Top executives of Haco Tiger Brands, a Kenyan subsidiary of South Africa’s Tiger Brands – which is also partially owned and chaired by billionaire businessman Chris Kirubi – overstated the firm’s performance to show they were excellent performers deserving great rewards. The trick that the Kenyan team used to earn more was laid bare at an investor briefing held last week in Johannesburg, South Africa.

Have you read this one? Top managers at Chris Kirubi’s firm sacked for manipulating profits

In his presentation, the Tiger Brands’ chief executive officer, Mr Peter Matlare, said Haco top executives pre-invoiced sales and moved stock to third party warehouses to make it appear as if they had reached their performance targets.

According to Mr Matlare, the Kenyan subsidiary, led by sacked managing director, Mr Geoffrey Kiarie, were only focused on reaching their targets “in a number of ways that we would not ordinarily expect them to”.

Among the tricks used included altering financial statements and engaging in pre-invoicing to reach their performance targets. Stock that was yet to be sold was moved to third party warehouses to make it appear as if the set performance targets had been achieved.

As a consequence of their manipulation, Mr Kiarie and his team were rated to be among the best performing at the group level in a number of key products. The team also falsified operating profits by over Sh879 million.

BENDING THE RULES

“They have been judged to be one of the best performing in a number of key areas, by way of example, in our Bic business, two-and-half-years ago, they were globally in the top three and they got some fantastic awards,” Mr Matlare said.

To keep the awards pipe flowing, the team bent the rules to the breaking point.

“What I believe is that the team decided to ‘drive and drive and drive’ without sticking to the rules and it is a great disappointment. As a consequence, we got rid of all those who did wrong,” Mr Matlare added.

Billionaire businessman and disc jockey Chris 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 after the story was broken by Business Daily on Wednesday.

“Their actions are unacceptable and I condemn them.” Haco deals in BIC brand of pens, personal and household care products such as Ace, Jeyes, Miadi, Motions, TCB, Bloo and SoSoft.

Mr Kiarie was appointed managing director for the firm in 2012. He was replaced in December, last year, in an acting capacity by Mr Peter Kang’ethe.

The discovery of the falsified accounts and the need to rectify the position reduced the group’s earnings for the half-year results for the period ending March 2015. “Because they sold forward, this impacted on the first quarter of this year,” Mr Matlare noted.

The volumes of the Haco Tiger Brands in Kenya declined by 60 per cent with turnover slumping by 58 per cent, contrary to figures presented by top executives. The turnover in the South African operations rose 8 per cent with volumes growing marginally by 2 per cent.

CONFIDENTIALITY OBLIGATIONS

“Notwithstanding all the governance measures we had the top team went after reaching their target and they sold forward in ways that we would ordinarily not expect them to do,” Mr Matlare said.

Contacted, Tiger external auditors, Ernst & Young said they could not comment on what role, if any, the auditing firm had in unearthing the irregularities at the Tiger Brands Kenya subsidiary or what recommendations it may have made to Tiger Brands to avoid a repeat of such irregularities.

“Due to confidentiality obligations, we are unfortunately unable to provide a response to the question(s),” the audit firm’s Africa media relations official Fathima Naidoo told Smart Company.

The South Africa team was also hard-pressed to explain to their investors and regulators in South Africa, where they are listed, how the crime went unnoticed.

Tiger noted that the irregularities were picked by neither the internal nor external auditors. The sacked managing director was identified as the mastermind of the scheme together with a number of senior executives, who are facing disciplinary action.

“It was very difficult for anybody to have been able to pick this up in the way they (top executives) manipulated this in the quarter of last year. We’ve not had that kind of irregularity in the last five years that we’ve been invested in that business,” Mr Matlare said of the Kenyan operation in which Tiger Brands holds a 51 per cent stake.

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 in the country, mostly in capacity expansion at its Kasarani-based factory, which employs over 400 people.

Tiger Brands has in its past annual reports praised the Kenyan business, terming it a sound investment given its good performance since they bought a majority stake seven years ago.

Mr Matlare, however, said that apart from the new management the firm had put in place, the company now has closer oversight over its Kenya subsidiary.

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Inside top managers’ bag of tricks

•    Managers pre-invoiced sales and moved stock to third party warehouses to make it appear as if they had reached their performance targets.
•  They altered financial statements to look impressive.
•  The team also falsified operating profits by more than Sh879 million.
• As a result of the manipulation:
•  The managers  were praised for sterling performance and consequently earned huge bonuses.
•   Executive officer Mr Goeffrey Kiarie who is said to have masterminded the  manipulation has been sacked.
•   Discovery of the falsified accounts and the need to rectify the position reduced the group’s earnings for the half-year results for the period ending March 2015.

The following analysis is by Mbugua Njihia, who is the CEO at Symbiotic Kenya Limited.

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Top managers of Haco Tiger Brands, which billionaire businessman Chris Kirubi chairs and in which he owns a minority stake, have been fired after its South African parent company accused them of profit manipulation. Tiger Brands said on Wednesday executives at its Kenyan unit Haco Industries manipulated numbers to reach targets for the financial year ending September last year.

The irregularities led to civil charges against Haco’s managing director Geoffrey Mwathi Kiarie, the firm said. Another executive has also left the business, while at least three others may face sanctions. Tiger Brands which bought a 51 per cent stake in Haco Industries from Mr Kirubi in 2008, said its group turnover for the six months to March increased seven per cent to Sh129.4 billion.

The Johannesburg-based firm, which has operations in Kenya, Cameroon, Ethiopia, Nigeria, and Zimbabwe, however, announced that its operating income declined by three per cent to Sh13.8 billion.

This drop, it said, was attributable to foreign exchange losses at in Nigeria business as well as profit manipulation and pre-invoicing at the Kenyan unit. Haco Tiger Brands’ operating profit to March 2014 declined by Sh879.1 million, a 30 per cent drop at the unit which the Haco South Africa has in the past described as strong.

“They were key executives right at the top. It was difficult to pick this up,” Haco Tiger Brands chief executive officer Peter Matlare told Reuters in Johannesburg Wednesday during the release of the half year results.

Mr Matlare said that both external and internal auditors failed to pick up the irregularities, and that executives at Haco had been dismissed for the misconduct. The company’s managing director at the time is also set to be face civil charges.
Haco deals in BIC brand of pens, personal and household care products such as Ace, Jeyes, Miadi, Motions, TCB, Bloo, and SoSoft.

“The performance of the group’s Kenyan business was particularly disappointing,” Matlare 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. The MD is out of the business, but we are instituting charges against him.”

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