Black Economic Empowerment has not always had a positive image in the media. This is partly thanks to a few individuals who became mega-rich overnight on the back of BEE, while the majority of black people, who were supposed to benefit, remained poor. One company that has done things differently is Brimstone Investment Corporation, which was founded in 1995 with money collected from former anti-Apartheid activists: teachers who had taken retrenchment packages and other ordinary people from the Cape Flats. Interview by RYLAND FISHER.
In 1999, Brimstone paid back all their small shareholders more than what they initially paid for their shares. They have been paying dividends for the past 10 years and their share price has seen a healthy trajectory over the past few years.
They have given free shares to several NGOs, most of their employees now own shares in the company and they have given a healthy injection to Cape Town’s ailing clothing industry by keeping open a factory, House of Monatic, which employs more than 800 people.
The company’s AGM in Pinelands on Wednesday night was very different from normal company AGMs. It was attended by more than 250 shareholders and other stakeholders, and the company’s products were on display, from their healthcare initiatives to clothes, jewellery and food.
Daily Maverick interviewed Brimstone’s two founders, executive chairman Fred Robertson and CEO Mustaq Brey, at their office next to the Newlands cricket ground a day before their AGM. The two have been credited with most of the success of the company, along with financial director Lawrie Brozin, who joined in 1996.
Robertson, formerly executive deputy chairman, became chairman after the death of Professor Jakes Gerwel, director-general of the Presidency under Nelson Mandela. Most of the AGM this week was dedicated to Gerwel’s memory.
The trio – Robertson comes from a Christian background, Brey from a Muslim background and Brozin from a Jewish background – represents what a new South African company should be, according the lead independent director Leon Campher, who was present at the AGM.
It is clear that, despite their different backgrounds, Robertson and Brey complement each other, to the extent of even completing each other’s sentences.
Daily Maverick: How has the company’s origins impacted the way you do business today?
Brey: We have always had a political conscience and wanted to do something different for our small shareholders. Whenever we do anything at Brimstone, we look at how it impacts on our shareholders and how we can improve their lives.
Robertson: We were among the first movers immediately after political emancipation. We said that economic freedom must follow political freedom. The concept of BEE was not as defined as it is now, but we saw the opportunity.
We consulted very broadly before we started because that was what you did in those days: you always consulted.
Our initial investors consisted largely of clients of Mustaq’s accounting practice, M Brey and Associates, and also of my company, Commlife Financial Services. We also approached friends and family to become investors.
We came into business with a very keen social consciousness. We were always on the right side of the political struggle. We were not forefront political activists but we were there in various ways, offering support in the form of safe houses and cars. We did what we had to do.
Brey: M Brey & Associates were the auditors and did most of the budgets for the NGOs that existed in the early 1980s. Most of these were handwritten. It was not even typed up.
Robertson: Mustaq and I were introduced to each other in 1990 by Peter Jones, who was in the BC movement. Mustaq then became my accountant.
Daily Maverick: How did you first get together?
Robertson: We used to arrange breakfasts when Mandela just came out.
Brey: With South (an alternative weekly newspaper) as a partner.
Robertson: We hosted these breakfasts between South, Commlife and M Brey & Associates. The aim was to get black and white people to sit around the same table, which had never happened before, and to introduce them to our political leaders. When the bill for breakfast came short, Mustaq and I wrote out cheques for the balance. South never had money for anything.
Brey: We charged people R50 a head.
Robertson: And the black guys never paid. (laughs)
In 1994, we went on a trip with Thabo Mbeki and we started talking about starting an investment company because we could see what was going to happen. We came back and we approached some people. Our first investment was Oceana, where we drove the deal, but Real Africa took it.
It was a time of New Africa Investments Limited (Nail), Real Africa Investments Limited (Rail), African Merchant Bank, etc. We come from that generation and we are one of the only guys still standing.
We never had ideas about becoming rich overnight. Mustaq and I, in fact, paid to work at Brimstone. We had one employer at the time, but we never paid ourselves. We were also investor number one and two. I said to Mustaq before we take money from our community, we have to put our own money on the table. Mustaq approached Investec for a loan because both of us did not have money. Investec gave him a loan, because he was a professional, but they did not give me a loan. They gave loans to accountants but not teachers. He convinced them to give me a loan. That is why he is number one and I am number two.
Rashid Seria (former UDF official and South editor) was investor number three and his wife, Avril, was investor number four. Rashid was very supportive initially. Makkie Isaacs (Cape Flats businessman) is number seven. That’s how we started out. Some teachers who had just taken the package put in their money, other people just put in R5,000. Those people have all done very well.
Brey: I did a valuation the other day. Firstly, they would have gotten their money back when we did the share repayment in 1999 after the market went down. If they had put in R1,25 at that time, the share price today is R27,30. We also gave our investors 40 Life Health shares free for every 100 Brimstone shares.
