PSG: Shareholders positive about future unbundling, group foregoes dividend

CEO Piet Mouton discusses the lead-up to the group’s unbundling, its future, the JSE, and the outlook for SA.

FIFI PETERS: PSG opted not to pay a full-year dividend this time around, as the group embarks on a major unbundling that will result in its eventual delisting from the JSE. We do have PSG Group CEO Piet Mouton on the show for more.

Piet, good to speak with you again, sir. As you detailed in your statement earlier, everything is on track regarding the unbundling, but are you sad that it has come to this, despite previous efforts to narrow the discount of your shares [and] that your shares do trade on the market in terms of their sum of the parts?

PIET MOUTON: Good afternoon. Nice to speak again. Basically, yes I think so. Obviously PSG is a business that’s been around since 1995, so this sort of brings an end to what has been a wonderful ride.

But, you know, at the end of the day, you’ve got to look at what’s best for shareholders, and I don’t think the discounts are going to go away anytime soon.

The investment model has sincerely fallen out of favour with investors, so I can’t see the pricing dynamics changing again. Our initial issue started when Capitec started constituting too large a portion of the portfolio. So it’s sort of [being] a victim you own success – and we did unbundle it.

Since then the interest has sort of gone, because now they say, yeah, the other investors are too big, why don’t you unlock the value, and it becomes extremely tiresome; and every engagement with shareholders basically deals with value unlocking at the end of the day.

So we thought this was quite an elegant way to unbundle all the major listed assets to shareholders and then give them the cash payout – and we go our different directions and PSG becomes private and we can focus on trying to build those companies that are left within the portfolio.

FIFI PETERS: Beyond the fact that you’re not happy with the value which the market is giving your shares and the entire asset portfolio, there has also been unhappiness just regarding some of the listing requirements on the JSE and the regulatory burden that it has added, as it were – correct me there if I’m wrong. I’m just wondering, since you did announce to the markets earlier in March that you were embarking on this route, have you had any conversations with the JSE, have they tried to make it easier for you to stay?

PIET MOUTON: You are the second person who has asked me that today. It’s an interesting question.

FIFI PETERS: I haven’t spoken to the first person, so it’s completely coincidental.

PIET MOUTON: It shouldn’t really be the place to have a talk with us about remaining listed. I mean, all my issues that I’ve been vocal about in the past about the ever-increasing red tape at the JSE has got nothing to do with this transaction. We’re not delisting because of that. It’s a longer conversation about the JSE. We are purely doing this because we want, as far as possible, to get rid of the discount and the issues that that gives us as a business.

The JSE as a trading platform is a wonderful place if it works for you. For us the discount was the main reason for listing. They can’t really phone us and say, please don’t delist, or come and see us. We don’t like it. It wasn’t the rationale to delist, so really has nothing to do with the argument – and a lot of these companies that we are unbundling will have greater liquidity so they’ll benefit from that again.

We are bringing CA Sales [CA&S Group] to the main board. So, as we go [and] walk there, there’s additional business coming to the market. But I do really think, having said that, they must really look at the rules and regulations. You know, you have a Steinhoff, you have a Tongaat; there shouldn’t be extra rules for the additional companies out there. You’re not going to stop the next Steinhoff or Tongaat from happening. It’s purely giving more red tape to the honest, hardworking people out there who actually want to grow their businesses at the end of day.

I think in the long run they are going to start losing against places with other pools of capital, like the private-equity industry. Many managers and CEOs that I know don’t want to operate in the listed space because they don’t want to declare certain stuff.

If you look at the annual report that comes up, for instance, it’s not shareholders who read it or the press, or any of those people. The people who truly study it are your competitors.

Now you should be allowed not to have to declare something if you think it’s proprietary information. It shouldn’t be for the JSE to come and say to you, well, I’m going to suspend your listing if you don’t comply with this or whatever. You should then just be happy that it will affect your rating if you don’t disclose this piece of information. That goes all the way up to director-remuneration declaration and employee information. If you feel that’s proprietary, it shouldn’t be disclosed.

FIFI PETERS: Let’s take it back to the unbundling, because you have said that everything is on track and I believe that the timeline that has been set is August this year. Come August, when this deal is wrapped up and you delist from the JSE and you go into the private equity space, what then, what next for the PSG Group?

