China Fibretech posts losses in Q2, issues caution on financial statements

CHINA Fibretech on Tuesday said it swung into the red in its second-quarter earnings due to weak demand, with a net loss of 73,000 Chinese yuan (S$14,770) compared with a 2.87 million yuan profit a year ago.

This represents a loss per share of 0.01 yuan in Q2, down from 0.32 yuan in the same quarter in 2015.

Revenue for the three months at end-June 2016 came in 61.2 per cent lower year on year at 7.29 million yuan due to lower demand from consumers, as well as a decrease in average fabric processing fee.

Correspondingly, cost of sales fell 57.5 per cent to 6.34 million yuan in Q2.

For the first half of 2016, the company recorded a net loss of 834,000 yuan from a profit of 2.65 million yuan in the year-ago period.

In its outlook, the company said: "Based on the result obtained in FY2015 and the group's experience with our order books to date on hand, the group expects a challenging 2016 for its dying business. The China textile industry remains uncertain as output had been slow due to domestic factors and weak recovery from the international market.

"The effect of various domestic factors such as rising costs from cotton prices and labour costs, has a direct and/or indirect effect on our customers and consequently in their demand for our service."

In a separate filing, China Fibretech said its sole independent director and audit committee member, Low Wai Cheong, highlighted that "due to the unresolved issues over the auditor's findings", he was unable to form a view on Q2 and half-year financial statements of the company.

In particular, Mr Low was unable to form a view on the validity of the three customers claims and whether there is any need for the provision of these customers' claims and when or if provided, whether the corresponding expense in relation to the claims in the group's financial statement are fairly stated for the financial period ended June 30, 2016.

China Fibretech's subsidiary, Shishi Simwa Knitting & Dyeing Co, received damage claims from three customers in 2015 for products delivered in 2014 and early 2015. The customers claimed to have suffered "substantial damages and financial losses" as a result of Shishi's products not meeting their specified requirements, causing decolourisation of their end-products.

The S-chip previously replied to queries by the Singapore Exchange (SGX) over the discrepancies between the 64.3 million yuan revenue generated in FY2015 and the claims which amounted to 466 million yuan.

Mr Low was also unable to form a view on the existence of bank balances in the current account amounting to some 450.2 million yuan in one of the group's Chinese bank accounts.

"In the premises, the Q2 2016 and 1H 2016 financial statements were considered by the independent director without making any recommendation to the board for approval, and were considered by the board and authorised for release by the chairman and executive director of the company, Mr Wu Xinhua, solely," he said, adding that he urges investors to read the financial statements with caution.