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Outbuffetting Buffett

Published 9 years ago
By Forbes Africa

“It has been decided that you have to resign with immediate effect.”

Those words stunned Jannie Mouton. They were uttered by the senior partner of the broking firm Senekal, Mouton and Kitshoff (SMK), of which he was the founder. He was dismissed by the very firm he had started in 1982, which bore his name.

The next day, at a special meeting of the board of directors, he had to submit his official resignation. There was no farewell party, just an abrupt note of dismissal by the new chief, Louis Geldenhuys.

“Right, you may go.”

Suddenly, he was unemployed, dejected, lacked confidence and was floundering in emotional turbulence. Mouton was dazed, confused… and angry. As he said in his autobiography, “Resentment was winning the first round”. Some predicted he would opt for a civil lawsuit, for unfair dismissal but a friend, Donald Masson, talked him out of it.

“It was wise counsel. A negative person has never established or started anything positive,” says Mouton.

Fifteen years after that fateful day, in August 1995, Mouton co-authored a book, And then they fired me. The book was not an attempt at retribution by a defeated and embittered businessman, whose evening star had fallen, it was a glorious celebration by a business tycoon who had been dubbed ‘The Boere Buffett’ by Moneyweb, a South African investment news website.

In the 15 years since he was fired, Mouton built one of Africa’s most successful and formidable business empires.

Today, PSG Group, of which Mouton is non-executive chairman, has interests in several companies with an overall market capitalization of around R75 billion ($8.6 billion).

The term “Boere Buffett” is a massive compliment, says Mouton.

“He is one of the two or three wealthiest men in the world and when he passes away, he will leave his entire will to charity, a gesture that underlines what a special individual he is,” he says of Buffett.

Buffett, is the primary shareholder, chairman and chief executive of Berkshire Hathaway and is consistently ranked by FORBES as among the top three richest people in the world.

“Every investor with a long timeframe wants to call himself the Warren Buffett of someplace. Of course, many of Buffett’s well-documented principles have universal application, so it’s understandable [that he is referred to as the ‘Warren Buffett of Africa’] but [it is] still silly. Jannie Mouton is the Jannie Mouton of Africa. That should be enough,” says Paul Theron, a financial analyst.

The PSG Group—over which Mouton has presided for 14 of the past 16 years—showed a total return on equity of a healthy 57%. While he is still non-executive chairman, his son, Piet, succeeded him in July 2010 as executive chairman

The PSG Group outperformed Shoprite, Remgro, Rand Aksepbank, Bidvest, Imperial and even Buffett’s Berkshire Hathaway, which managed 23% in 40 years.

So, how did Mouton complete the transformation from disgraced and deposed founder of SMK to Boere Buffett? First, came a SWOT analysis of his strengths, weaknesses opportunities and threats. His friends and his wife reminded him of his obstinacy and temper, weaknesses he had to tackle head-on.

Mouton came up with his greatest threat.

“At the age of 50, I was not ready for retirement yet… I had to persuade myself that I was doing something useful, that I was devising plans and ferretting out opportunities. I knew I had to fight against the threat of stagnation.”

Mouton read Think and Grow Rich by Napoleon Hill, the manuscript that changed his life and inspired him to start the PSG Group. Buffett proved to be a literary companion with his memoirs in The Snowball: Warren Buffett and the Business of Life.

“To me, strategic planning is the alpha and the omega,” Mouton says.

“In the book The Art of War the principles of the Oriental military strategist Sun Tzu are outlined. Strategy is the great world of the organization. According to the book, strategic thinking determines the survival or extinction in situations of life or death.”

His plan of action to direct his dreams were to be in control of a listed company; to focus on the financial services sector; to procure capital for a strong capital base and to think more and do less.

Before the PSG Group was formed, he gained control of the embattled PAG Group.

“I don’t think I’ve ever done a better deal than PAG, the small listed financial services company, the predecessor of the PSG Group, that fell into my lap like a dream,” he says.

“If its R7 million ($804,200) did not become R107 million ($12.2 million), a foundation for this powerful company would never have existed.”

In February 1996, Mouton, Johan van der Westhuizen, Ian Müller and Jaap du Toit started PSG. Du Toit derived the name Professional Securities Group (PSG) from the PAG name.

“We started small and slowly achieved success. Success gives one self-confidence and that’s quite contagious in the market,” he says.

Good timing contributed to PSG’s next round of success. In 1997/98, they sold all of PSG’s business to Servgro, a listed cash shell, for R863 million ($99 million). They were paid with R327 million ($37.5 million) in cash and with an issue of 200.7 million Servgro shares, which gave PSG a stake of 61.9% in Servgro. It remains one of the best deals they have done, says Mouton.

Simultaneously, they issued ten million shares at R9 ($1.03) per share to Siphumele Investments for an 11.5% stake in PSG.

“The timing of both deals was incredible and increased PSG’s net asset value per share from 147 cents in 1997 to 617 cents in 1998. Over the same period our market capitalization increased from R249 million ($28.6 million) to R1.172 billion ($134.6 million),” says Mouton.

