FIFI PETERS: Let’s get to those boardroom matters on the JSE…. Two statements [were issued] regarding changes in the boardrooms of two listed companies on the JSE – Tongaat Hulett and Spar.
Spar CEO Brett Botten’s [last day as CEO will be tomorrow, 31 January. It was announced today that chairman Mike Bosman will stand as interim CEO, effective 1 February 2023]. The CEO of Tongaat Hulett, Gavin Hudson, also announced that he’ll be leaving the company, but he’s serving one month’s notice. He’s leaving on February 28, 2023.
Spar appoints Mike Bosman as interim CEO
Gavin Hudson resigns as Tongaat Hulett CEO
For more on what the latest dynamics within these two companies mean, I’m joined by Simon Brown, founder of JustOneLap. Simon, thanks so much for your time. Let’s start off with Spar.
I called it the ‘great resignation’ earlier, a bit of an exaggeration, as it pertained to the exits of these two CEOs. But with the Spar story, what’s your reaction to that?
SIMON BROWN: Good evening, Fifi. Spar messed up, absolutely messed up. Not only [as to] the allegations out there, but their initial responses to press reports late last year and early this year. It’s no small thing that the chair and the CEO are effectively leaving, as you said, tomorrow and at the end of [December 2022]. That’s not insignificant, that’s big, and that’s a real shakeup.
Read: Fictitious and fraudulent loans a ‘reportable irregularity’ – Spar
Shareholders apparently were unhappy and are not going to vote for positions. So a fairly significant shakeup there. What we have now seen … one of the announcements today, is that Andrew Waller is essentially to step in as an executive chairman, and you and I and listeners will know [him] from his days at Grindrod. He’s relatively new. He’s been on the [Spar] board for five years, and what is important [is] we had a resignation from the board from an independent non-executive. He served on the board for 17 years – and you’re not independent after 17 years on the board.
Andrew Waller has been there five years. He’s been lead independent director for the last two, and I think he’s probably the right person. But there’s a lot to do to get the reputation back.
FIFI PETERS: I agree with you that this is no small thing, just looking at the key executives that have left Spar in such a short space of time, and the allegations that you speak of, the negative publicity on unfair treatment of some of their franchises. There are also allegations of some very weird accounting in terms of how they accounted for certain expenses or line items. And yet the market closed over 1% higher when it came to Spar’s stock price. Help us square that.
SIMON BROWN: That’s against a market that wasn’t having a particularly good day generally at all, with a lot of red across the board. It’s quite simple. The stock had been massively sold off. I’m looking at the five-year chart. It started this year [at] its the lowest level for five years.
It was well below the pandemic level, and the share was back at sort of 2014 prices. Ultimately, if the market looks at this it gets a little bit of good news – and a little bit of good news was, ‘Okay, there’s a shake-up happening at Spar with the CEO and the chair both leaving; maybe things will be better from here. Maybe the worst is [behind]’. That’s a hard judgement call to make.
The irregularities have been relatively small in terms of rands, but not in terms of dodgy ethics. The question is always: Is there more? Truthfully, we don’t know. Sometimes there is and it gets really bad, and sometimes there isn’t. I can think of listed companies on both sides of that fence where it really was very small, and others where it wasn’t. That’s the unknown.
But I think the market just looked at Spar below R120/share and thought, you know what, that’s the cheapest in this decade – a bit of good news on the executive front. Are you going to buy some?
FIFI PETERS: Mmm. Do you think there’s also a kind of fatigue among the investment community in reacting to companies with a bit of dodginess behind their boardrooms or alleged dodginess?
Let me just declare myself there. We’re about to talk about Tongaat Hulett, and they’re one of those companies that I’m going to cite as an example after the likes of Steinhoff, and also even EOH, whose management was also found to have been wanting in certain areas. So do you think that the market is fatigued now [and] when such stories come out, it’s ‘oh, it’s just another one, it’s not that material’.
