The leading critic of 127 year old sugar group Tongaat Hulett, has been transformed into a fan after the company has onboarded suggestions he’s been making for the best part of a decade. Opportune SA’s Chris Logan is also impressed at the way new Tongaat chairman Louis von Zeuner and his CEO Gavin Hudson are determined to make those responsible for Tongaat’s R11bn write-offs face the consequences. Not just former executives – who have been reported to the National Prosecuting Authority – but also auditors Deloitte. – Alec Hogg
Joining us today is Chris Logan of Opportune who dialled into the Tongaat AGM meeting. You were quite impressed with the way that things developed, including Louis van Zeuner, an old colleague of mine, who seems to be getting some pretty hot potatoes to look after, including chairmanship of Tongaat.
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Yes, It was an outstanding AGM from a number of aspects. The way the meeting was handled and the way in which the questions were answered. Clearly it is a revitalised company in numerous regards. If you start from the governance, the calibre of the board and the operational progress they are making, you know there’s a lot happening. Unfortunately we still have an R11bn restatement. But it’s night and day when compared to what it used to be.
Before we go more into depth on Tongaat, I want to close off the conversation I was having with David Shapiro on prescribed asset requirements. As a money manager back then I remember then that asset managers had to invest 53% of funds into government stock. How much of a drain was it on performance having those requirements?
It’s always a big constraint because one does not know how well or bad the government’s stock does. So you could sketch out a scenario where you just about lose all your money in prescribed assets if you get into a hyper-inflationary situation, which sometimes happens in a badly managed economy. One shouldn’t be exposed to that risk. And there’s another aspect, South Africa is one of the last countries you should even contemplate prescribed assets because the average pensioner only gets something like 17% of what he was getting of his salary. People fortunate enough to get pensions in this country from their previous employer are getting such a small pension to then go and burden the whole system with prescribed assets with a government which has shown itself to be quite frankly, incompetent in managing assets.
Donwald Pressly did such an excellent piece for Premium last week and the good news is that JP Landman and Iraj Abedian, two very highly regarded economists, say it’s never going to happen. There’s no way that this administration and Cyril Ramaphosa will be that dumb to bring in prescribed assets with such a poor track record on asset allocation. What was interesting from the AGM that you participated in is that you do feel that the new team are doing a lot of right things.
Absolutely. Whether it’s the governance or the processes or the way they’re running the business, they are driving to be the lowest cost producer in sugar which is key because sugar is a terrible commodity. They are not prepared to entertain cross subsidisation, which means if sugar has a bad year then they dip into land sales. But in the end each division has got to stand on its own.
But the problem there surely is that they are working for the banks at the moment just having to repay interest.
They are working for the banks. They need their R4bn capital raise. The steps they are taking in improvements put them in a far better position to service their debt and raise capital. This is a 127 year old business which is very important.
Chris what about the statement from the chairman Louis von Zeuner that he has reported previous management to the National Prosecuting Authority.
He and the CEO want to hold everyone responsible.
What about Deloitte, the auditors?
Neither the external auditors Deloitte, or the internal auditors KPMG, are off the hook. There are legal and regulatory committees which they’ve set up to bring these matters to a conclusion.
Chris just to close with a key point, which you’ve made on numerous occasions. Tongaat took money from its property sales, in other words sold the crown jewels, and pumped that into sugar which hasn’t worked out. Is there any commitment from this new management team that they’re at least looking after the land that they still own on the KwaZulu-Natal north coast.
Yes. There was quite a strong commitment. They have acknowledged that this was wrong. They should at least get an annuity type income from any property deals they do. So they acknowledge that all the problems started on these property sales. That’s where all the misstatements and the regular dealings started. But they are far from finished with all the investigations and bringing things to a conclusion. But I was very impressed with all the answers.
