Naspers executives are putting their money where their mouth is with pay for the 2023 financial year tied directly to the success of an ambitious attempt to close a value gap between the group’s market worth and its underlying assets.
Naspers remuneration policy has been criticised in the past for being opaque and unjustified. Shareholders and critics said that executives were largely benefiting from an appreciation in the Naspers share price, which has been driven mostly by its one-third stake in Chinese internet giant Tencent.
In its remuneration report, published on Monday, the group announced a short-term incentive for closing the discount gap, scrapping long-term bonuses for the current year.
Total remuneration for an executive director at Naspers takes into account the base salary, short-term incentives (STIs) and long-term incentives (LTIs).
“We believe strongly that discount reduction is fundamental to maximising shareholder returns and desire to ensure the CEOs’ and CFO’s incentives are aligned with those of our shareholders. It is in this light that the committee decided not to award LTIs for FY23,” said Craig Enenstein, chair of Naspers’s human resources and remuneration committee.
Intended to bring executive pay more in line with closing the discount and shareholder interests, Naspers boss Bob van Dijk is set to receive a higher short-term bonus for the current financial year that will be capped at €3.2m. Last year, long-term bonuses accounted for 82% of his total compensation.
“We have designed a special incentive, focused exclusively on reduction of the discount,” said Enenstein.
Van Dijk can earn a maximum of €5.9m, while CFO Basil Sgourdos can go up to €4.1m. Van Dijk received €13.3m in the year to end-March.
Core earnings
This comes as the group reported 24% growth in revenue to $36.7b for the period, with e-commerce revenue up 49% to $10.7bn.
Core headline earnings, the group’s preferred measure of profitability, was down 16% to $2.1bn due to a lower contribution from Tencent, following the group’s sale of 2% of its holdings in the Chinese company in 2021, increased investment in its businesses, M&A, and higher finance costs.
A big piece of the plan to close the value gap is growing the group’s e-commerce units outside Tencent.
Sgourdos trumpeted growth in the e-commerce businesses, saying “our operations remain strong, and with improved profitability at the core, we are investing to scale into adjacent opportunities across our segments. We believe that growth from the autos transaction businesses in classifieds, broader on-demand delivery ecosystem in food delivery, credit and digital banking in payments and fintech, and new investments in edtech will create significant value for the group over time.”
But while the signs are good, profitability remains strained as the group’s businesses are at different levels of maturity. While some are making money, others are still losing it, to the tune of a staggering $1bn in the year. To compound the issue, the rest of the company’s businesses, estimated to be worth as much as $50bn last year, are now worth R34bn, due to a global downturn in technology, the Russia-Ukraine War and regulatory crackdowns in China.
Peter Takaendesa, head of equities at Mergence Investment Managers, said there are ongoing concerns about the profitability of some of the e-commerce segments the group is invested in.
“The concerns are not so much about the current losses those businesses are making but more on the unit economics and if some of those business segments will ever generate acceptable returns on the significant investments made by the group.”
“We believe these debates will be settled over the next 12 months as the management team has now clearly indicated its focus on profitability and less on adding new verticals into the e-commerce portfolio,” he said.
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