Tongaat looks for the sweet spot again
The 127-year-old institution is picking up the pieces left behind after it emerged that certain former executives had overstated assets and profits by using “undesirable accounting practices”, according to the forensic investigation contained in the report compiled by PricewaterhouseCoopers (PwC).
At the conclusion of the report, the PwC seven-page report fingered 10 executives for wrongdoing, including former chief executive Peter Staude. However, the full contents of the report are yet to be published as it is subject to legal privilege and other confidentiality restrictions.
Other executives fingered in the PwC report were John Chibwe, Michael Deighton, Steve Frampton, Shelton Nhari, Sydney Mtsambiwa, Les Munro, Murray Munro, Raphael Pfunye and Sean Slabbert.
Tongaat is considering launching civil claims against the former senior executives.
However, the writing was on the wall for Tongaat in the past four years, with its share price falling rapidly and raising some eyebrows among the community of investors and lenders alike.
The share price lost about 87percent, from R173 a share to R16.50, between November 2015 and June this year, before it suspended its shares from listing on the JSE.
The decline led to some investors drawing some comparisons with Steinhoff International, the retailer which saw its share price decline by 90percent following the admission to accounting irregularities in December 2017.
By March this year, Tongaat raised red flags and admitted that its 2018 financial statements would have to be restated and said “certain past practices” did not reflect the company’s business performance accurately.
By this time Tongaat was also buckling from external factors, hit by cheap sugar imports, a sugar tax which reduced local demand as well as a lacklustre property market.
The board mandated its new chief executive, Gavin Hudson, to embark on a strategic and financial review with the objective of stabilising the business, addressing the debt levels and setting the path towards acceptable returns for shareholders. Hudson also appointed PwC to conduct a forensic investigation in March.
The release of its March 2019 results painted a clearer picture for the group, but it reported a reduction of equity to the value of R11.89billion, up from the earlier estimated figure of between R3.5bn and R4.5bn and a headline loss of R923million compared with a restated loss of R947m.
Hudson said the results were better than anticipated “given the turmoil of the past year". "Importantly, an accurate accounting of our financial position allows us to reset the baseline. The closure of this chapter will free up management to focus on delivering on our strategy and begin to build a sustainable and long-term future.”
Whether Tongaat will recover from this scandal or not is still a point of contention. But Sasfin Securities senior portfolio manager Nesan Nair cautioned that the group would have to earn the trust of investors again, especially as its auditors had expressed concern on whether it could be categorised as a going concern.