EDITORIAL: No quick fixes for Tongaat Hulett
Huge task awaits Gavin Hudson's new team, and shareholders should prepare for the long game
The national and regional governments have made it clear to the new executive team at Tongaat Hulett: failure is not an option. The good news, for the hundreds of thousands of people whose livelihoods are dependent on a thriving sugar industry, in which Tongaat Hulett plays a major role, is that the new team agrees.
Failure in this context would see one of the biggest employers in KwaZulu-Natal tip over the brink, one to which it was brought by several years of mismanagement. No doubt, as the new team pointed out in a recent engagement with sugar farmers, drought and imports helped drive Tongaat closer to that brink. An unprecedented confluence of events made the past decade one of the toughest in this company’s 127-year history.
Most damning is the R176m Peter Staude was awarded during the last 10 years of his tenure.
New CEO and former SABMiller high-flyer Gavin Hudson was wise to avoid heaping yet more opprobrium on the previous executive team led by Peter Staude. Of course, Staude is not the only party that was involved in the R3.5bn-R4.5bn overstatement of profits; he must have been surrounded by key management staff as well as the audit committee and the auditors. They all appear to have failed spectacularly in their obligation to the firm.
There is time to pursue those who failed. But an informal “get-together with farmers over a beer” was not the right time. Hudson seemed to believe there would be little to gain and possibly much to lose by unnecessarily antagonising those who still suffer from a sense of loyalty to the old guard.
But it is likely there were few in the audience who bought the story that the sudden collapse of the business was down to misfortune combined with a naive misstatement of accounts, few who believed that Staude merely got caught up in an accounting lie that grew like topsy and eventually out of his control. There are too many anecdotes about his aggressive leadership style including, according to one farmer at the “get-together”, a refusal to engage with them as far back as 2007.
Most damning is the R176m Staude was awarded during the last 10 years of his tenure. These were the years when “aggressive accounting” was used to boost the profits that justified his bonuses. Given what is now known about the board, this might have been tantamount to a self-award.
While Staude and his team may have escaped direct censure from the new guys on the block, what will certainly be more damaging to his reputation in the long term is the extent to which Hudson can extract R1bn of costs. It was the steady hike in costs, dating back 10 or more years, that alerted the sharper analysts to problems at the company. In that time, Staude seemed unable or unwilling to do anything to rein them in. Now, just five months after his arrival, Hudson has not only identified costs to be cut, he has started the cutting.
While a recording of the engagement indicated the farmers did take some comfort from the new executive team, the questions asked revealed an understandable mix of scepticism and nervousness. Hudson’s team has set itself a huge task. As one analyst pointed out to Business Day, it takes money to save money; retrenching long-serving employees, cancelling leases and decommissioning plants all come at an initial steep cost.
The starch business is a great money-spinner and there appears to be low-hanging efficiency fruit in both the milling and refining operations. But it is difficult to see other sources of quick fixes or cash injections. Selling farms or any other property will take time unless the government steps in. And nothing an invigorated Tongaat Hulett team does will resolve the difficulties the business faces in Zimbabwe and Mozambique.
No doubt, the company is now moving in the right direction, but with more than R11bn of debt around its neck shareholders should not expect it to be moving very fast.