Tongaat Hulett has been around in various guises since the late 1800s, growing into a company that came to dominate several aspects of the KwaZulu-Natal economy. Not only does it employ about 40,000 people during the peak sugar milling season (although not all in SA), it also provides economic opportunities in the province. Its dominance in a regional economy in which the expanded unemployment rate is 42.4% is perhaps part of the reason former key executives could conduct the company's affairs with what now seems to be grossly inadequate scrutiny and care.
Towns on the KwaZulu-Natal north coast, where land owned by Tongaat was sold to develop Mount Edgecombe, Umhlanga Ridge and Zimbali, as well as Tongaat - site of the company's head office - are small. And small-town mentality extends to Durban, where a one-time JSE heavyweight seems to have wielded outsized influence. Tongaat's relationships with the city - whose coffers have been boosted by the conversion of agricultural land to build commercial and residential developments that attract higher rates - and with its long-time auditor Deloitte point to, perhaps, a too-friendly relationship.
Since PwC was called in to dig into the accounts, Deloitte has removed senior staff members who were working on the Tongaat account, suggesting concern that they may have become too cosy with Tongaat's former management.
After all, when you are a long-serving CEO who has delivered good results for many years, why would anyone ask probing questions? We now know it was creative writing when Tongaat stated in its financial results for the year to end-March 2018: "Tongaat Hulett is a proactive and resilient organisation working in collaboration with all its stakeholders in a focused, constructive, mutual value-adding and developmental manner."
The sugar industry in SA is dominated by two companies, the other being Illovo Sugar, which delisted in 2016 after Associated British Foods upped its stake to take full control of the company. Had it still been listed, Illovo's cane valuations may have raised a red flag earlier over Tongaat's valuations.
But aside from Tongaat's accounting troubles, the industry has a whole lot of other problems. The Canegrowers Association said this week that demand for refined sugar in the Southern African Customs Union countries was at its lowest in 35 seasons due mainly to the introduction of the sugar tax on soft drinks in SA. It's estimated that "over 400,000 tons were displaced as a direct result of the levy over the 2018/19 season resulting in at least 600,000 tons being exported at record low prices on an oversupplied world market". The hardest hit have been 20,000 small-scale growers.
With less demand and cheap imports, jobs are at stake and Tongaat is currently in a retrenchment process that could result in 5,000 jobs being lost.
Attempts to unravel the disaster at Tongaat include a turnaround strategy that may involve selling assets. But if buyers don't materialise, certain mills could be mothballed, and, if so, reduced capacity in the local industry could boost Illovo and the smaller JSE-listed Crookes Brothers.
But it won't help small-scale growers, especially if a Tongaat mill close to their farms is closed.
Not only does one former director, at least for now, face criminal charges, others both at Tongaat and Deloitte have their reputation in ruins. And the company is likely to emerge as a shadow of its former self once the rot has been cut away. But far more important than the fate of a few individuals who appear to have not done the jobs for which they were paid handsomely is the loss of income for thousands of people and the possible destruction of a company more than 100 years old.
Samantha Enslin-Payne is acting editor of Business Times
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