Accounting irregularities have seen the company’s share price plummet more than 75% since the beginning of the year.
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.
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 it 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.
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.
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.” The Citizen