know. I’m not that aware of the enterprise capital portfolio. All I do know is the VC world – and their portfolio might be no completely different from different enterprise capital portfolios elsewhere on the planet – the write-downs have been important, and there have been lots of zeros.

Alec Hogg: Concerning categorized promoting, it seems that it’s being faraway from the portfolio. As for meals supply, it’s a difficult market phase the place Naspers might have confronted important troubles. If we recall, there was a contested takeover to amass Simply Eat, which Naspers misplaced. And I suppose they’re most likely not saying, “Thank heavens for that,” because it might have value them just a few further billions.

Piet Viljoen: Sure, certainly. Within the meals supply space the longer term is unsure. It’s a troublesome market to generate earnings in. Up to now, they haven’t been profitable in earning money. They’re a serious participant in that market, however whether or not it should work out or not is unknown. The easy method can be to separate it out. Let shareholders resolve for themselves whether or not they wish to be concerned in that sector. If there’s uncertainty surrounding it, the most effective plan of action can be to unbundle the Tencent shares and permit buyers to guage the enterprise capital belongings on their very own deserves.

Alec Hogg: Maybe there’s another perspective on this. Shareholders usually desire short-term returns and continuously transfer from one funding to the following. Nevertheless, constructing a enterprise for the long run requires taking long-term bets, which generally take years to yield outcomes. Think about, for example, if Naspers had offered or unbundled Tencent in the course of the early phases when individuals had been urging them to take action. Don’t you’ve got any sympathy for the view that they is perhaps confirmed right in the long term?

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Piet Viljoen: Sure, positively. Once more, it’s completely attainable that a few of their investments will carry out exceptionally properly in the long run. Nevertheless, the method of separating these belongings is easy. They are often listed as separate entities, and it wouldn’t take them away from the shareholders. For instance, if you happen to personal one course of share right this moment, they usually provide you with a Tencent share together with the enterprise capital portion, you continue to personal the identical factor. You simply personal two completely different entities representing the identical underlying asset. Then you may resolve whether or not to retain each, promote one, preserve the opposite, purchase extra of 1, purchase extra of the opposite. The selection can be yours, relatively than being pressured upon you by administration with their very own vested pursuits.

Alec Hogg: Moreover, unbundling the Tencent shares would instantly shut the low cost, which continues to be fairly important, round 40%. On a closing observe, there’s a South African enterprise inside the portfolio referred to as Media24. Though it doesn’t play a serious position within the Naspers panorama, it’s price mentioning. In 2022, it generated $250 million in income and made a revenue of $6 million, a small enchancment in comparison with the earlier 12 months’s lack of $8 million. Whereas it could appear misplaced in Naspers’s present scenario, it holds historic significance because the origin of the corporate.

Piet Viljoen: I’ve two observations relating to Media24. Firstly, it’s making a revenue, which is greater than what many different companies inside the Naspers portfolio can declare. That’s a constructive facet. Secondly, when it comes to Naspers’ internet asset worth, Media24 represents lower than half a %. It’s a negligible portion, nevertheless it carries emotional significance as it’s the place Naspers originated from. I consider there’s a sentimental attachment to it, which explains why it hasn’t been closed down or offered. Finally, it doesn’t have a considerable impression both manner.

Alec Hogg: So having Media24 doesn’t actually matter. One might argue that it’s a small indulgence for the chairman, contemplating he did such a tremendous Tencent acquisition, shareholders tolerate it.

Piet Viljoen: That’s fairly attainable.

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