Silver Bird’s trail of crumbs
Alleged irregularities cast significant doubt on its performance and position, say analysts
Doubtful payments for property refurbishments and machinery upgrades are among the issues facing Silver Bird Group Bhd.
DOUBTFUL payments for property refurbishments and machinery upgrades, unverifiable sales transactions, poor record-keeping – these are things that have been baking at bread and confectionary maker Silver Bird Group Bhd.
This would be the second time that the company stole the limelight, both for the wrong reasons. In September 2006, its High 5 bakery in Nilai, Negri Sembilan was shut down for two weeks and its halal certification was withdrawn following a raid by the authorities.
The authorities had alleged that the bakery was unhygienic, employed illegal workers and used cooking oil without a halal certification.
This time around, the sums involved in these transgressions were not small given that the company has a paid-up share capital of Rm203.34mil compared with the maximum alleged irregularities which the board of directors said could amount to about Rm111.5mil.
On Thursday, they announced to the stock exchange that a major subsidiary of the company, Standard Confectionery Sdn Bhd, was in default of banking facilities repayments to its lenders, which included Bank Islam Malaysia Bhd, Malayan Banking Bhd, CIMB Bank Bhd, United Overseas Bank and RHB Bank Bhd.
The poor record-keeping meant the directors were “not in a position to provide to Bursa Securities the solvency declaration statement within three market days from March 1”.
The directors said in the financial report for the financial year ended Oct 31, 2011 (FY11) that there might be bad debts and additional allowance that needed to be made for impairment losses on receivables.
“At the date of this report, the directors are aware that there may be circumstances that may render the values attributed to the current assets in the financial statements misleading,” they added.
Compounding the uncertainty surrounding the company’s future, the directors said they were unable to form an opinion on whether there would be anymore charge on the assets or any contingent liability which had arisen since the end of the financial year.
In the dry, clinical language of financial reports, they said they were aware that there could be circumstances not otherwise dealt with in the financial report or financial statements which might render any amount stated in the financial statements misleading.
They added that there could be items, transactions or events of a material and unusual nature likely to affect substantially the results of the operations of the company for the financial year.
Tellingly, the independent auditors, Crowe Horwath, have refused to express an opinion on the financial statements because they were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.
“During the course of our audit for FY11, we expressed concerns to the audit committee and the board of directors over the validity and recording of certain transactions for which we were not able to obtain the sufficient and appropriate audit evidence and satisfactory explanations from management,” they said in the financial report.
So what went wrong? Did anybody see this coming? Were any transactions red-flagged before the independent auditors raised questions in the financial report?
The regulators might also want to question the company over the frequent cash calls issued via private placements of shares, bonds/ commercial papers and rights issues for working capital purposes over the years since its listing in June 2002.
An analyst who used to cover Silver Bird wonders why the company made cash calls every year. “They’re a food and beverage company, how much money do they need and where did all the money go?”
The analyst pointed out that even companies such as CI Holdings Bhd (which used to distribute Pepsi products) did not need so much working capital.
The suspension of three company officials – group managing director Datuk Jackson Tan, executive director Ching Siew Cheong and general manager for accounts and finance Lai Poh Mei from Feb 24 to facilitate an internal inquiry – would hopefully start to clear the air.
But that would depend on whether records for the payments and sales transactions can be found, which brings us to the question as to why no proper records were kept as per the requirements of the Companies Act 1965.
At issue were veracity of payments made amounting to Rm7.6mil for the refurbishment of an existing warehouse and factory as well as information to verify additions of plant and equipment amounting to Rm4.9mil.
Furthermore, transactions undertaken with five customers for the sweetened creamer business with revenue and cost of sales amounting to Rm31.9mil and Rm31.3mil respectively could not be verified.
The auditors said they were also not able to verify the veracity of sales transactions undertaken with six customers from the bakery and telecommunication businesses amounting to Rm149mil, including Rm83.9mil in gross telecommunication sales.
They said these matters cast a significant doubt on the financial performance and position of the company.