Acme Printing & Packaging says senior staff cooked accounts

• Management says no misappropriation but measures taken to strengthen internal audit
• Re-states accounts with retained loss of Rs. 73  m as at 31 March and Rs. 66.8 m as at Sept 2010 as opposed to retained earnings of Rs. 30.7 million from 2009/10 FY as per previous published accounts
• Reports improved financial performance in first half and management upbeat of prospects

Executive Chairman Dinal Peiris

Acme Printing and Packaging Plc (Acme) yesterday disclosed that its senior staff had manipulated accounts but the matter has been investigated with appropriate measures taken already whilst overall performance of the company has improved.

In a disclosure two months after the original finding, Acme said that around mid September whilst investigating costs and finding ways to improve the company’s profitability, a special team of investigators discovered that there has been a conscious manipulation of the company’s accounts by the senior management acting in collusion. “Immediately steps were taken to take charge of all operations and an audit of the company’s stocks, debtors and other current assets was carried out by outside and non-related parties including the company’s auditors, KPMG Rhodes, Thornton and Co,” Acme Executive Chairman Dinal Peiris and Director R. Seevaratnam (alternate to R. D. Chandaria) said in a filing to the Colombo Stock Exchange.

Acme is 75% owned by a foreign firm Clovis Company Limited., and has 1, 161 shareholders.

The disclosure said managers who were involved in this manipulation of accounts have confessed and it has transpired that these alternations which had started as a simple extension of the closure of the month’s accounts, had crossed the year end timeline of 31 March.

Acme Printing...

\They have also presold orders and refrained from identifying and writing off scrap and other unusable stocks, thereby inflating the company’s profits in the previous years.

The Directors said that during the current year i.e. from 1 April 2010, reversals were being made to the accounts thereby suppressing the company’s true performance during this year to compensate for the inflated profits of the previous years.

The auditors have determined and quantified these amounts, which have now been restated in the financial statements as at 30 September, 2010.

“So far there is no evidence of theft or misappropriation. The manipulation of accounts has been done to show better personal performance of these managers. In the case of some of them, there was no financial gain. Where incentives have been paid, appropriate steps will be taken with legal advice. Disciplinary and other steps will be taken in consultation with our lawyers,” Peiris and Seevaratnam said.

“We are taking necessary steps to prevent such situations in the future. A new General Manager has been appointed and a Senior Manager from an associate company is also involved in the day-to-day operations of the factory, to ensure that all company procedures are being followed,” they added.

They also disclosed that the Company is in the process of putting in place a new management team and a decision has been taken to appoint a firm of accountants to carry out an internal audit function.

The directors also issued an update on the performance of the Company. They said that during this year, the board of directors, based on the information available decided to raise capital by holding a rights issue, which took place in August 2010.

A sum of Rs. 244 million was raised to retire the company’s high interest debt and to ensure that the company has adequate working capital facilities to stock raw materials, which would allow the company to canvass for additional orders, thereby increasing profitability.

“The recent events of misstatement of accounts have not changed this position. We, in fact, are happy to report that up to 30 September 2010, the company’s profits before tax have increased to Rs. 15 million in spite of September 2010 being a very poor month due to these internal issues,” the directors said.

They said performance in October too has been good and Acme expects this trend to continue throughout the year. The disclosure said that labour relations have also improved and this together with savings on bank interest, should improve profitability in the coming months.

“As part of our future plans we intend hiring from overseas a team of specialists with considerable ‘hands-on’ experience in the flexible packaging industry to train our workers, increase productivity, reduce cost and assist us to become the foremost packaging company in Sri Lanka,” Directors Peiris and Seevaratnam said.

“We are confident of the future and assure that the board of directors will take all the steps which are required to put in place an excellent team of professionals to ensure the future stability and profitability of the company,” they added.

The disclosure came after the market had closed. Acme share price closed up 30 cents to Rs. 20.50.

In 2009/10, the Group returned to net profit after two years of losses. Net profit at Group level was

Rs. 8.3 million, as against a loss of Rs. 6 million. In 2005/2006, net profit was Rs. 16.4 million and Rs. 23.6 million in 2006/7 financial year. In 2007/8 there was minor loss of Rs. 0.8 million. At company level, in 2009/10, Acme suffered a post-tax loss of Rs. 2.4 million and a pre-tax loss of Rs. 4.5 million, higher in comparison to Rs. 2.4 million loss in the previous year. As at 31 March, 2010, it had revenue reserves of Rs. 30.7 million. However as per 30 September, 2010 interim accounts for first half, retained earnings have been restated reflecting a loss of Rs. 66.8 million and Rs. 73 million as at 31 March, 2010.

In the first half of 2010/11, the net profit for the company was Rs. 6.3 million, as against a re-stated loss of Rs. 31 million. At Group level profit was Rs. 4 million in comparison to a re-stated loss of Rs. 26 million.

In 2009/10 financial year, Acme revenue at company level amounted to Rs. 727.8 million down from

Rs. 732 million in the previous year whilst Group revenue was higher at Rs. 988.6 million as against

Rs. 909.4 million in 2008/9 financial year.