Nothing flashy when it's all about family
'THE thicker the carpet, the thinner the dividend'' sums up Robert Millner's approach to business. As head of the fourth generation family business, Washington H. Soul Pattinson, Millner has catapulted it to one of the richest in the country, building a $3 billion empire that takes in telecommunications, a pharmacy chain and coal.
But it is a sign of Millner's frugal, low-key approach that head office is still above a chemist in Sydney's Pitt Street Mall, with a staff of just seven people, including himself.
Soul Pattinson is sitting on $400 million in cash, an equity portfolio of $400 million that could easily be cashed in, and script, all of which could afford the company a big acquisition - or a string of smaller ones - well in excess of $2.5 billion.
Cashed up, debt free and ready to pounce, Millner told businessday he was on the lookout for bargains. ''My focus is simple. I ask one question: will the investments underpin a higher dividend to my shareholders in the future?''
The problem is there aren't a lot of deals coming through at reasonable value. ''If you go through history, after downturns some good businesses come on at distressed prices. We haven't seen it in this cycle. I don't know why. New Hope [Mining] and Soul are in a wonderful position to do something. We have had lots of inquiries but we haven't seen anything that tickles our fancy,'' he said.
The main issue for Millner is price. ''The prices people are asking aren't realistic,'' he said. He is waiting for a market correction to change all this. ''There have been a few little corrections but with interest rates low, particularly in Europe and the United States, people are putting their money into the stockmarket.''
As chairman of the listed Washington H. Soul Pattinson group, Millner is at the heart of the family empire, sitting on the boards of most of the group's investments, which include coal group New Hope Mining, the building materials company Brickworks, two investment companies, Choiseul Investments and Milton Corporation, and telecommunications group SP Telemedia. (Soul Pattinson is also a shareholder in Ruralco and Clover Corporation, although Millner does not sit on the boards.)
Although Millner is a fourth-generation family member in the business, he was a farmer for 10 years before coming on board. After leaving Sydney's Newington College (where he shared a classroom with David Leckie, managing director of the Seven Network, and Bill Ireland, founder and former boss of Challenger Financial Services and Mariner Financial), he lived and worked in Cowra, NSW, until 1984 when his uncle, Jim Millner (the previous chairman of Soul Pattinson), invited him to join the board. He became chairman in 1999 at the age of 49, on his uncle's retirement.
Like his uncle, Millner is a throwback to a bygone era. Fiercely conservative, he has run the company with little debt, never gone to shareholders to raise money, always paid two dividends a year and keeps a frugal office.
Such low overheads, including so few managers, has its good points and bad. On the positive it keeps costs low, but if a business investment turns out to have bad management, Soul Pattinson doesn't have the expertise to fix it.
Over the years, this has rarely caught the company out, but two noticeable exceptions were KH Foods and API. ''The food business was a combination of bad management and being too small to compete. When it got down to the day-to-day running of the business, we weren't big enough and we were dealing with the giants of supermarket trade. I guess if you look and see what they [Woolworths and Coles] have done, they have killed off a lot of small business in Australia,'' he said.
Soul Pattinson cut its losses and sold KH Foods. API is back on track and expected to get back to where it was within two years, according to Millner.
The biggest difference between Millner and his predecessors is his decision to simplify the structure of Soul Pattinson by spinning off some of the businesses into separately listed entities. ''I like the listed structure because we had been heavily criticised for having a very complicated set of accounts with our associates and various investments and cross shareholdings with Brickworks. My listing various businesses means analysts can now do a sum-of-the-parts valuation of Soul Pattinson,'' he said.
Spinning off various operations has also made a fortune for the entity. ''We floated off New Hope with an offering to shareholders at 40¢. The share price has been up to $5 and it has paid at least a dollar in dividends. We floated off the TV stations and did very well, and then with advent of digital TV we got into telecommunications, which was floated off to shareholders at 30¢. The share price was $1.70, so shareholders have done well,'' he said.
Millner has a strong respect for what has gone on before him. The company was founded by Caleb Soul and his son Washington in 1872. Apothecary bottles and black and white photos above his desk remind him that it is the country's third oldest company, and it is all about family and shareholders.
But succession in any family business is always an issue, particularly in listed entities. Soul Pattinson is a listed public company but interests connected with the Millner family have controlled the business for generations. (Robert's cousin Michael is deputy chairman, and Robert's son Tom runs the $600 million Brickworks Investment Group.) All up the family holds about 10 per cent of Soul Pattinson, which at last count was worth $300 million. The family also has a big, separate equities portfolio.
In the past two years, Soul Pattinson has more than doubled in price from $6 a share to a close yesterday of $13.48, putting it on a market capitalisation of more than $3 billion.
''Like most of the best companies in Australia, this is a family company. We are conservative people. We are not high fliers, we drive modest cars and don't have chauffers or private jets. And I still have a few good years of work left in me.''
The hard questions
1 Was it difficult to leave the farm to join the family business? No. I always said I would like to work for the family business. My uncle and the board had to be convinced I was up to standard and I joined the board in 1984.
2 Will there be a fifth generation succeeding you? My son is the only fifth generation involved in the company. He is 32 and is running Brickworks Investment company. It would be nice, but I don't know what is in store. It is up to him to make that decision.
3 Is the NBN a good thing? The money could be better spent on hospitals and rail. My mother-in-law died in hospital last Christmas because there was nobody to look after her. We haven't kept apace with what we should have done on infrastructure. We all want good internet but to me there is a happy medium of spending on that.
4 What are your views on short selling? I can't see how it contributes to a normal market. The government can't afford us as we get older, so when people put their money into superannuation it should be put into investments that are going to grow over a period of time.
5 Why remain a conglomerate when they are out of favour? We care about shareholder returns. We have no debt, we have never asked shareholders for money and we have always paid a dividend. That can't be said for a lot of companies.
Newington College, Sydney
1969 - 1970 Worked as a stockbroker
1970 - 1983 Farmer in Cowra, NSW
1984 - 1996 Joined family business, Washington H.Soul Pattinson, as a director
1997 - 1999 Appointed deputy chairman of Washington H.Soul Pattinson
1999 - present Chairman of Washington H.Soul Pattinson
Chairman of Choiseul Investments, Milton Corporation, Brickworks, New Hope Mining and SPTelemedia. Also a director of API
Family and farming