Auditors raise going concern red flags at more companies

Auditors raise going concern red flags at more companies

02 April 2010

Another flurry of audit opinion reports flagging going concern risks were released yesterday as companies closed their financial year-end reporting after a challenging year.

China-based maker of adhesive products and plastic films CHT (Holdings) was dealt the greatest blow as its auditors Grant Thornton steered clear of expressing an opinion on its financial statements for fiscal 2009.

Citing the basis for its disclaimer, Grant Thornton said CHT incurred a net loss of 59.4 million yuan (S$12.15 million) and net current liabilities of 72.8 million yuan for the year ended Dec 31. Convertible notes with a fair value of 167.6 million yuan had already been due in May 2009 and the company needs to redeem the full amount of $34.5 million.

In addition, CHT had received a letter of demand in June 2009 from its syndicated loan creditors for a full settlement of about HK$182.9 million (S$32.9 million), of which HK$160.6 million was still outstanding as at Dec 31, 2009. CHT’s bank borrowings of 253.8 million yuan due by end-2010 also outweigh its cash and cash equivalents of 159 million yuan as at end-2009.

The outcome of its negotiations with the bondholder and the syndicated loan creditors will have a bearing on the company’s ability to continue as a going concern, Grant Thornton said in its report.

Another listed company with audit qualification is Firstlink Investments, its second time in a row.

Its auditors Baker Tilly TFWLCL had qualified their opinion for Firstlink’s fiscal 2008 results because it was unable to determine the recoverable amount from its investment in and loan to a former subsidiary Green Salt Group Ltd (GSGL). Firstlink had recognised an impairment loss of $18.7 million in FY’08.

This time around, the possible effect of this matter on the comparability of ‘the current year’s (FY09’s) figures and the corresponding figures’ prompted a qualified opinion for fiscal 2009.

Without qualifying their opinions, auditors also emphasised going concern risks for companies including Eucon, Eastern Asia, and S-chip companies Sinobest, Fastube, and Youcan because of their poor financial positions.

Eucon and Fastube respectively inked net losses of $12.8 million and 127.3 million yuan and landed in net current liabilities of $31.4 million and 20.4 million yuan for FY’09, prompting concern over their abilities to meet financial obligations as they fall due.

In response, Fastube management said it believes ‘the group has adequate resources to pay their debts as and when they fall due and continue to operate as going concerns for at least the next 12 months after the end of the reporting period’.

At Chinese maker of frozen food products Youcan, its auditors said the FY’09 results were prepared on the basis that the company will continue as a going concern in view of the commitment from a related party for financial support and the company’s ability to obtain refinancing when required. Youcan posted loss after tax of 32.2 million yuan and net current liabilities of 181.5 million yuan based on audited FY’09 results.


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