As a process engineer for Tongaat Hulett in the 1990s, Gavin Dalgleish never thought he would one day be appointed CEO — and at a time the sugar giant needs to be guided out of a very bitter place.
Now 60, Dalgleish has almost always been a sugar man, given his initial stint at Tongaat and his recent executive roles as CEO at Illovo Sugar Africa and MD of Illovo Distributors. His appointment as Tongaat CEO in June comes as the company battles to shake off the reputational and financial damage from the infamous 2019 accounting scandal.
According to the PwC forensic report, senior executives engaged in improper accounting practices, with revenue overstated, often through backdated land sales, while expenses were inappropriately capitalised to inflate asset values.
These actions led to materially overstated profits and irregularities in financial statements across multiple reporting periods. The misrepresentation resulted in incorrect profits being declared and the executives receiving huge bonuses to the detriment of the company.
As a result, says Kyle Furlong, wealth adviser at Rand Swiss: “Tongaat’s financial credibility was severely damaged.” The company was suspended from both the JSE and London Stock Exchange, and unfavourable comparisons were made to the Steinhoff scandal.
The investigation by PwC led to the restatement of R11.3bn in the financial results. Criminal and civil proceedings were instituted against former CEO Peter Staude, other former executives and a former Deloitte audit partner.
Despite the challenges, Dalgleish says he is elated to be back at the company and is laying plans for expansion through mergers & acquisitions (M&A), though analysts are sceptical.
With operations in South Africa, Zimbabwe and Botswana, Tongaat remains a large player. It is set to emerge from business rescue at the beginning of August under the control of the Vision Group, fronted by Zimbabwean Rutenhuro Moyo and Mpumalanga businessman Robert Gumede.
Gumede is known as an ANC donor and the man behind IT company Gijima. Moyo, who heads Mauritius-registered investment vehicle Remoggo, sits on the boards of various Zimbabwe-listed companies. The two joined hands to form Vision Group, together with Nauman Ahmed Khan (through his Pakistani agribusiness company Almoiz) and Egyptian national Amre Youness (of Terris AgriPro).
Dalgleish believes Tongaat is on a solid path back to sustainability and growth. About R1.45bn in capital, secured through the Industrial Development Corp, has been earmarked for rehabilitating infrastructure at the company’s three mills in South Africa, as well as its refinery and animal feeds plant. There is also backing from the Public Investment Corp.
Tongaat’s new executive team has begun restoring internal oversight and financial discipline, while governance reforms are being implemented, including the reintroduction of executive committee meetings, formalised reporting structures, and board accountability. All of this seems obvious, but as Furlong says, these modalities and board functions had been “neglected”, which was obviously a major factor in the scandal.
South African banks that are owed money by Tongaat are perhaps more noncommittal than optimistic. Standard Bank says it “continues to support a successful outcome of the business rescue process”, while Absa says it “continues to support the business rescue plan, which is demonstrating encouraging progress and tangible results”.
Dalgleish believes Tongaat is on a solid path back to sustainability and growth. About R1.45bn in capital, secured through the IDC, has been earmarked for rehabilitating infrastructure at the company’s three mills
The Vision Group deal has not been without scrutiny. The Durban high court ruled last week that details and documents pertaining to the transaction be disclosed. RGS Group Holdings, a losing bidder for Tongaat, is seeking full disclosure on how Vision funded the acquisition and whether Tongaat’s assets were used as security. Vision, which is appealing the court ruling, says the company’s assets were not used “to fund or secure the acquisition”.
Gumede and Vision Group declined to answer questions from the FM. But the company said in a July 7 statement that implementation of the business rescue plan for Tongaat was proceeding.
Liam Houston, another analyst at Rand Swiss, says the debt-to-equity conversion under which Vision is acquiring Tongaat’s R6bn debt “may significantly dilute legacy shareholders, which could lead to discontent” or even litigation. Additionally, converting debt to equity “does not resolve operational inefficiencies”, he says. The company needs “to ensure disciplined management”, while the market could deem the transaction “a sign of distress rather than recovery”.
But this is not stopping Dalgleish from being super ambitious. He tells the FM that though the company is initially targeting stabilisation after exiting business rescue, it will pursue M&A in the region and in agricultural sectors other than sugar.
“We want to stabilise the business and then scale from there. So I think we’ll explore other geographies, other sugar companies on the continent, and indeed, perhaps even other agriculture as well.”
South Africa’s sugar industry generates an annual direct income of about R25bn, according to the South African Sugar Association. It employs as many as 350,000 workers directly and indirectly.
Tongaat’s three mills — Maidstone, Amatikulu and Felixton — are now “stable”, though the company said early in July that “declining cane supply volumes and damaging sugar imports” are still problematic.
Dalgliesh’s ambition “is not unsound”, says Houston, but “it must be earned through stability first. Speaking on acquisitions while in the process of business rescue may be premature before the final stabilisation of the company. That said, the CEO’s forward-looking stance can also be interpreted as a confidence signal to the market, a statement of intent that Tongaat does not simply aim to survive.”
It’s easy to see why Dalgleish is motivated by the prospect of regional expansion.
We want to stabilise the business and then scale from there. So I think we’ll explore other geographies, other sugar companies on the continent
— Gavin Dalgleish
Take Zimbabwe-listed Hippo Valley and nonlisted Triangle Sugar, for example, which have “inherent advantages to build on”, notes LIoyd Mlotshwa, director at IH Group, a securities company in Zimbabwe.
He says that as a consolidated player, Tongaat would have had a “strong and potentially undeterred monopoly [in Zimbabwe] given the very high barriers to entry ... Hippo and Triangle, along with the other regional producers, are not under business rescue. Hippo is a going-concern business, trading profitably and with capacity to generate cash in a harder currency relative to the rand.”
In any case, the Zimbabwe operations have capacity to provide more than 3.5Mt of cane annually. This is supported by dominance in the domestic market, opportunities for regional exports and a 30-million litre ethanol plant that adds diversification.
Furlong says: “Despite macroeconomic challenges, Zimbabwe remains one of the group’s most productive regions, with high yield potential and export-led prospects. Stabilising and expanding this base enhances revenue resilience, supports regional food and energy security and aligns with the Vision Group’s goal to rebuild Tongaat Hulett into a sustainable, pan-African agribusiness.”
Hippo Valley’s contribution to Tongaat has been of material value, despite dividends and management fees received from Zimbabwe decreasing 65% to R139m for the year to March 2022, says Peter Kadzere, CEO of Harare asset management company Smartvest. He says Hippo Valley alone contributed 36% of Tongaat’s production and 42% of its revenues, based on the last publicly released financial information for 2022.
Nonetheless, given recent reports that Tongaat’s Zimbabwe units plan to lay off 1,000 employees, constituting 6% of the workforce, Kadzere expects Hippo Valley will have to “restructure and streamline its operations” under the new ownership of its South African parent company.
For Dalgleish, nothing could have better prepared him for the tasks at Tongaat than having deep knowledge of the sector, the company and its operations.
The sense of responsibility for the company’s employees and its future is top of mind, he says. “I always think about the wellbeing of the people here and the communities we serve, and making sure that we can take this business to a very sustainable place. That’s my overarching concern.”
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