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Tongaat Hulett: Developments division under scrutiny

Another executive resigns as group-wide forensic investigation and restructuring continues.

Sugar and property group Tongaat Hulett has seen another senior executive resign as it grapples with an accounting scandal that saw it suspend trading on the JSE last week.

Moneyweb understands that Michael Deighton, long-time managing director of the group’s land conversion and property division, Tongaat Hulett Developments, resigned last month after more than 19 years with the company.

The Tongaat Hulett Developments division has come under scrutiny as the company continues with its group-wide “strategic and financial review” which has seen it institute a forensic investigation into its operations and financials.

Read: The corporate scandals keep on coming 

Tongaat Hulett’s share price stood at R13.21 at the time of suspension of trade on Monday, June 10, having plummeted more than 75% since the beginning of the year. The decision to suspend trade came in the wake of the group’s JSE Sens announcement on May 31 that it would have to restate its equity by between R3.5 billion and R4.5 billion for its 2018 year. It has also delayed the announcement of its 2019 financial results to October, by which time it hopes to resume trading on the JSE.

It said at the time that the adjustments relate to the “reassessment of land sales against the revenue recognition criteria defined by International Financial Reporting Standards and the associated profit margins”, a revision to growing cane valuations and a reversal of capitalisation costs related to cane roots, projects, maintenance and inventory.

Rash of resignations

Deighton is the latest senior executive to leave the group. Former Tongaat Hulett group CEO Peter Staude took early retirement late last year, while CFO Murray Munro took a medical leave of absence. The group brought in Gavin Hudson as CEO in February and appointed Rob Aitken as CFO in March.

It also announced in March that the head of its South African sugar business, Martin Mohale, and the head of its operations in Mozambique, Rosário Cumbi, would take early retirement. The group’s MD in Zimbabwe, Sydney Mtsambiwa, who stood in as interim group CEO following Staude’s departure, also stepped down in March. Furthermore, Jenitha John, an independent non-executive director at Tongaat Hulett and chairman of the audit and compliance committee, resigned in May.

Job cuts

Tongaat Hulett’s strategic review and restructuring, under Hudson as new CEO, has also seen the group send out Section 189 notices to employees as it looks to retrench some 5 000 workers across its operations in the SADC (Southern African Development Community) region.

The Tongaat Hulett Developments division is also facing job cuts, with distressed insiders telling Moneyweb that the group aims to slash the unit’s staff complement from around 45 to 15 this month. Staff in the unit were asked to reapply for available positions and will be notified of the outcome this week.

At the end of March, Tongaat Hulett closed the division’s La Lucia office at 305 Umhlanga Drive and relocated its staff to the group’s head office at Amanzimnyama Hill in Tongaat, some 25km north. In a circular ironically titled “Moving on up” sent out in February, Deighton notified stakeholders of the move to Tongaat.

Tongaat Hulett’s head office at Amanzimnyama Hill in Tongaat, KwaZulu-Natal. Image: Supplied

Moneyweb could not reach Deighton for comment regarding his resignation despite several attempts in the past week. However, on his LinkedIn profile Deighton changed his job title in May from MD at Tongaat Hulett Developments to an independent “free agent”. Deighton is well-known in property and business circles and was president of the South African Property Owners Association in 2015.

Tongaat Hulett Developments sent a brief statement on Friday in response to a list of questions from Moneyweb related to Deighton’s departure. It also forwarded a previous statement regarding the job cuts within the broader group.

Interim head named

“Tongaat Hulett can confirm that Mike Deighton, MD of Tongaat Hulett Developments, has resigned from the company. Bongani Gumede, currently corporate director of Tongaat Hulett Developments, will act as interim head until a permanent appointment has been made,” it said.

“Under Mike’s leadership, Tongaat Hulett Developments has been positioned as a premium brand in the KwaZulu-Natal property industry. We wish Mike all the best for the future,” it added.

The group’s statement on the job cuts noted: “In the face of significant business challenges, Tongaat Hulett can confirm that the company is looking to reduce its headcount as part of a broader restructuring of the business and has issued Section 189 letters to employees. While it is estimated that approximately 5 000 permanent and temporary employees across Tongaat Hulett’s operations in six SADC countries will be impacted by the headcount reduction, the exact figure will only be known once the restructuring process is further down the line.”

‘Fundamental change’ to business model

Tongaat Hulett added: “The aim of the headcount review is to make sure that Tongaat has the right skills and experience to take advantage of its new operating strategy, which seeks to address its debt burden, streamline operations and fundamentally change its business model.”

In the statement Hudson said the company’s operating environment had “changed almost beyond recognition” and that the business “simply hadn’t been able to adapt quickly enough to these changes with a business model outdated for a new economy”.

“This in turn meant a comprehensive rethink of the company’s business strategy in the immediate future.”

He added: “We have a burning platform and an opportunity to renew our business model. Returning the business to where it should be in the medium to longer term – operating strategically, sustainably, efficiently and profitably – will require a fundamental restructuring of the business.

“We will concentrate on our strengths, and closely review or move away from business practices where we are not strong.”

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Which respected large company will be next?
ZA rotten to the core.

Is Michael Deighton a fall guy? Best you look deeper chaps …

How can a business leader be a “fall guy”?
He was the MD!

Like Staude he’s seen the writing on the wall. Over stated profits, collect big bonus, retire quickly.

Once again, why did the so-called auditors, Deloitte, not pick this up early on? Why did it again need a scandal and a forensic investigation, after Deloitte was paid millions to provide a professional service? Why is Deloitte still allowed to operate?

Nothing to do with Deloitte, they were fed the wrong info by the directors.

The problem arose with prior valuations …

Again the directors made the wrong assumptions and used incorrect valuations, performed by independent valuators, who knows probably they even talked up the valuations. Then the whammy of the poor sugar trading results – everything conspired against the company, economic conditions and an over-reliance on the property division – together with an inept board, that could or were not able to respond quickly to the changing conditions, probably because they had no solution to the problems.

This is what happens when you don’t really know what business you’re in. You lose focus on your primary business.

Plain mismanagement, which is why the directors are all jumping ship. Good riddance to the lot, I say. Tongat – Hullet will not survive as is. Look forward to a smaller company as it offloads most of the units as it struggles to survive.

Rats on a sinking ship!!! I wonder, just over the last 5 years, what sort of salaries these rodents received and the scale of bonuses they authorised for themselves?

“… Hudson said the company’s operating environment had “changed almost beyond recognition” and that the business “simply hadn’t been able to adapt quickly enough to these changes with a business model outdated for a new economy”.”

Pull another one – what is it these folk thought they were to do???

The executives/senior management mentioned in the article and left Tongaat Hulett`s employ before the scandals emerged. How convenient?! Bet they received fat increases and bonuses before the news broke, knowing full well that the company was going down!

How much is Tongaat Hulett going to save by firing 5000 innocent workers? Can they first recoup the bonuses from the execs who were paid based on false financials before they ‘streamline’ the business?

Why do these guys always look so normal and honest ??

Bernie Madoff was the most normal person you could ever hope to meet until he wasn’t.

`The valuation aspect of all property companies needs to be looked.As what happened to Tongaat Hulett is just the tip of the ice berg,Allreits and Property UNITS trust property assets need to be looked by an independent valuators to see the market value of these assets in a slowing down consumer environment.Funds Asset manager need to look at actual trading profit,as apposed to increase in Fair Valuation,Auditors need to do this before signing off

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