Robertson: For your investment of R1,25, you got back R1,50 as a special dividend in 1999. We have also paid dividends for the last 10 years.
Brey: When we did the Oceana deal, we were cut out by Don Ncube and Real Africa. We then went back to the CEO of Oceana and he said he would try and get us a portion of the deal. He went to speak to the corporate advisers, Standard Corporate and Merchant Bank, and they said they would give us a loan of R4,5 million if we could raise R3 million in six weeks. That’s when we went door to door to raise the R3 million.
Robertson: It forced us to raise money from our own people. The principle remains the same. There is no freebie and, if you want to take risks, you had better have your money on the table.
We have given our shareholders probably more than 1,000% return on their investment.
What we have developed in this company is a principle that says we want to be profitable, we want to be empowering and we want to have a positive social impact.
Brey: On all stakeholders, not only our shareholders.
Robertson: This is informed by our political upbringing and our social conscience. There can’t be profit for the sake of profit, without us being a significant player that creates and sustains jobs. When we spoke to Jakes (Gerwel), we said we wanted to build a company and be charitable. Jakes said to us: ‘Guys, if you want membership of the Communist Party, I can arrange that, but if you want to go into business, go and make profit.’
Brey: Without making profit, you can’t empower anybody.
Robertson: That was before he went into the Presidency. We have always remembered that. That is why we talk about profitability, empowerment and social impact. We put profits first, but we do not believe in profits at any price.
At House of Monatic we employ more than 800 people when everyone around us is closing factories. Most of the people who work for House of Monatic are shareholders in Brimstone. In fact, for some, their shares are valued more than their pension fund.
Brey: All of them were given the shares at one cent each. If they kept their shares, their one cent is now worth R27 and they would have been paid dividends for the last 10 years as well.
Robertson: The 17 years have not been without trials and tribulations.
Brey: It was a hard slog initially.
Robertson: The media is very degrading of BEE, but it was the hardest time to have been building a company, because we were overwhelmed with corporate governance issues, which is not what white businesses had before 1994. Corporate governance is good, but not when there is an overkill.
Corporate governance does not prevent the thieves. It just limits the opportunities for them. It also sits in the DNA of the company.
Mustaq always asks: is it good for the shareholder? Is it right for the shareholder?
Brey: If we are questioned by our shareholders, we must be able to convince them. If you pass that test, then you are okay.
Robertson: It is not only about our shareholders. It is about all stakeholders, because we have banks who give us credit, suppliers, staff, and pension funds who are invested in us.
Brey: Jakes always said we must keep our corporate dignity in place.
Robertson: We have been able to get through all the tough times and still more than 50% of our shareholders are black South Africans.
Brey: When we paid our dividend last month, 55% of it went into black hands.
Robertson: The economic value of our company resides in black hands and 21 NGOs and public benefit organisations are shareholders in Brimstone.
Brey: We have given shares to them.
Robertson: They have well over a million beneficiaries. We support organisations such as the League of the Friends of the Blind (Lofob), Cape Flats Development Association (Cafda), Shalamuka Foundation (a teacher training programme in Mpumalanga), Imam Abdullah Haron Trust, Yabonga Children HIV/Aids Project. These projects are spread across the country.
We are redefining BEE within our company. We understand that the benefits of this society must also filter through to the poorest of the poor. For that reason we have the Brimstone Empowerment Share Trust (Best). All the trustees are independent, but we do the work and advise them.
And we have the Brimstone Foundation which does CSI stuff.
Through BEST, we are making sure that the poorest of the poor have shareholding in Brimstone, receive dividends every year, and, after a five-year period, they can actually sell their shares. But we top it up every year if they are well-governed, if they give us their audited financials and those kind of things.
Brey: The point of the top-up is to encourage good governance. We believe in good governance, whether you are running a corporate, an NGO or a school.
Robertson: We believe if a lot of black companies had done that for NGOs, then NGOs would be self-sustaining.
Brey: In that way they can sustain their own dignity. A lot of good NGOs have been destroyed, because the money flow we had in the 80s and 90s has changed completely.
Robertson: Poverty alleviation is not only the state’s responsibility. Education is not only the state’s responsibility. Contributing to the positive lifestyle of all South Africans is not only the state’s responsibility. It is everybody’s responsibility, both individuals and corporates.
Daily Maverick: To what do you ascribe your success?
Brey: We realised at an early stage that it was going to be a marathon and not a sprint. It was not going to be a case of making money quickly and then moving on. We always wanted to have a company that would be commercially sound.
The fact that we have a BEE company is a bonus, that we might be able to do some extra things.
