Why the bourse censured Nutritional Holdings

FIFI PETERS: There’s a company called Nutritional Holdings listed on the JSE’s alternative exchange [AltX]. It lost practically all its market value today when the company told investors that it had been issued with a public censure by the JSE.

The stock exchange called it out for a number of things, which included publishing its results without those results having been reviewed by auditors, keeping investors in the dark about a business rescue of one of its divisions called Nutritional Foods, and also misrepresenting information regarding a cannabis cryptocurrency of another company within its division.

The stock crashed around 96% when last l checked, as investors found all this news really difficult to digest.

We have Keith McLachlan, the chief investment officer at Integral Asset Management, with us for more on the story. Keith, thanks so much for your time. What is going on with this company?

KEITH McLACHLAN: Hi, Fifi. Good to be here. That’s an excellent question. If you ever look at the JSE listing requirements rather than pointing at the ones they breached, it’s probably a much shorter list just to point at the ones they’re still complying with.

There is obviously a large amount of noise and mess around this. You touched on the business rescue, the very strange cannabis cryptocurrency that was being issued; they tried to imply that it was from inside the group, and it wasn’t. So one wonders what really was happening there. It’s the basics to get your financials audited or at least reviewed.

And then you didn’t touch on the fact that [for] the JSE, when you’ve got a cautionary announcement out you need to renew that [issue an updated cautionary] every, I believe it’s every 30 days. They didn’t do that. So there are some really basic mistakes they’ve made.

And then there are some really bigger and worrying and more dangerous things that one really wonders. How big is the fire? Because there’s definitely lots of smoke there.

FIFI PETERS: I was on the company’s website. I see they make a number of foodstuffs, the SunGold brand that makes the oil, and I think they’ve also got margarine. And a Mealie Man [brand], as well as a Nutrivite kind of offering coming out of the group. But it seems largely that from the things that we’ve been talking about which they have failed to comply with, the governance at the company’s board is pretty much wanting.

KEITH McLACHLAN: Well, let me phrase it this way. There are always lessons in these things, and when we look at what’s playing out where, what is the lesson?

The obvious lesson is that just because a company is listed doesn’t mean it is well run. It doesn’t mean it is investible, and doesn’t even mean it necessarily is a viable business.

[There are] some very big and worrying things that they’ve done, but [also] some very basic mistakes, like [not] renewing cautionary announcements. Absolutely. I would argue it seems to be poorly managed and that may be the understatement of the century.

FIFI PETERS: I’m just looking at some of its transgressions. Some of the stuff dates back to last year – just a case in point in terms of the issuing of cautionary updates on time, within the 30 business days [as] required by the JSE. So some of these transgressions relate to last year; why is it only this year, and this year towards the end of the year, that the JSE is telling us about this company that’s doing quite a number of things wrong?

KEITH McLACHLAN: Fifi, that’s an excellent question. I cannot talk for the JSE. One would need to direct that question to the JSE.

What I would guess – and I may be wrong – is that they [the JSE] have, and they do imply it, in some instances stated that they had been liaising with the company, trying to figure out what’s going on, highlighting these things and engaging with the company.

And maybe – because the JSE also is a self-regulated organisation – it has its own processes, policies and procedures to follow and needs to follow them to the T. Maybe it’s just taking that long to work through that.

But in my view as a distant third party, that sort of question needs to be directed to the JSE. They will have a fuller answer for you.

FIFI PETERS: You’re right. I suppose [we should] catch up with the JSE on the process of public censure and how it works and how the investigation process for them works. But bringing it back to Nutritional Holdings, is this company investible?

KEITH McLACHLAN: The short answer is this: [if] you go back into the mists of time, if memory serves me correctly, the original company was called Immunity.

Immunity listed on the AltX during the boom days with what at the time was a very, very questionable business, where they were selling, effectively, immunity packed with potatoes and garlic and things that were supposed to encourage nutrition and the like.

That business all effectively fell apart and Nutritional Holdings was the reincarnation of it.

I think the short answer is this has never been investible. Well, it’s suspended, so even if you wanted to invest you couldn’t. But it’s really been a listing looking for a business, as opposed to a business that was listed.

So I think the odds are this is not investible and actually hasn’t been for a long time.

FIFI PETERS: Yes. How do you reckon the story ends?

KEITH McLACHLAN: With a lot of tears and a lot of lawyers. [Chuckling]

FIFI PETERS: A lot of the time you have companies with stories like this, with questionable governance structures and just questionable ways in which they operate, having their share suspended, and then you eventually come to a situation in which these companies delist and go and clean up their mess privately where no one can see, as it were. Do you reckon the same may happen here?

KEITH McLACHLAN: No. Well, I think the end point of this will be off the market; but I will be surprised if it gets cleaned up and we ever see it come back to the public market again.

Never say never, and we don’t know what the future holds, but don’t forget when one buys an entity you inherit all the skeletons in the closet. So in entities, [where] one of the things they’re not complying with is audited results, or at least reviewed results, you don’t even know what you’re actually getting there.

But if someone were interested in, for example, Nutritional Foods, which appears to be the subsidiary that [is involved] in manufacturing, who knows if it’s operating? If you go and have a look at it and you think it’s worth buying and cleaning up, the odds are it won’t be through the entity that’s listed, because that’s got all sorts of skeletons in the closet, and we don’t know what [those are].

If there is any reincarnation of this at some future period, it’ll probably be the assets, it won’t be the company. But never say never. It’s just highly, highly doubtful.

FIFI PETERS: Right. Keith, thanks so much for your time. Keith McLachlan is investment officer at Integral Asset Management.

We tried to reach out to Nutritional Holdings today. My producer, Kaldora Naidoo, said all the emails that she sent to the company bounced back due to the email domain not being registered. Perhaps that’s one factor, perhaps there’s another reason for it. But Kaldora did try to call them and she says that the numbers on the website have been disconnected. So if anyone knows somebody who knows anybody there, let us know and we’ll try to reach out to them.

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