Broadway's independent auditor flags going concern issues

BROADWAY Industrial Group's independent auditor has raised doubts about the group's ability to continue as a going concern.

However, RSM Chio Lim's audit opinion remains unqualified, the mainboard-listed precision manufacturing group said on Sunday in a regulatory filing.

The auditor had included an emphasis of matter in its independent auditor's report on Broadway's financial statement for the financial year ended Dec 31, 2019.

RSM Chio Lim drew attention to a note in Broadway's financial statements indicating that the group incurred loss from continuing operations, net of tax of S$15.04 million during the reporting year ended Dec 31, 2019, and as of that date, the group's current liabilities exceeded its current assets by S$26.21 million.

These events or conditions, along with other matters in the note, indicate that a "material uncertainty exists that may cast significant doubt on the group's ability to continue as a going concern", said RSM Chio Lim.

"Management is however of the view that the working capital available as at Dec 31, 2019 is sufficient for the group's present cash flow requirements and for the 12 months subsequent to the reporting year end date for reasons discussed in Note 1. Consequently, management is of the opinion that the use of the going concern basis in the preparation of these financial statements is appropriate.

"Our opinion is not modified in respect of this matter," RSM Chio Lim said as part of its independent auditor's report.

Broadway said in Note 1 that the negative working capital as at Dec 31, 2019 - against positive working capital of S$6.58 million as at Dec 31, 2018 - was mainly due to the reclassification of asset held-for-sale of S$19.42 million from current asset to non-current property, plant and equipment  and higher utilisation of trade receivables financing instead of bank loans as at Dec 31, 2019.

In supporting its conclusion on sufficiency of working capital, Broadway's management took into account the group's ability to generate sufficient cash flows from its operating activities to support its operating expenses and capital expenditure in the next 12 months; the credit facilities available to the group; the existing cash and cash equivalents and the impact that Covid-19 may have on the group's operations based on current available information.

"Management is also of the view that the banks will not request for immediate payment of the outstanding loans mentioned above and continue to provide financial support to the group as and when required. Consequently, management is of the opinion that the use of the going concern basis in the preparation of these financial statements is appropriate."

That said, the group added that if it is unable to continue in operational existence for the foreseeable future, it may be unable to discharge its liabilities in the normal course of business and adjustments may have to be made to reflect the situation that assets may need to be realised other than in the normal course of business and at amounts which could differ significantly from the amounts at which they are currently recorded in the statements of financial position.

"In addition, the group may need to reclassify non-current assets and may have to provide for further liabilities that may arise. No such adjustments have been made to these financial statements."