Tongaat Hulett backdated land sales to flatter its profits — then the shares fell 76%

Tongaat Hulett was a long-established Southern African group with two very different businesses: sugar, across South Africa, Zimbabwe and Mozambique, and property, developing land in South Africa. In 2019 it appointed PwC to investigate its accounts, and the findings, released in November, described a company in which senior executives had 'initiated or participated in undesirable accounting practices' for years.

The techniques were varied and concrete. In the property business, land-sale agreements had been backdated and revenue recognised before zoning and subdivision approvals were in place, pulling sales into earlier periods. In the sugar business, the carrying value of cane and cane roots was overstated, and ordinary maintenance and overhead costs were capitalised as assets instead of being expensed. In Zimbabwe, arrangements that were in substance financing were structured and priced as sugar sales. The effect was to overstate both revenue and profits, and to inflate assets on the balance sheet.

PwC implicated at least ten senior executives, including the former chief executive Peter Staude and the former chief financial officer, and described a 'culture of deference and lack of challenge' in which staff followed accounting instructions without questioning them. The market's verdict was swift: Tongaat Hulett's shares had already fallen 76% in 2019 before trading was suspended in Johannesburg in June. The Johannesburg Stock Exchange later fined the company R7.5 million for non-compliance.

Tongaat Hulett is a textbook case of how a business can manufacture profit on paper. The revenue was recognised too early, the costs were hidden in assets, and a culture that did not challenge the numbers let it continue across two industries and three countries — until a new management team looked, and the market repriced the company in weeks.