Not too long ago, articles were circulating about Noble’s recent annual general meeting. (read here, here and here) It was reported in some articles that Noble management “repeatedly dodged shareholders’ queries on the group’s accounting practices”.
The company needs “to do a lot more” to improve its transparency, according to Noble shareholder Mano Sabnani, who also attended the meeting. That would help investor confidence, he said.
“I’m not satisfied,” said Yew Soon Tieh, who said he owns 3,000 Noble shares. “They’re trying to evade questions.”
I was reading the transcript of the AGM and found the following portions of the conversation interesting:
Richard Elman, Noble Group Limited – Chairman: “Excuse me, can I answer the question. I think we’ve been very, very clear. This meeting is not to discuss what other people are saying or blogging about Noble. And we will not discuss that. We have said very categorically that there’s nothing wrong with our accounting system. There’s nothing wrong with the presentation there’s nothing wrong with the systems, there’s nothing wrong with the auditing, ok. Now, if somebody wants to rent a space on a blog, and write things, it’s not the first time this happened, but for us we would like to see that it’s the last time, ok. I again assure you, as the major shareholder, I’m not going to, so to speak, shoot myself in the foot. It’s as simple as that. Do we have any other questions please?”
Chua – Shareholder: “Good morning Mr Chairman, my question is you mentioned that you you going to be more transparent – could you elaborate how?”
Richard Elman, Noble Group Limited – Chairman: “Excuse me – We requested right at the beginning. We will only answer questions that are relevant to the resolution at hand. Now, the resolution is to receive and adopt the audited financial statement and reports of the directors and auditors for the financial year ending 31st of December, 2014. I’m happy to answer questions on that resolution. [Chua – thank you] Thank you.”
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Richard Lau – Shareholder: “Now my last question is on Yancoal.”
Richard Elman, Noble Group Limited – Chairman: “No no, we’re talking about the financial report. Please can we leave that and if we have, if a topic comes up we can talk about that separately because we need to, we can’t keep going on to different subjects if you don’t mind. Right, ok”
Richard Lau – Shareholder: “So can I ask you a question on Yancoal? [Richard Elman: on what?] Yancoal, the coal mine.”
Richard Elman, Noble Group Limited – Chairman: “Does it have to do with – excuse me – does it have to do with the financial statement? If it does, I’ll answer it. But if it doesn’t, we won’t, ok. We have to stick by the rules and regulations that the meeting is being run by. Please. [Richard Lau – alright] Thank you.”
Manohar P Sabnani – Shareholder: “I think it’s in order to ask about Yancoal – why are you not answering? Yancoal is one of your associates, he is asking the question.” [Richard Elman: I said if it…] Nothing to do with the short sellers, he might want to ask. [Richard Elman: I said…] No, no Chairman. [Applause] I think you are too defensive today. You are too defensive. I mean, you are unnecessarily defensive, and in denial mode. I mean why don’t you open up? Relax, you know. If you are not guilty of anything, why are you so uptight? [Applause]
Richard Elman, Noble Group Limited – Chairman: “I would like to repeat. We are talking about the audited financial statement and reports of the directors and auditors. If it’s relative to that, we will absolutely answer the question.”
Manohar P Sabnani – Shareholder: “I mean you have not even let him ask the question. [Applause] I’m just getting this feeling that you’ve all come here just to get it over with.”
Richard Elman, Noble Group Limited – Chairman: “Moving on. So let’s have the Yancoal question. Alright. Let’s have the Yancoal question, ok.”
Richard Lau – Shareholder: “Finally, I am going to get an answer. Now you sold alright, a major portion of the yan coal business. You still have a certain percentage . My question is this. Why didn’t you sell all the way, and 2; How do you evaluate the value of the remaining quantity in the mine? On what basis you come up with the value? Now it has been claimed that you have inflated. So I’d like to hear is it true or not that you inflated. On what basis you come with your valuation.”
Yusuf Alireza, Noble Group Limited – CEO: “I’m happy to answer, So there’s two things. First of all, we didn’t sell all of our business because we are entering into a partnership with one of the major miners in China, Yanzhou, and that partnership gives us significant relationships – remember what I said earlier, our business model is to have partnerships with mining companies, right. So the fact that we still have a minority stake in Yancoal is consistent with our business strategy of 1. Being asset light – we sold most of it, and 2. Maintaining partnerships with important producers. And that partnership gives us significant flow of product, ok? So that’s point number 1. Point number 2, in terms of our valuation models, we have very specific cashflow models that rely on third party, and are audited by our auditor. Ok? And those are the models that we use to value assets – those are the same models that any mining company would use to value their assets. And so, that’s why we still have a small exposure to yan coal, and that’s the process that we go through. And at the end of the year we went through the normal valuation process for any mining company – show me one mining company that hasn’t impaired assets on the back of a significant drop in coal prices, whether it’s Xstrata or BHP, or any of the mining companies, right? And that’s a process that we go through, looking at the cash flows and modelling the assets and the company, and deciding what the valuation is, and that is all third party, it’s all controlled functions, and it’s all audited by E&Y. Ok? Thank you.”
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Manohar P Sabnani – Shareholder: “Could I ask the directors to tell us, like, what they, how they hope to contribute to the company? [Richard Elman: Sorry?] How do they hope to contribute to the company, going forward?”
Richard Elman, Noble Group Limited – Chairman: “They are directors of the company. Ms Lee is a lawyer and an accountant. Mr. Chan has been a banker for UOB for his whole life. So their skill sets are very, very qualified, and very useful to the board.”
Manohar P Sabnani – Shareholder: “I’m sure they are but I’d just like to hear them – what would they be looking at, how do they think they can offer special value.”