Mouton, since listing PSG, has set up significant deals that have secured vast wealth for shareholders.

Leon de Wit, former executive chairman of Channel, described Mouton as, “Inherently a trader, a shrewd one at that, as he hardly ever does a bad deal”.

“Jannie is also known to have good ‘exit discipline’—knowing when to get out of an asset, or to turn down an investment opportunity,” says Theron.

Another success story has been inspired: agribusiness investment company Zeder, which many insiders expected to fade into oblivion. Zeder’s investment philosophy is unlocking value from companies with shares that trade at a sizeable discount to

intrinsic value.

Zeder, as Finweek suggested, initially offered its own scrip as settlement, with the tagline, “If we make money, you make money” to counter any notions of opportunism.

Capitec Bank is another story in a long line of PSG’s successes. The PSG Specialized Lending was established in 1998/1999 as a precursor to Capitec. Capitec Bank obtained a banking license in 2001/2002.

Gerrit Thomas (GT) Ferreira—chairman of RMB Holdings Limited, which is in competition with Capitec—lived on the same floor of the Simonsberg hostel, as Mouton, at Stellenbosch University in the Eastern Cape Province. Now they share offices in the same building.

“Jannie refers to me and us [at Rand Merchant Bank] as ‘friends and family’ of PSG.… I own quite a few shares in PSG which I have had for a long time because I have backed Mr. Mouton from the beginning,” says Ferreira.

Mouton’s opening up of banking to the poor, through Capitec, has won him many friends. The idea came through another book. He read the Nobel Prize winner Muhammad Yunus’s Banking to the Poor as well as a report by Huysamer Stals on microloans to the poor. Mouton says their arguments convinced him that the poverty in South Africa could only be relieved by making capital available to people without collateral.

Capitec, with its micro-financing soul, was honored 10 years later as one of 27 outstanding brand names of tomorrow, in 50 countries, by 3,000 analysts of the Swiss-based financial services group Credit Suisse.

Mouton’s ability as a strategic thinker is almost legendary. When some companies, with white-controlled board rooms, fulminated against the future of Black Economic Empowerment (BEE), he and the PSG Group sought new opportunities and investment through their partnership with Thembeka.

“Thembeka is a Black Economic Empowerment group that is an unqualified success. We, the PSG Group, have a 49 percent share in Thembeka and the black business people have a 51 percent share,” he says.

Mouton has been an outspoken, vocal advocate for the principles of BEE.

“Through BEE you help to level the playing field in South Africa instead of being politically incorrect due to sheer obstinacy.”

Mouton prides himself in the success of Thembeka and in his role of seeking BEE partners.

He is also very passionate about Curro, an affordable, bilingual private school group, and PSG’s role in it.

In 2009, the PSG Group acquired a 50% stake in Curro Holdings by means of a R50 million ($5.7 million) injection.

It was decided in 2010 that PSG, through its subsidiary Paladin Capital, would acquire a further stake of 26%.

“In 2011, I had 5,500 children in 12 schools. The current objective is 40 schools with 50,000 SA learners by 2020,” he writes in his book.

In his investment philosophy, Buffett understood that there is a difference between the value of a share and its price.

“Prices might fluctuate and if you trade during a bad time on the stock exchange, prices would be low and it won’t reflect the true value of an item,” says Mouton.

Understanding the culture of a stock market is important. If everyone is optimistic and even people, who don’t work with the stock exchange every day start chatting about it, it is time to sell. And if nobody is interested in the stock exchange any more, it’s time to buy.

“The classic ‘big’ win for him was many years ago when he saw a thinly traded ‘A’ class of shares in media giant Naspers…he bought that class of stock cheaply and sold it back to Naspers for a fortune,” says Anthony Clark an analyst at Vunani Securities.

Buffett’s famous quote is, “We simply attempt to be fearful when others are greedy, and to be greedy only when others are fearful.”

Mouton warns that one should understand a company in which one invests.

“If you cannot tell someone else what the company is doing, don’t invest there. I’ve never made money from mining shares, especially gold, because I don’t understand it,” he says.

How do small businessmen take their empires to the next level?

“One must always think and dream. I have read somewhere about a great entrepreneur who said he worked by day in my company and dreamt at night about my company.”

His wife and trusted companion, Deidré, gave him a book by Malcolm Gladwell called Outliers: The Story of Success. He reckons that if anyone dedicated 10,000 hours to something, they are bound to make a success of it.

Mouton also recalled a dinner hosted by William H. Gates, father of the Microsoft founder Bill Gates, for some hand-picked business people. Gates senior asked those present to write down a single word that they deemed of the utmost importance in the business world.

Coincidentally, two of the guests chose the same word. The guests were Bill Gates and Warren Buffett. And the word was ‘Focus’.

Asked by FORBES AFRICA, if South Africa and the rest of Africa need more people like Buffett, Mouton says, “For sure. Too many people are only interested in doing smart transactions, or in being part of the tender process. They don’t add value.”

“Capitec Bank creates jobs, they have 6,000 people working for them. You want to have Buffetts, or Whitey Bassons who employ hundreds of thousands of people, who create jobs.”

