Tiger Brands, South Africa's biggest consumer foods manufacturer, said executives at its Kenyan business had cheated to reach targets as it reported flat first-half earnings also weighed down by a weak naira currency in Nigeria.
Disciplinary action had been taken against senior personnel at the Haco Industries operation in Kenya, in which the company bought a 51 percent stake in 2008, Tiger Brands Chief Executive Peter Matlare told investors on Wednesday.
Matlare said Geoffrey Kiarie, Haco's managing director, had left the company and that the company planned to take legal action against him. Kiarie could not be reached for comment.
"They were key executives right at the top. It was difficult to pick this up," Matlare said, noting that auditors had failed to uncover the irregularities.
Haco's top executive allegedly influenced his colleagues, who had since faced disciplinary hearings, to pre-invoice sales and move stock to third party warehouses to make it look like they had hit their performance targets.
Tiger Brands' shares fell 4 percent at 295.40 rand at 1450 GMT after the disclosure of the Kenyan problems.
Tiger Brands, which makes cereal, energy drinks, pasta and rice, also said it incurred significant foreign exchange losses in Nigeria, where its Dangote Flour Mills business was hit by a 25 percent devaluation in the naira.
One analyst, who declined to be named, suggested Tiger Brands had expanded in Africa too quickly.
"Tiger took the more aggressive approach and it appears to be coming back to bite them," the analyst said.
The company said Dangote Flour Mills' underlying trading performance was healthy, which resulted in a 38 percent reduction in its trading losses, excluding currency effects.
(READ MORE: Tiger Brands suffers losses in Nigeria following naira’s devaluation)
Matlare said Tiger Brands will decide this year how much it will ask for in a planned rights issue at its Nigerian unit.