SIMON BROWN: Fifi, I think you might be right. That’s a sad thing to say. I think we could date it back to Steinhoff, notwithstanding that African Bank predated [it]. African Bank at its point seemed a flash in the pan. ‘Something just went wrong.’ And then Steinhoff. And then a litany of them subsequently. There have been a lot, and now this is not unique to South Africa. Maybe we are doing more or less global averages. I honestly don’t know.
But I think you are almost right to a degree where I don’t want to say we’ve come to accept it, but maybe we’re less surprised by it. I think if we look at it in the bigger picture as well – and here I’m thinking let’s look at what was published in the Zondo report; [there are] two sides to the equation. I think perhaps equally as a society we are a little new to it, and as investors maybe we are. It goes without saying that it’s a bad thing. We shouldn’t be.
FIFI PETERS: No, not at all. But you and I were on the same wavelength there because I was thinking about how we respond right now to some of the corruption that plays out in certain corners of the public sector, just the déjà vu moment that we get, scandal after scandal, given that it seems to be happening more times than it should.
But moving on to Tongaat, I feel like Gavin [Hudson] tried really hard, he tried for some time – four years. I’m not sure how the market rates his efforts, but what is your take on his decision to finally call it quits after four years?
SIMON BROWN: I think it makes sense. I think he probably had one of the hardest jobs in South Africa. Maybe not as tough as Eskom, but a second tier to it. He gave it four years. He really was there to try and turn the business around, and he couldn’t. That’s not great on his CV, make no mistake about that. But I think it was also perhaps a lot harder than he thought, and there were circumstances [such as] Covid, which [saw] reduced demand for their property, and their sugar prices were weak. Lots went wrong.
But he was a turnaround specialist, and now it’s in business rescue, ‘bankruptcy’ [being] the colloquial term. There’s a final report coming out at the end of February; it was extended again today. That’s also his last day. And in truth kind of his job done.
Unfortunately it’s not a Stephen van Collar, from EOH, where the job is done and you’ve succeeded. You bring in the specialist to fix the business and some [like] Stephen van Coller at EOH really make it work. In an ideal world their job was to turn around, and then someone else will step into Stephen’s place.
Read: EOH announces R600m rights issue to ease crippling interest bill
Unfortunately at Tongaat the turnaround didn’t happen. It was a tough ask. They usually are, and they don’t always work.
FIFI PETERS: No one is perfect. But when I look at Gavin, I think that all he has right now is the benefit of hindsight. I’m just wondering if he knew today, back then that the starch business that he sold to Barloworld would’ve been potentially the X-factor that could have turned Tongaat around, whether he would have still sold that business. But all he has is hindsight.
Our listeners can’t do anything about Tongaat. They can’t buy more Tongaat [shares]; they can’t sell [them] because that stock is suspended. But they can make moves on Spar. What would you advise them to do on Spar – those who don’t already own it?
SIMON BROWN: The short answer is I thought it was cheap a while ago, and I’ve been saying to folks to buy it. It has run a bit, but I think there’s more potential there.
My favourite food retailer is always Shoprite. There’s never a doubt about that, but [the share is] expensive, which it usually is. On the occasional times it isn’t, you buy some.
But then I thought Spar and Woolworths were the two attractive ones. They have both run a bit, but I think Spar more than anything on a good news story and the like coming through and really helping. And I think Woolies on what was a decent update, and particularly clothing starting to work – which has never worked before. And of course they’ve got the ex-Levi guy in to make that happen.
FIFI PETERS: Oh, another case of a turnaround that did work.
But Simon, thanks so much for your time. We’ll leave it there. Simon Brown is the founder of JustOneLap.
Did you see what Shoprite did at the weekend? Quite cheeky of them. You know they also own the Checkers brand. They ran those campaigns in the UK to South Africans living over there, showing them the price difference of basic goods and a few treats from the likes of wine to certain meats – all of that, just showing them how much more they’re paying in London than they would be paying here. Quite cheeky, lots of questions as to the necessity of that ad campaign, but also a good laugh.