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SA’s Tiger Brands says Kenyan unit cooked profit figures

Thursday May 21 2015

Top managers at Haco Tiger Brands, a company co-owned by Kenyan billionaire businessman Chris Kirubi and a South African firm, have been accused of profit manipulation in a scandal that has seen the managing director fired.

Another executive has also left the business, while at least three others may face sanctions.

The sacked MD, Geoffrey Mwathi Kiarie, is facing accusations he falsified operating profits by Ksh879 million (around $9.2 million), negatively impacting the half-year results of the Johannesburg-listed Tiger Brands, which owns 51 per cent of the Kenyan operation.

Mr Kirubi holds a 49 per cent stake in the joint venture.

“As the local shareholder of Haco Tiger Brands, I’m disappointed with the managers involved in manipulating figures,” Mr Kirubi said in messages sent out on social media. “Their actions are unacceptable and I condemn them.”

The Johannesburg-based firm said on Wednesday executives at its Kenyan unit altered financial statements and engaged in pre-invoicing to reach their performance targets.

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Adjusting for this led to a 30 per cent drop in Haco Tiger Brands’ operating profit for the six months to March.

Tiger Brands has operations in Kenya, Cameroon, Ethiopia, Nigeria, and Zimbabwe.

Peter Matlare, Haco Tiger Brands chief executive, announced that the company had since fired several top managers they considered culpable.

“They were key executives right at the top. It was difficult to pick this up,” he said in Johannesburg while releasing the half year results.

Explaining that it was up to the majority shareholder to take the lead in dealing with the matter, Mr Kirubi said the dismissals were a mutual decision adding: “Tiger Brands is fully in control of this situation and I support the decision. When one commits fraud, it’s important to let justice take its course.”

Mr Matlare said that both external and internal auditors failed to pick up the irregularities.

Mr Kiarie, whose term as Haco Tiger Brands MD was terminated in December, is set to face civil charges related to the scandal. He was replaced, in an acting capacity, by Mr Peter Kang’ethe.
Haco deals in BIC brand of pens, personal and household care products such as Ace, Jeyes, Miadi, Motions, TCB, Bloo and SoSoft and controls over 50 manufacturing facilities across the continent.

Mr Matlare pointed to the pre-invoicing scandal and foreign exchange losses in Nigeria as the two main reasons why the group registered a three per cent decline in operating income.

“The performance of the group’s Kenyan business was particularly disappointing,” he said. “Haco’s results were negatively affected by the effects of pre-invoicing and the manipulation of profits in the previous financial year. Appropriate corrective action has been implemented.”

Mr Geoffrey Kiarie was Haco Tiger Brands MD from June 2012, when he took over from Mr Polycarp Igathe.

Though Tiger Brands did not elaborate on how the Kenyan unit manipulated its figures, there are several ways in which companies can falsify accounts.

The first one is where a company’s management – at times in collaboration with its auditors – inflate revenues or artificially decrease expenses.

These alterations paint a healthy image of the company, which in turn keeps investors content and could also be used to justify hefty increases the salaries and bonuses to top managers. Profit alterations also work in the reverse. Accountants deflate a company’s income or exaggerate the expenses, making a company come off as performing poorly than it actually is.

This approach is used when a company wants to dissuade potential acquirers or lump all bad performance to one period and explain it using prevailing negative macro-economic factors. In the subsequent period, the company will then seem to have bounced back to a healthy position.

Haco Tiger Brands was born after the South African firm bought a 51 per cent stake in the then Haco Industries (K) Ltd from Mr Kirubi in 2008 for an undisclosed amount.

The South African business has since then invested over Sh50 billion (around $526 million) in Kenya, mostly in capacity expansion at its Kasarani-based factory, which employs over 400 people. Tiger Brands has in its past several annual reports praised the Kenyan business, terming it a sound investment given its good performance since they bought a majority stake seven years ago.

“Haco Tiger Brands continues to deliver strong growth across its core categories in both local and export markets,” the group chairman, Andre Parker, said in the most recently published annual report for the year to September 2014.

“In Kenya, a stable price environment, favourable category mix and continuous improvement benefits were the main drivers of business performance. Strong growth was achieved in all East African export territories.”

Mr Parker in the report praises the company, saying its innovation strategy, operational efficiencies and focused investment in core brands as well as innovative projects were its key performance drivers.

Kenya has remained a critical contributor to South African business, with company’s top management two years ago stating that they were willing to spend Ksh43 billion (around $452 million) in new acquisitions in the country.

Revelations of profit manipulation at the company has dealt a blow to management sitting in South Africa, hence the terse statement sent out yesterday and the decision to fire Haco’s managers.

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