A lot of the guys did BEE deals that were not commercially sound. They were done by bankers purely to get fees. People believed that if they had a black shareholder, they would get more contracts. It was not done for the correct reasons. Therefore in the long run, it cannot stand up. That’s when you had all the fronting going on, guys taking their gardeners as their BEE partners. We don’t believe in those things.
We have long relationships with the companies we have invested in. We have been in Oceana since 1995, in Sea Harvest since 1998, House of Monatic since 1998, Old Mutual eight years, and Nedbank eight years. It has not been a short-term relationship. It has all been long-term.
That is what a lot of the BEE players are not seeing. They believe BEE is a quick thing where you can make money quickly and get out.
In Oceana, we started out with two percent, came down to about half a percent when we needed money, but we are now at 20% again. We bought more shares in two different tranches.
We started with nothing in Sea Harvest, but we now have 58%. We have taken Kagiso Investment Company along with us. We do deals with other like-minded black groups. This is where the future lies, if we can get more of a working relationship between black groups. I think we can still do a lot more.
Robertson: I think it is fair to say that part of our success has been our partnership.
Robertson: While we are very different people, we have respect for one another and one another’s strengths. We are the founders, but we introduced Lawrie Brozin (financial director) later and the three of us have kept things going, with an independent board of directors.
When Jakes came out of the Presidency, he brought a gravitas to the board. It was wonderful to learn from his experience and how he dealt with difficult times.
We are now considered as one of the premier black companies in the country and we are seen to be very good partners for the long-term.
We make a positive contribution. We are on the job every day, we attend our investee companies’ board meetings, and we run all kinds of programmes.
Our politics and education have informed us differently to new BEE guys coming up now.
Brey: We want to be responsible citizens and the only way to do that is by doing things correctly.
Robertson: Have we got significant assets? Yes, we have. Almost one percent of Old Mutual and one percent of Nedbank, 57% of Sea Harvest, 23% of Oceana, five percent of Life Healthcare.
Daily Maverick: Where does the bulk of your revenue come from?
Robertson: About 44% comes from food, 35% from healthcare, 14% from financial services and about eight percent from others.
Brey: Our gross assets today are at more than R5 billion. Two and half years ago we unbundled to our shareholders more than 12 million Life Health Care shares which are worth another R4 billion at today’s price. If we had kept that, we would have been at about R9 billion today.
Robertson: This company was started on the Cape Flats, but we now have interests in global exporters of food, and we are big into Africa with brands such as Lucky Star and Sea Harvest. In financial services, we are global via Old Mutual and Nedbank.
Brey: Life Healthcare now goes into India through a joint venture.
Robertson: Ours is not just a portfolio of South African businesses.
Brey: Oceana is now one of the biggest traders of horse mackerel in Africa.
Robertson: And Lucky Star is one of the biggest brands in the country and in Africa. Imagine all of this starting on the Cape Flats, in his office and my office, with ordinary people’s money. Look at what we have been able to build.
If each and every BEE company can think like this and do these kinds of things, it would make a difference.
Brey: Not only the BEE companies, but all commercial companies. Most of the BEE companies support their staff when they have community projects, but I think they can do more of that. It can help with the plight of the poor and the unemployed.
Daily Maverick: What was the biggest obstacle that you had to overcome?
Brey: We have had a few. One of the biggest was in 1999 when the market collapsed. Our share price went down to about R1 when our net asset value was about R2,50. The vultures were out there. They came to us and said we should delist Brimstone, buy it off the market at R1 and we could share the difference. I said I have taken money off shareholders on the Cape Flats and I did not want to leave Cape Town. At that time, we could have made R75 million between us and we could have walked.
Robertson: We listed at the end of the 90s boom and we thought that everything was just going to go up. It was the most humbling experience when the IT bubble crashed. But when the 2008 crash came, we were a bit more robust. We looked for recession-proof businesses like food and healthcare, and businesses where we could see the cash flow coming in, because our shareholders needed cash dividends.
We’ve always kept our expenses low. Our expenses now are still low relative to our total portfolio.
Brey: Our portfolio is about R5 billion and our expenses to manage the business is less than one percent of that.
Daily Maverick: Do you believe in controlling businesses or investing in businesses?
Brey: We prefer to be just good partners, where we have 20 to 30%, where we don’t get the burglar alarm call, we don’t have the keys to the business and we don’t get the calls from the bank manager.
But there are cases where it is different. We control 100% of House of Monatic and Lion of Africa, the insurance company, where we have that responsibility.
We prefer being the good partner but we have not shirked away from others where we are the controlling shareholder.
Robertson: We would never have been able to sustain those jobs at House of Monatic if we had partners, because they would have just wanted to close down the business and redevelop the property.
