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Investec apologises to Tongaat CEO over analyst quit call

Investec says this is not their view, and would not ’cause an embarrassment’ to Tongaat CEO.

Investec apologised to the chief executive officer of South Africa’s biggest sugar producer after an analyst from its research unit said Peter Staude should resign because of the “appalling” financial results of the company.

Read: Investec says CEO of Tongaat Hulett should resign 

Anthony Geard said in a note to clients that Tongaat Hulett has had a decade of poor performance and after full year results that missed projections “we think its time for the CEO since 2002 to step aside.” The note was reported on earlier by Johannesburg’s Business Day newspaper.

“This is not the view of the Investec Group,” the Johannesburg-based bank’s spokeswoman Ursula Nobrega said by email. “To the extent to which it has caused embarrassment to Mr Peter Staude, with whom we have had a long and fruitful relationship, we apologise.”

© 2018 Bloomberg

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Credit to Investec, apologising is the right thing to do. Criticizing poor results is one thing and the right of the analyst but calling for the CEO to resign is not.

Why not?

Yes @Colson, it has been 2 days: Pray tell, why not?

Well, shouldn’t we question why is the guy still a CEO and protected by the likes of Investec? This apology considering the performance raises some alarms.

Never apologize for your Analysis but Colson must tell us why not.

why is there a cosy relationship between those trusted with client’s money and management? The analyst was right to call for a resignation. This is why south african managers think they are beyond reproach because those meant to hold them to account such as this analyst serve at the behest of those with whom they play golf…

Perhaps it’s time corporate and investment banking is separated from Asset management. It’s clear that this apology is a result of this conflict. Investec Asset Management thinks the CEO has performed poorly and should resign while Investec draws millions if not billions in Investment and corporate banking fees( hence the long and fruitful relationship). Analyst’s view should be insulated from conflated management.

Small correction, it is Investec Securities the investment bank/broker/sell side research that Anthony Geard works for not Investec Asset Management.

But your point still stands regardless. Horrible from Investec to apologise. In the US it is mandated by law that analysts should be independent. Not sure if Geard is a CFA charterholder, but under its etical requirements CFA charterholders are required to be independent. Analysts have been criminally charged where they published opinions that went against their true views on the company – sending a mail to colleague saying it is a rubbish business and then publishing a buy recommendation for instance

Reminds one of Russia where critisicm of oligarchs regularly leads to analysts losing their jobs. Will be interesting to see how long Geard will be around still.

How does Investec expect its buy side clients to rely on its research when it is clear that the prime consideration is maintaining good corporate relations?

The Answer and reason for apology lies towards the bottom of this statement…See who is the sponsor for Tongaat… None other than Investec.

TON 201805170054A
Trading statement for the year ended 31 March 2018

Tongaat Hulett Limited
Registration number 1892/000610/06
Share code: TON
ISIN ZAE000096541


The following detailed trading statement is issued for the year ended 31 March 2018, and
follows the trading statement issued on 26 April 2018, which referred to a reduction in
operating profit of at least 15% and in headline earnings of at least 30%.

Operating profit is expected to be approximately R1,958 billion compared to the
R2,333 billion earned for the year ended 31 March 2017. The sugar operations were
adversely affected by the dynamics of imports into the South African market, lower
international sugar prices and the impact of stronger local currencies on export
realisations. Sugar production reflected a partial recovery from the drought conditions of
the previous two seasons. Operating profit from the starch and glucose operation
recovered in the second half of the year, benefitting from a more competitive maize cost.
Land conversion and development activities led to a number of sales in new markets and
operating profit is expected to be in line with the previous year.

Operating profit for the various sugar operations is anticipated to be R837 million (2017:
R1,271 billion). Total sugar production increased to 1 171 000 tons (2017: 1 056 000
tons). The expected contributions to operating profit are: Zimbabwe R563 million (2017:
R504 million), South Africa R86 million (2017: R390 million), Mozambique
R159 million (2017: R308 million), and Swaziland R29 million (2017: R69 million).

The Zimbabwe sugar operations benefitted from continued growth in local demand and
an improvement in the sugarcane crop to be harvested, which is reflected through higher
standing cane valuations. The South African sugar operations experienced high volumes
of imported sugar in the local market when, over several months, upward revisions to the
duty were not implemented timeously, followed by a period during which zero duty was
erroneously applied. The displaced locally-produced sugar was exported in the latter part
of the year and was impacted by lower world prices and a stronger Rand. The South
African sugar industry has taken measures to regain its local market share by ensuring
local prices are more responsive to international markets and by applying for an increase
in the US dollar-based reference price used to calculate the tariff, as published in the
Government Gazette on 11 May 2018. Voermol performed well, with profit and margins
in line with the previous year. In Mozambique, the strengthening of the Metical against
the US dollar limited the ability of the industry to increase local prices and also
contributed, together with lower international prices, to reduced export realisations.

Operating profit from the starch and glucose operation is expected to be R572 million
(2017: R510 million). Higher sales volumes arose from the initiative to replace
customers’ imported volumes with local production, new business development and
growth in export markets. Margins benefitted from lower maize prices, that traded closer
to export parity levels after the record crop of 16,8 million tons, and were negatively
impacted by a stronger Rand.

Land conversion and development activities are expected to deliver operating profit of
R661 million (2017: R641 million) from the sale of 96 developable hectares (2017: 75
developable hectares). Interest in the newly opened high-end location at Tinley Manor on
the coastline north of Ballito realised a sale of 28 hectares, while 35 hectares were sold in
Umhlanga Hills and Marshall Dam in Cornubia for integrated affordable neighbourhoods,
which will yield over 2 500 well-located homes. Further investments were made during
the year into planning and infrastructure that underpins future sales in areas where sales
negotiations are underway or enquiries are being received.

Operating cash flow (after working capital) is expected to be R2,275 billion (2017:
R3,176 billion). In the land and development activities, cash outflows exceeded cash
inflows from previous land sales. Improved operating cash flows generated by the starch
and glucose operation provided some mitigation for the cash impact of lower profits from
the sugar operations. Capital expenditure totalled R2,168 billion (2017: R1,209 billion)
with the commencement of the refinery project in Mozambique and a considerable
investment in sugarcane root replanting, as minimal replanting had occurred during the
drought. Tongaat Hulett’s net debt increased to R6,463 billion (2017: R4,780 billion).

Taking the above into account, headline earnings for the year is expected to be
approximately R617 million (2017: R982 million). Headline earnings per share (“HEPS”)
is expected to be approximately 535 cents per share (2017: 853 cents per share), a
decrease of 37%, while earnings per share (“EPS”) is expected to be approximately
618 cents per share (2017: 854 cents per share), a decrease of 28%.

This trading statement is issued in accordance with paragraph 3.4(b) of the JSE Listings
Requirements. The above information has not been reviewed or reported on by Tongaat
Hulett’s auditors.

The audited results for the year ended 31 March 2018 are scheduled for release on
Monday, 28 May 2018.

17 May 2018

Investec Bank Limited

Date: 17/05/2018 03:36:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (‘JSE’).
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.

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