How to break a business
| A year ago the group was flying high, rejecting a buyout offer and awarding fat bonuses, writes Chris Barron
SO much for company reports. The 2013 annual report put out by struggling JSE-listed civil engineering and construction group Protech Khuthele could not have been more upbeat.
“We are delighted with the speed and efficiency with which Protech’s leadership team implemented the strategic turnaround programme,” enthused chairman Mafahle Mareletse. “Tangible benefits are starting to emerge.”
In fact, so confident was the board about Protech’s prospects that it even rejected a 60c-ashare buyout offer from its largest shareholder, contract mining and equipment group Eqstra, saying it “significantly underestimates Protech’s longterm value potential”.
Yet, within a year, Protech’s share price had nose-dived to 15c. Mareletse, along with most of his board and leadership team, was gone and Protech was in intensive care, otherwise known as “business rescue”.
A stock exchange statement last week reported dismally that business rescue had now failed and an application had been made to have Protech placed under liquidation.
It was an alarmingly swift demise that left its true believers shocked.
Among them was Victor Dingle, who joined Protech a few weeks ago, in May, as chief financial officer from the Teichmann group, where he was financial director.
Later that month, the man who hired him, CEO Antony Page walked out, three months after receiving a R5.7-million performance bonus. Dingle, 51, found himself acting CEO.
Dingle now has until August 6 to find buyers for Protech’s assets to raise cash to pay its creditors and prevent the company’s liquidation.
To save it from the disaster many feel is of its own making, Protech even approached Eqstra, the company it had spurned, asking whether it would be its white knight. Thanks, but no thanks, said Eqstra.
By the time Dingle accepted the Protech job offer, the writing was clearly on the wall. What carrot did they dangle to persuade him to board a fast-sinking ship?
“The writing wasn’t on the wall at that stage,” he says.
Protech’s results for 2013 were “not too shabby”: a loss of
A lot of this cash was paid to PwC, which told the board the company was worth 90c a share
R10-million had been turned into an after-tax profit of R18million.
Dingle says it only became clear after he joined “that things were in a worse position than perhaps the board had thought”.
Officially, Protech blamed its disaster on the failure of a debtor in the Congo to pay it R40-million. Dingle says, however, that this wouldn’t have saved it: Protech needed at least R75-million to have any chance of surviving.
Critics say Protech’s “fruitless and wasteful expenditure” was going on long before the collapse became public, and its overhead cost structure was incompatible with its revenues and R150-million market cap.
Dingle admits as much: “I think the cost structure was inappropriate.”
Does he mean executives get- ting paid too much? Too many bonuses?
These payments, Dingle says today, would have been approved by the board.
For example, former CEO Page and his financial director, Nellis Wolmarans, were paid R8-million in bonuses between the two of them — which seems rich given that the company’s entire income for that period was only R28-million.
“There are a number of companies and parastatals where a loss is made and executives get paid bonuses,” says Dingle. “So I can’t comment on what the criteria for those bonuses was.”
Wolmarans even got his bonus in spite of having been the subject of a forensic audit.
Dingle says it was not a forensic audit. The company at the time described it as an “internal investigation”, so technically he is probably right.
A well-placed source says Page ordered it when Wolmarans started questioning some of his actions and decisions. Apparently nothing was found against him, but he resigned anyway in January 2013 in terms of what the company called a “mutual separation agreement”.
Page then appointed Robert Madubanya, 32, his new financial director in the face of strong objections from Eqstra, which thought the CEO needed someone who could “take him on and keep him in line”.
Eqstra feared that Madubanya was simply a “crony” of Page’s from their time together at Grinaker LTA.
Apart from the high overheads, Dingle says too much time and money was spent at Protech on “meetings and strategising” and not enough “on the basics of the business”.
“A lot” of management time was devoted to fighting Eqstra’s bid, he says. Too much money too, apparently — anything from R15-million to R35-million.
Dingle is coy, saying: “I wouldn’t like to comment on that, but it was a significant amount.”
A lot of this cash was paid to auditing giant PwC, which told the Protech board the company was worth 90c a share.
In fact, Protech’s board and management were so focused on fighting the takeover bid that they lost sight of the ball.
“During that period there was no new work that came in,” says Dingle.
Mareletse, however, cited “a significant improvement in morale and employee motivation levels” as one of the “highlights” of Protech’s 2013 financial year.
Now, barring a miracle, all 1 100 employees are going to lose their jobs and a lot of money owing to them, besides.
Dingle says that morale right now is very low indeed.
“If the company is liquidated their employment contracts are suspended,” says Dingle.
“They will be entitled to a statutory amount, which is not very large. It is unlikely they will get anything — at the most, very little.”
The staff will get their pensions because these are independent of the company, but not much else.
They’re unlikely to receive any accumulated leave pay, guaranteed savings in terms of the 13th cheque, bonuses due to them, outstanding travel claims or other expenses. Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.timeslive.co.za