Brey: When we do our annual presentation to analysts, I often get asked why we still have House of Monatic. This is our social responsibility, the fact that we are able to retain 800 to 850 people in jobs. If you don’t like it, you can sell your shares. You cannot expect to get good returns on some businesses and not be socially responsible on others.
Daily Maverick: You are obviously very good friends. What do you think about the notion that one should never get involved in business with your friends?
Robertson: We were not friends before. We come from different backgrounds. Mustaq comes from Wynberg. I come from District Six. Mustaq comes from a conservative Muslim family. I come from a different background. We were not at the same school, but we have come to learn to respect each other. We were business partners first before we became friends.
Brey: The biggest thing we have learnt is that you have to respect people. You have to give respect to receive respect. We disagree on issues at times, but we sit around a table and when we leave to speak to others, we speak with one voice.
Robertson: We recognise that we bring different strengths to the partnership.
Brey: If he can show me how to do something better, I am happy to accept it.
Robertson: I might have the instinct to go for something, but Mustaq does the numbers. We have been blessed and fortunate to maintain our partnership. I don’t argue with his numbers and he often does not argue with my instincts.
Brey: When he says to me he has an instinct not to go with something, we go with that, even if the numbers look right. Two years later, if something happened to that business, he would say: I told you so.
Robertson: Sometimes the numbers are perfect – you can’t find a mistake – but it is still wrong.
Brey: We have learnt that you have to work with people you can trust. If you can’t trust the person, then already you are starting off on a wrong foot.
We don’t mind paying to play. If you overpay for a good asset, you overpay for it once. If you underpay for a bad asset, you pay every day.
Daily Maverick: How has the loss of Jakes Gerwel impacted on your business?
Brey: Are you asking whether we have to do more work? (laughs) It has been an enormous challenge to us, but we’ve had to recycle the work that he was doing, to share it out among ourselves. Fred has taken over as executive chairman of Brimstone. I had to take over from him as chairman of Life Health Care.
The biggest thing we’ll miss about Jakes is his actual guidance. Whenever we had issues, we could talk through it. He would sit and listen and come up with a solution.
We were fortunate to learn from his wisdom. He had great leadership skills. He knew which tasks to take on and which to leave because they would sort themselves out.
He was brave and fearless. When he needed to do something, he would do it. The big thing I learnt from him personally is that when things are tough and you are not dealing with it, he would say to us: do it to yourself before somebody else does it to you.
Brey: Then you have some control.
Robertson: In the early days when we really had issues in our business, he said we had to do the tough thing, and when we asked why, he would say we have to do it to ourselves before somebody else does it to us. That’s a very hard and mature lesson to learn.
Brey: He was a wonderful leader.
Daily Maverick: Why are your AGMs different from normal company AGMs?
Brey: We only had one AGM during the day, but since then we have moved it to the evenings. Shareholders asked me whether I thought they should take off from work. Were we going to reimburse them?
Robertson: It’s an event. We have more than 200 people pitching. It’s active participation in their company. They see what and where we invest in, they can feel and touch it. When they go out to shop, they can make a decision to buy the products of their own company, the company they have invested in or whether they must buy some other company’s products.
What has been the best investment they have made?
Robertson: It has to be food and healthcare. Because our investments are diversified into food, healthcare and financial services, at different times, different ones come through. Healthcare has consistently done well for us, and food has also shown a phenomenal return. We expect our financial services to come through in a fantastic way in the next few years.
Brey: Brimstone is a basket of investments. It’s not just one. Because it is diversified, you will find that different ones come through at different times. If you had only one investment, you could have a bad year or conversely a very good year. By being in a basket, you are able to mitigate your risk.
Daily Maverick: And your worst investment?
Robertson: The worst investment has been with dishonest partners who wanted to make money overnight. No good governance structures were in place and they had a short-term view.
Daily Maverick: Would you do this all over again, given the opportunity?
Brey: Maybe I won’t go grey, but I’ll go bald. It has been one hell of a learning curve for us. The people we got to know, the friendships that we have developed over the years, I would do it all over again. It has really been the best university experience I have had. We still learn every day. We don’t know it all and we will never know it all, but we are prepared to learn. We try to employ people who are smarter than us and, in that way, we get challenged. You must not be afraid to do that.
Robertson: We have been fortunate and blessed to have lived through the most important part of the history of South Africa and to be able to have the opportunity to build a company in the way that we have, has been a significant privilege that can never be under-estimated.
For that reason, we need to continue contributing to society, both in profitability, job-creation and empowerment.
We would do it all over again. We would need a 20- or 25-year discount on our age and we would be fit and ready to go (laughs).
But we have also created an opportunity for young South Africans to come through and take this business to the next level and hopefully to a global business where ordinary South Africans can benefit. DM
Photo: Brimstone’s two founders, executive chairman Fred Robertson (L) and CEO Mustaq Brey (R)
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