Investec calls for Tongaat CEO to go
• Staude must quit after appalling results, says report • Earnings fell 37.2% to R617m
Tongaat Hulett’s CEO, Peter Staude, should step down after the sugar producer’s “appalling” annual results, Investec says.
“After 10 years of negative cumulative free cash flow, declining returns and nil cumulative earnings growth or share price appreciation, we think it is time for the CEO since 2002 to step aside,” Investec said in a report entitled Time for change.
The scathing report came just days after Tongaat reported headline earnings for the year to March had fallen 37.2% to R617m. The share price slid 9.6% on Thursday morning, before closing 5% down at R81, the lowest since June 2009. It has declined 29.3% this year.
Investec’s call, in the report authored by Anthony Geard, is a rare rebuke, with large institutions tending to refrain from expressly stating they want top executives to resign.
Tongaat management said in November, halfway through its financial year, that the group held a “positive outlook” for the full year to March.
“Apart from the interim guidance, which was inaccurate, the most frustrating aspect of the 2018 financial results is the painfully slow pace of unlocking value from Tongaat’s land portfolio,” Investec said in its report, seen by Business Day.
Tongaat, which has turned to property developments to offset a difficult and cyclical sugar market, had sold just 1,233ha of land over the past 10 years.
Considering it held more than 8,000ha a decade ago, “the run-rate is barely 1% per annum”, Investec said.
The financial institution downgraded Tongaat from a buy rating to a hold in its report, and lowered its share price target from R125 to R90. This came after Tongaat’s financials
showed a “disappointing” property performance and a “disaster” in the core sugar business.
One institutional shareholder, who spoke on condition of anonymity, agreed that Tongaat was in need of a shake-up, but was less keen on the company selling all of its valuable land holdings.
Tongaat has 7,612ha of prime land near Durban and Ballito that can be developed.
Despite missing targets, Tongaat said on Wednesday it had awarded Staude and longstanding chief financial officer Murray Munro with shares purchased from the market.
“Taking into account the extent to which performance conditions were met, 27.03% of instruments granted under the long-term incentive plan in 2015 have vested,” the company said.
Staude received R1m worth of shares (before tax deductions) and Munro R458,407 worth.
Staude, who could not be reached for comment on Thursday, said earlier in the week the government had not made “timeous” upward revisions to SA’s sugar import duty in early 2017, when the industry was struggling with high volumes of imports.
“This was followed by a period during which zero duty was erroneously applied,” he said.
Tongaat said on Monday that 47%, or 3,566 developable hectares of company land, had been released from agricultural use after the requisite approvals by the government. Property developments would involve considerable cash inflows and outflows over an extended period that might not coincide with financial-year reporting, the group said.
Staude said sugar production “reflected a partial recovery from the drought conditions of the previous two seasons”, while future ethanol production in the country “looked particularly promising”.
Tongaat said its Voermol animal feeds operation performed well, while operating profit from the starch and glucose business improved in the second half of the year.
TONGAAT HAS 7,612HA OF PRIME LAND NEAR DURBAN AND BALLITO THAT CAN BE DEVELOPED