Richard Elman, Noble Group Limited – Chairman: “I think this is not the appropriate forum.”
Manohar P Sabnani – Shareholder: “I don’t think why not, Chairman, I mean, if we are voting for somebody. [Applause] And you are telling us please just read the CV and vote them in. Doesn’t make sense. What’s the hurry anyway? You booked the ballroom, right? Are they going charge you per minute or what?”[Applause]
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Ok now contrast that with how Warren Buffett treats his Berkshire Hathaway shareholders and how much trust his shareholders have in him. Watch the video here (Jeff Matthews on Warren Buffett’s “Secret Sauce”). Warren is after all one of the richest man on this planet. However, unlike other rich guys, he is surprisingly very ‘open’ and approachable. Even at the recent annual shareholders’ meeting of their conglomerate Berkshire Hathaway, Warren Buffett and Charlie Munger kept their cool despite the numerous questions raised by the shareholders (read here).
I find it a world of difference.
Nevertheless, at the end of Noble’s AGM, the Shareholders voted overwhelmingly in favor of approving the company’s 2014 financial statements and auditors’ report, and subsequently Noble pledged more disclosure, starting with Q1 2015 results (read here). In addition: David Gerald, president and CEO of the Securities Investors Association Singapore (SIAS), said after speaking to Noble and reviewing the recorded AGM proceedings and the transcript that Mr Elman “was not dodging” shareholders’ queries for 95-minutes as reported in the media. SIAS also deems the AGM was “generally orderly and the shareholders got their answers”.
But Mr Gerald noted that Mr Elman, who did at first rule that the question on Yancoal was not relevant to the resolution at hand, could have conveyed the message that he would answer the Yancoal question a little later. “That may have avoided the unpleasant situation that followed,” he said. SIAS, responding to the media reports, had earlier said that Noble could have given more assurances to shareholders at the AGM.
Despite these, I feel that as a company, Noble will be hard-pressed to move forward in their future acquisitions or allocations of the company’s funds, without the constant questioning and worries from its shareholders. Noble will have the arduous task of managing the shareholders as well as their assets.
As a shareholder of a no. of companies, I can empathize with the frustration of Noble’s minority shareholders like Mano Sabnani and Yew Soon Tieh. I do not have the ability to change the course of the company’s actions and have put my faith in the management in the hope that they can be frank and forthcoming in their reports and skilled in their management. Although I do not attend AGMs, and while I think my puny amount of investment would not warrant much ‘weight”, I would not be pleased if my questions were brushed aside. (Or seeing my fellow shareholders being treated the same way)
I want to invest in companies whereby I can trust the management to do what they want to do (and I am sure they want shareholders like that). I can put my faith in them, without worrying too much. I do not like being a short term shareholder (and I believe the company also hope that most of their shareholders are not short term speculators). I do not like companies which focus too much or spend too much time on dealing with their shareholders, rather than focusing on the more important income generating business. I can understand the need for secrecy in a public listed company’s financials esp. from their competitors (which may or may not be public listed companies). However, the ability to win the trust of the shareholders is very important. Think Warren Buffett excel in this, he has managed to be extremely ‘open’ in his visions and ideas while at the same time deliver outstanding performance – winning most of his competitors by a wide margin. (So open in fact, that we get people copying his every move – like Mohnish Pabrai. You can read my earlier post here).
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you’ll do things differently.”
― Warren Buffett
In my portfolio, I have a few very illiquid stocks (thinly traded companies) like Vicom, Colex and ISOTeam. I contrast these with those stocks in my portfolio with high trading volume eg. Golden Agri, CapitaLand etc. Ultimately, I feel it doesn’t really matter how illiquid the share is. Although I must add that some of the better performing companies in my portfolio are those whose shares are illiquid eg. Vicom. What I do hope is that the company management isn’t that much worried if their shareholders are on their side or not, and that most of the shareholders are in fact long term supporters of the company.
Although I do not attend the AGMs, by reading on the analysts’ reports, news articles, annual reports (which normally have the Chariman or CEO’s statement) or listening to the AGM webcast (eg. Supergroup’s Webcast)- I do get a feel of how the Chairmans / CEOs / Directors are like. Among them, I am impressed with Wong Teek Son, chairman and co-founder of Riverstone. (read here and here) – he may not be very eloquent (dictation of words not that fluent – you can watch a video of his presentation here), but he appears very earnest in his report, very approachable and receptive to questions. eg. a person who can relate to the little guy on the street (like me :p). Frankly I do not care how well the chairman talks, but rather am more focused on his sincerity when he tries to explain his visions / reports. In fact, I am impressed that he even bothers to do the presentation himself, to a bunch of old uncles and aunties- he could have easily hired a PR guy to sell his ideas. David Teo did not dodge questions when Super Group did badly in 2014 (read here). However, nowadays I think he doesn’t do the presentation at the Supergroup AGMs. His son (Darren Teo) did part of the presentation in Feb 2015. However, I am sure there are a quite no. of long term Super Group out there (read here). You kind of know who are the long term investors after bad things happen, not when things are smooth sailing or after earnings get better and analysts start recommending ‘buy’ or ‘outperform’.
“Honesty is a very expensive gift, Don’t expect it from cheap people.”
― Warren Buffett
Even some of the big companies (in my portfolio) like CapitaLand, SIA and SMRT are relatively open about their short-comings.
To digress a bit, I think that is what PAP ultimately wants: A nation united (and hopefully that is what the people want). With the people fully behind a government. A strong government which can set tough policies (and sometimes unpopular ones) for the long term good of the nation, and not be too worried or bogged down by how the people will perceive PAP.
What the people wants: A government who is open in their intention for the people. A government who can see how important the people are to the long term nation building.
A Pen Quotes 