Matahari Berhad Case

Matahari Berhad was found by Johan Selamat and Talib Che Karim in 1987. The company operated in the consumer products industry and was well known for its kitchen appliances, bedding, and health products. It was performing well along the way until 1980s, before being acquired by Bulan Global Berhad which eventually forced into bankruptcy in 1988. Later, Matahari Berhad was acquired by three very close friends - Mohamed Faris, Mohamad Sulaiman, and Fuad Khazar - in 1990. The company's earnings have been declining tremendously since December 1994. In order to save the company, they hired Ibrahim Daud as the CEO and chairman.

Ibrahim Daud was famous in restructuring and turning around financially troubled companies. His main goal was to make the company profitable and make money for the shareholders. He applied 4 strategies to achieve the goal which by getting the right management team, cutting back to the lowest costs, focusing on the core business, and getting a real strategy. In October 1997, he announced the complete turnaround of Matahari Berhad. Later, he acquired three consumer products companies which the acquisition resulted in record high share price. The 1997 net income was reported at RM109.4 million.

The Ugly Truth

According to Matahari's 1997 quarterly and annual income statements, the expected turnaround was going very well. Ibrahim Daud did everything he could to keep attention focused on the rapidly growing revenues and profits. However, there were some questionable transactions, including bill and hold sales, consignments treated as actual sales, and excessive write downs of the carrying value of its inventories.

The company began using bill and hold sales of electric blankets during the second quarter of 1997, and then made extensive use of bill and hold sales of barbecue grills during the fourth quarter. As a result of this arrangement, the company had to offer its customers special financial incentives to get them to write purchase orders for this merchandise. The company offered major discounts and required no payment until six months after billing. The company also offered to hold the goods in third-party warehouses leased by the company, and paid the costs for storage and shipment and even insurance.

Matahari Berhad had often shipped goods on consignment, especially to some companies that acted as distributors of its products. These distributors acted as intermediaries between the company and various retailers to whom the company did not normally sell direct. However, it turns out that during 1997, Matahari Berhad immediately recognised revenue on some of its consignment shipments. For instance, RM4.3 million was booked as revenue when the company shipped blankets custom package for two of its largest retail customers to a distributor. Normally, the company would ship directly to these large customers, but they were already