South Africa, says Mouton, is pre-eminently a country that presents its people with golden opportunities. PSG was born in the new dispensation after 1994.

“In an ancient culture like Europe, everything has already been done. There is no opportunity to start a Capitec in Europe. It has been done and dusted. But in South Africa with its [millions] of ‘unbanked’ people, a Capitec is possible.”

“For people who always complain about everything purportedly being so bad, I want to ask, ‘Why they don’t pack up their things and emigrate?’ The joy is in seeing opportunities, rather than troubling yourself about t

he problems.”

“We have political stability, the economy didn’t go to ruin during the recession and the doors to international trade have never been more wide open. We even have membership of BRICS now,” he says.

Africa as an investment destination is definitely improving. Growth in Africa will be faster than the rest of the world in 2012, but then the growth comes from an extremely low base.

“Africa has enormous growth and investment opportunities in terms of agriculture.

“We have made investments in Zambian agriculture. It’s unbelievable how much better the agricultural conditions there are, compared to South Africa. There is a bigger downpour because it is closer to the equator. It is also hotter, and you can do double cropping. In South Africa you can sow wheat and utilize that for six months, but you leave the ground barren and unutilized for the next six months.

“But in Zambia you can sow wheat for six months, and then use the same ground for soya for the next six months, so you double your income per hectare through double cropping. The World Bank encourages investments to Africa, and food producers are protected by them being allowed an insurance policy in case their assets are confiscated by a ruthless government,” says Mouton.

There are an increasing number of investors from Europe and the rest of the world investing in Africa in agriculture and other sectors.

“There are still some problems with things like transport, crime and a less ordered banking system. But there are improvements in the African climate for global investments. For us, it is easier to invest in Southern African neighboring states like Botswana and Zambia, as it is easier to manage it closer to home.”

Mouton doesn’t subscribe to the work ethic of a business executive that works 12 hours per day. It’s what he does when he is in the office that is important.

Somebody told him the other day that he had 240 emails waiting for him when he came back to the office.

“My question is, ‘What about delegating? You must trust subordinates. Employ competent people and trust them implicitly,” he says.

“I do believe that a company should have a dream of where it is heading, a desire directing one and which one can implement in practice. As George Bernard Shaw said, ‘Some men see things as they are and ask why? Others dream things that never were, and ask why not?’”

Mouton encourages his colleagues at the PSG Group to think and find solutions. He adds that positive people can start new businesses. Pessimists cannot create something out of nothing.

“If you say something can’t work, you have to come up with a better alternative or shut up. I don’t take ‘No’ for an answer anymore,” says Mouton.

Recently, the National Planning Commission announced its vision for 2030, which, amongst others, envisioned that South Africa should create 11 million additional job opportunities during the next 18 years, and reduce joblessness to a mere 6%.

“Entrepreneurs who take the risk of starting businesses and developing them, create value, job opportunities and eventually wealth. Get rid of the red tape and administrative burden in order to make life easier for these entrepreneurs.”

Probed about what South Africans can do to realize that dream, Mouton said, “Entrepreneurs like Capitec create 200 new jobs every month.”

Mouton said if the state doesn’t encourage entrepreneurship, South Africa is in trouble. The state on its own can never create jobs, because its only source of revenue is tax-paying workers and businesses. Without its tax base, it cannot even borrow money.

“Therefore their tax payers are the asset it should best take care of. In South Africa, we are in the position already where 14.3 million people received some form of grant in 2010, while only five million people pay taxes,” said Mouton.

A society is most in need of successful companies doing business within the bounds of proper corporate governance and performing well.

“Let’s take PSG as an example and assume there are 40 companies over whom we exert an influence. These companies have 38,000 employers. They pay tax on their salaries and they pay VAT on what they buy. The PSG Group and all the companies in which it has a material interest, pay R2.5 billion ($287.6 million) in taxes annually—an amount with which one can build 83,000 basic houses.

“If six people live in a house, 500,000 can find shelter in this way,” writes Mouton in his book.

“Before the state can collect and distribute taxes, there should be opportunities. Rules, laws and regulation that interfere with the distribution of wealth, discourage the creation of wealth.

“As the South African economist Mike Schüssler pointed out in South Africa’s Sake 24, there are only 301,000 individuals who pay a salary to more than four people. These people should be treasured,” he says.

“The current labor laws interfere with the market mechanisms. With the insistence on minimum wages, half of the country will remain unemployed,” says Mouton.

He added that the annual competitiveness report by the World Economic Forum showed that South Africa had fallen back to 54th.

“Our labor is not internationally competitive any longer. I have heard it is cheaper to manufacture furniture in Germany than in South Africa. The costs are higher over there, but the productivity is also so much higher. It is shocking,” he says.

“How could we ever compete with a country like China if we keep on striking for higher wages without better productivity?” he asks.

How, indeed.

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Related Topics: #Broking Firm, #Business Empires, #Jannie Mouton, #Mouton and Kitshoff, #November 2012, #PSG Group, #Senekal.