The SEC is probing Kraft Heinz's agreements with vendors © George Rose/Getty Images
The SEC is probing Kraft Heinz's agreements with vendors © George Rose/Getty Images

Kraft Heinz procurement under investigation

Will Green is news editor of Supply Management
22 February 2019

Kraft Heinz has announced it is being investigated by US authorities regarding its procurement function.

In its latest financial results, Kraft said the US Securities and Exchange Commission (SEC) had subpoenaed the company as part of an investigation into the company’s “accounting policies, procedures, and internal controls related to its procurement function, including but not limited to, agreements, side agreements, and changes or modifications to its agreements with its vendors”.

Following an initial document request from the SEC, Kraft said it launched its own investigation into the procurement function.

The company said as a result of this inquiry it had increased the costs of products sold by $25m.

“In the fourth quarter of 2018, as a result of findings from the investigation, the company recorded a $25 million increase to costs of products sold as an out-of-period correction,” said Kraft.

“Additionally, the company is in the process of implementing certain improvements to its internal controls to mitigate the likelihood of this occurring in the future and has taken other remedial measures.

“At this time, the company does not expect the matters subject to the investigation to be material to its current period or any prior period financial statements.”

The company report global sales of $6.9bn for the fourth quarter of 2018, up 0.7% on same period in 2017, but profits before tax were down 13.9% to $1.7bn.

Kraft Heinz CEO Bernardo Hees said: “Profitability fell short of our expectations due to a combination of unanticipated cost inflation and lower-than-planned savings. 

“Going forward, our global focus will remain on leveraging our in-house capabilities, developing our talented people, and delivering top-tier growth at industry-leading margins.”

When Kraft and Heinz announced a merger in 2015 they estimated it would produce $1.5bn in annual cost savings.

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