Defend Truth

Opinionista

Business Highlights of the Week: Delta, PPC, AngloGold Ashanti

mm

Stephen Gunnion is a financial journalist and news anchor.

False dawn for Delta as it rubbishes its accounts

First published in Daily Maverick 168 

Pity the poor investors and traders who bought Delta Property Fund’s shares on Wednesday, December 9, sending their value almost 8% higher as they anticipated the release of already delayed interim results that were due out yesterday after one delay already.  

Its shares sank over a third on Thursday after it withdrew its annual results for the year to end-February due to the financial shenanigans of previous management, who all quit in August after an initial probe by Mazars Forensic Services uncovered dubious transactions. That was followed by a second investigation into the double payment of commissions and improper procurement processes, as well as an internal assessment by Delta itself.  

As has been the case with similar investigations into companies including Steinhoff, EOH and Tongaat, Delta says the forensic report is confidential and subject to legal privilege. But it says there is evidence of unsubstantiated payments, procurement irregularities and other unethical business dealings. Some of the key issues identified include fraudulent commission payments, unethical dealings, and the non-disclosure of related party transactions to its board. 

Delta’s own internal assessment revealed a failure to recognise commission and property management expenses in its property valuations, which would likely result in a decrease in the valuation of investment property from R10.6-billion to approximately R8.7-billion in last year’s financial statements. As a result, auditor BDO South Africa has withdrawn its audit opinion. With the results no longer reliable, they’ll have to be restated before the company can even begin to work out this year’s numbers. Not the first time we’ve heard this story recently. The police have been notified and Delta is taking legal advice in respect of any civil claims that may arise. Don’t expect any fast action though: three years after Steinhoff’s shocking revelations, former CEO Markus Jooste has yet to don his orange overalls.  

Delta’s biggest tenant is the government, which rents its B- and C-grade buildings as office space for national and provincial departments. While it has been trying to tie the Department of Public Works into longer, five-year rental agreements, not all of its leases have been renewed. If it loses government as a tenant then it’s in real trouble in a market where office vacancies are rising as workplaces are reshaped due to Covid-19. 

Delta’s latest disclosures are also bad news for Nedbank, which has big exposure to commercial property loans, including loans of more than R10- billion to Delta and Rebosis – another troubled fund that attempted a second merger with Delta this year. Nedbank has previously said that its loans are well collateralised – presumably by the underlying assets of the fund. However, with a question mark now hanging over the true value of its buildings, and a market where it will battle to sell them at whatever the real book value is, it may need to increase its credit loss provisions.  

While some executives brush off corporate governance as a nuisance, Delta is just the latest example of what can go wrong when it’s not in place. 

PPC starts to crack it  

Just over a month ago, you could have bought shares in the country’s biggest cement producer for just 45c. Today, you’ll pay more than three times that.  

While investors awaiting news of a recapitalisation of PPC’s international business would have been disappointed by the lack of news in its interim results this week, they weren’t disappointed by the numbers themselves, sending its share price significantly higher. It seems the company has set a foundation it can build on as CEO Roland van Wijnen comes to grips with the company he took over last year – following a series of embarrassing restatements of its previous financial results.  

Although earnings for the six months to end-September were down by 41% from last year, that was due to non-operational items including fair value adjustments and foreign exchange movements. Revenue edged higher as sales recovered from the severe lockdown restrictions of April and May. Operating profit was up strongly and it generated a lot more cash from its operations, while cutting back on capital expenditure. Together with the accelerated sale of its PPC Lime business, this may negate the need for a rights issue of as much as R1.25-billion. 

It’s the potential cash call that continues to hang over the company and remains one of the biggest deterrents to investors. But before it can make a decision on whether to proceed, it needs to decouple its international operations. Its PPC Barnet subsidiary in the Democratic Republic of Congo (DRC) is still dependent on SA to settle debt, which sits at an unsustainable $150-million (R2.25-billion). While it works on restructuring this, it bought some time with its SA and DRC lenders, with a debt standstill agreement in place. Van Wijnen says that gives it room to properly negotiate and find new investors to resolve the situation. Meanwhile, group debt sits at R5.22 billion and it has also committed to bringing this down with its local bankers.  

For now, the company needs to see whether it can maintain the improved cash generation in the face of continued Covid-19 uncertainty. While retail demand supported the recovery in sales in the first half of its financial year, it expects this to normalise and be replaced by infrastructure spend that is just beginning to come through. PPC will be one of the first to benefit if the government sticks to plans to invest in infrastructure to get the economy growing again. Van Wijnen emphasises how strategically placed the cement sector is and says already there’s been a pick-up in its aggregates business, which typically supplies road projects. That’s backed up by the recent contracts that construction group and roadbuilder Raubex has been awarded by Sanral to upgrade sections of the N2 and N3 highways in KwaZulu-Natal.  

With its market capitalisation now back above R2-billion, it’s not only retail investors that will be toying with PPC; institutional investors may also start to take notice again. But it needs to stay the course and sort out the debt situation in the DRC. If it can do that and reduce local debt without resorting to a rights issue, analysts believe there’s scope for further improvement in its share price. Bear in mind though that just a year ago its shares were closer to R3. Go back five years and they were worth 10 times that.    

How do you solve a problem like Maria? / Trolls remove the glister from AngloGold appointment  

The Twitter trolls were quick to jump on Maria Ramos’s appointment as chair of Anglogold Ashanti, regurgitating the spurious claims that she, along with husband and former finance minister Trevor Manuel and billionaire businessman Johann Rupert were part of a shady third force and that she manipulated the rand during her decade as CEO of Absa.  

The former National Treasury director-general, who also headed Transnet for five years, replaced Sipho Pityana as chair of AngloGold with immediate effect this week. While no reason was given for Pityana’s departure, many were given for Ramos’s appointment, including her “exceptional experience in leadership roles across both the private and public sectors”. 

One analyst quipped that she also “brings a wealth of mining experience, having once watched the movie Blood Diamonds”. 

In fairness, Ramos has been on the AngloGold board for over a year and a half, chairing its Remuneration and Human Resources Committee and also serving on its Social, Ethics and Sustainability Committee and the Nominations Committee. She attended four of the company’s seven annual board meetings last year, which indicates a perfect attendance record as she only became a director on 1 June. One assumes she’s been just as diligent this year.  

While her private sector experience is valuable, Ramos’s years at Treasury may be even more lucrative if the company still plans to go ahead and shift its primary listing to London or Toronto after selling its remaining SA assets to Harmony Gold Mining earlier this year. The Department of Mineral Resources and Energy approved the sale, on the proviso that it kept its headquarters and its primary listing in Johannesburg. It’s been a while, but perhaps she still has some influence that could sway that decision.  

AngloGold says Ramos is aligned with its long-term business strategy, which is being driven by interim CEO Christine Ramon, who replaced Kelvin Dushnisky after his rather hasty departure a few months ago. He was barely two years in the job. Analysts seem comforted by this, saying it should allay concerns over the second unexpected leadership change in six months. 

It probably won’t be enough to placate the trolls though. DM/BM

Gallery

Comments - Please in order to comment.

Please peer review 3 community comments before your comment can be posted

Become a Maverick Insider

This could have been a paywall

On another site this would have been a paywall. Maverick Insider keeps our content free for all.

Become an Insider

Every seed of hope will one day sprout.

South African citizens throughout the country are standing up for our human rights. Stay informed, connected and inspired by our weekly FREE Maverick Citizen newsletter.