Listed brewer, East Africa Breweries is on the spot with its management and board facing investigation by two parliamentary committee investigations for tax evasion, asset stripping and purging of local managers.
Deputy Speaker in the National Assembly Dr Joyce Laboso (see Hansard Report ) ordered the company to be investigated by the house committee on finance trade and committee on labour and social welfare when the petition was tabled in the house on 25th August 2016.
In a petition seen by Money & Markets and which was received by national assembly clerk on 18thAugust, 2016, Kelvin Wanderi Kinyua asked parliament carry out urgent inquiries into issues and an order of forensic investigations be undertaken by a competent independent authority to protect local shareholders and safeguard public interest.
EABL is the biggest brewer in East Africa.
The petition tabled in parliament by Deputy Minority Leader Jakoyo Midiwo also asked that parliament to order Capital Markets Authority (CMA) examines the activities of the EABL as related to the financial statements and trading at the NSE.
Parliament should also order Kenya Revenue Authority (KRA) to investigates pricing arrangements between the EABL and Diageo PLC.
London based Diageo PLC, an alcoholic beverages multinational, owns 50.03 percent in EABL.
According to parliamentary committees have 60 working days to investigate matters. Essentially, this means that EABL will be on parliament’s radar up to November 16 when the committees are expected to table their reports on the company.
The two committees The petitioner says EABL existence as a going concern in the short term is doubtful and the management has been engaging in ‘creative accounting’ to hide that fact from shareholders and capital markets authority.
“For instance, the current assets of EABL as at June 30th, 2015 were valued at Sh25 billion against the current liabilities of Sh24 billion indicating possible cash flow and liquidity challenges. Indeed, despite the fact that, for the same period the non current assets were valued at Sh42 billion against non current liabilities of Sh28 billion, the company was experiencing liquidity problems leading to massive borrowing to finance other debts and hoodwink the regulator.
Kinyua says in his petition that due to the liquidity problems and seeming desire to company, the management has been hurriedly offloading its fixed assets.
“In particular, EABL sold its 15 acre land at its Ruaraka headquarters and its glass bottle manufacturing subsidiary (Central Glass Limited). The company has also been selling properties and assets including in Kisumu, Mombasa, Nairobi and the Thika Depot.
Further, although he does not provide proof, the petitioner says that the company has been transferring deposits from local banks to UK and other European nations while borrowing heavily locally.
Kinyua says the company has been engaging in transfer pricing and tax evasion practices through Diageo PLC with the aim of transferring profits to UK which has favourable tax regimes, a move which has denied government of tax revenues.
“For instance, during the year ending June 30th 2014, EABL had a net revenue of Sh60 billion and Sh64 billion in the year ending June 30th, 2015. However, the tax remitted to government was Sh3.5 billion and Sh4.6 billion for 2014, 2015 respectively. The amount of tax remitted to Kenya Revenue authority does not correspond with the company’s net revenue indicating a possible engagement in tax evasion practices in clear violation of Tax Procedures Act,” he says.
The petitioner also draws the attention of parliament to the composition of the company’s senior management which he says is composed of foreigners and a few locals.
“In the last five years, the company has been involved in a deliberate scheme to replace Kenyans holding senior positions with foreigners. As an example, the Group Deputy Chairman, Group Managing Director and Chief executive, as well as Group Finance Officer are all foreigners. In addition, eight out of twelve members of the board are foreigners.
“The local management confirms that that most key decisions on investments, divestiture, procurement, hiring, and firing are made in Europe by its foreign investors in total disregard of local laws and without representation of local shareholders or the local human resource,” says the petitioner.