Dave Woollam: Tongaat has sold the crown jewels – because it just had to

Shareholder activist Dave Woollam has been keeping us updated on the survival efforts of embattled Tongaat Hullett, which last week sold its highly profitable Starch division for R5.35bn. Woollam agrees with new CEO Gavin Hudson that the price received was a good one – especially given the stress that everyone knows Tongaat is under. But he also explains that a business which delivered R300m a year to the group's cash flows will be sorely missed. But needs must right now as a group that was once the pride of KZN is forced into selling the crown jewels to keep its bankers from foreclosing. Little wonder that Tongaat's market value is just R400m – one twentieth of the debt that remains after the latest asset sale. – Alec Hogg.Well, the man who's been keeping us on the board of Tongaat is David Woollam. You might remember in the times we've spoken with David, he approached the Tongaat board, gave them financials, and said they were running into trouble. They basically, politely kicked him out of the building but now they're listening and they're listening very carefully. Dave, I've seen the work and the research that you've done on Tongaat. Before we go into this huge sale of their starch division for more than R5bn this guy Gavin Hudson – the new Chief Executive – he's ducking me. He doesn't want to talk to me. I've asked him. I've even offered to go down and see him in Durban. Is he actually all that he's made out to be? The media are making him out to be quite a special guy but why would he be behaving in this way?.___STEADY_PAYWALL___.Look, it's hard for me to really read his mind in that regard. I think what I've seen of Gavin is that he's a fairly no-nonsense guy. He wants to get on with the job. He wants to get things done and maybe he wants his actions to speak rather than his words, so I can't say other than that. I've found him to be pretty approachable and I think they're getting on with things. They've got a massive task ahead of them so, I suppose ever minute spent dealing with the issues at hand is time well-spent..So, it's more internal focus than external at the moment..I think that's correct. There's not a lot he can do externally. His biggest challenge is managing the debt levels with the banks so I imagine he doesn't turn them down for a discussion and obviously….I should hope not..Obviously, he's slowly building a strategic vision for the group and I suppose in a way, talking in the public and that is really, raking over old coals to some extent. He needs to have something to say and they need to figure out what this group is going to look like in a year or so..Now, on Friday, they announced that they've sold the starch division for R5.35bn. I remember his predecessor Peter Staude, who's very much under a cloud at the moment because of the way he managed the business but he also used to say that the starch division was the crown jewels. Have they sold the crown jewels?.Alec, I may be slightly correct when I think that he made the property business the real crown jewels. I think if one looks at an operational level, the starch business and maybe more accurately describe it as starch and glucose – I'll explain that in a minute – but it has been an incredibly solid performer. It has a very dominant position in his markets. In fact, in some of the markets, it's the only producer of its kind and it's had very solid results. The last five years, they've averaged around R500bn. Operating profits growing at a nice, steady 10% pa and this six months to September, it generated R300m of operating profits and R200m after tax, so it's a very good business. Maybe it was one of those that, because it was in Johannesburg (a case of out of sight, out of mind) with a very strong management team, they've delivered despite all the issues between the sugar industry and the property industry, etc..Hudson said it's a compelling offer they received from Barloworld. You know the group as well as anyone else. Would you have sold the starch division for R3.35bn?.I think it's a pretty good price if we use the measures I've just mentioned where the one looks at EBIT or operating profit. I guess it's the same, or profit after tax. It represents on a normalised run rate somewhere around 15 to 20 times earnings, so I guess in this market it's a pretty good price. Are they selling the crown jewels? Well, it's going to be very difficult for this business to operate without this earning stream. It's been a cash earning stream, largely. They don't have a lot of Capex, so it's been a very good earner but when you've got R13bn of debt and service costs and the banks obviously putting pressure on you, I think you have no choice but to sell your crown jewels or your best assets because that's going to have the biggest impact..Needs must in this situation and that was David Woollam who has been keeping us up to date on the Tongaat affair.

Dave Woollam: Tongaat has sold the crown jewels – because it just had to

Related Stories

Meet Tshepo Mahloele – Big Capitec shareholder, ABSIP’s “CEO of the Decade” now accused by Holomisa as kingpin of corrupt network

PREMIUM: Making of a great editor – the George Palmer playbook

Premium – BizNews global portfolio: ASML joins – so does Adobe as Bull takes hold again

Alec Hogg: Helen Zille predicts SA choice will be DA or EFF