PIET MOUTON: We’ve obviously got the investments that we have. We’ll go back and help them grow as fast as possible. The reality is our PSG Alpha private equity portfolio, however one wants to refer to it, hasn’t performed as well as we’ve wanted it to. One can always look for excuses, but the low-growth environment certainly hasn’t helped. And then we went into two years of Covid, so we’ve really got to focus on getting them back on a proper growth trajectory and maybe in time find one or two additional investments.

We don’t have a big management [team] in PSG Group, so a lot of effort has gone into this transaction, sort of over the last year.

I know it looks quite simple when you see it at the end, and it just says five unbundlings and a buyout of the minorities. It unfortunately takes a little longer to come up with how you are going to get there at the end of the day, and how exactly all the pieces are going to set in, because you’re going to go and have a look at the other transactions we did over the last couple of years, sort of putting the building blocks in place to get to this point in time.

So we have seen a bit of destruction; like we all know, Covid played its own role in terms of that. So once this is done, we’ll go and sit down again and start looking afresh. I mean, it’s going to be a significantly smaller company at the end of the day. I think in the portfolio of assets that we are mainly left [with], the Private Equity portfolio is about R2.3 billion. It’s not nothing, but it’s significantly smaller than the R70- or R80-odd billion we had been at when Capitec was still within the group.

So I think that creates opportunity again. If you get a R200 million new acquisition, suddenly 10% of the portfolio – where it previously didn’t even feature, wasn’t even noteworthy – does create new exciting opportunities for us, and we’ll see where it takes us.

But for the moment we’ll focus on getting this transaction approved by shareholders, implemented, and then we’ll go back to the drawing board.

FIFI PETERS: It would be interesting to see which areas spark your interest and which additional assets you pick up in your future to add to the much smaller basket presently.

A last question on the current operating environment, because you were talking about Covid-19. Now we have new threats in term of the Russia/Ukraine crisis that has been going on for some time. That triggered a whole host of concerns around global growth. There are the lockdowns in China over fears of their Covid cases, which triggered the bloodbath across the stock market today. There are also the recent floods in KZN here at home that caused billions of rands in damage to infrastructure. That’s also clouded our growth outlook as South Africa.

Which risk concerns you the most for the growth of the businesses that will stay in the PSG stable after this transaction is done?

PIET MOUTON: I think for me personally it’s more importantly which of those factors are going to affect the other businesses that we are unbundled with. The bulk of my wealth sits in them, actually, not in the rump that is remaining.

But each of these factors I think you’ve highlighted quite nicely. There are so many factors playing that management teams constantly have to look at and analyse and see how each impacts your business.

This thing that you refer to in China – I actually had a slide on it in my presentation, because the CEO of Capespan sent me a picture of the port issues in Shanghai. There are something like 500 or 1 000 ships hanging out in the open seas because of, like you referred to, the total lockdown that they have there in China. That means the entire supply chain gets affected because the ships have to wait there. It filters right across the globe in terms of when things are delivered. So if you are in that sort of space, it really affects you. If you look at the Russian [situation], then it’s the oil price increasing, that’s going to end in inflation and that’s very difficult to assess.

We’ve got to get stuff right in this country. We’ve had all these Zondo Commissions going on and [people] giving all these reports, but nobody in this country seems to go to jail for stuff that they’re [doing] wrong. They get a slap on the wrist and then get suspended, which is almost the best result if you are a ‘skelm’, because you can go and sit down. You don’t even have to pretend you work, but you still get full pay and you keep the money you’ve stolen.

So all of these things have a different impact on each of the businesses. I’ve sort of reiterated a lot of what you said. Each of the businesses [is] too different in South Africa. This one will be affected by this element.

But ultimately the biggest factor is low growth. It’s very difficult to build a business in a low-growth environment.

There are not additional facts out there for people to try something new or different. They stick to what they know and sort of drift sideways. So unless we can get our country to a space where we are at sort of at a 2% minimum growth – but hopefully something more like three or four percent – we’re not easily going to come out of this [situation] that we are in.

FIFI PETERS: Sure. My message from you is essentially [on] the things beyond our control, like the situation in Russia and Ukraine, and in China. But there are things that are within our control, like how we address issues of corruption and accountability – and perhaps that’s something that we can work on, given that it is within our control.

Piet, we will leave it there for now. Thanks so much for your time. That was Piet Mouton, the CEO of PSG Group.

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