Independent auditor flags going concern doubts in USP Group's financials

INDEPENDENT auditors RSM Chio Lim LLP has drawn an emphasis of matter on a material uncertainty in USP Group's FY2019 financial results which may cast doubt on its ability to continue as a going concern, the company said in a bourse filing on Saturday.

The auditors noted that for the year ended March 31, 2019, the group's total current liabilities exceeded total current assets by S$15.5 million, and it had incurred a net loss of S$23 million while having negative cash and cash equivalents of S$1 million.

USP's non-current bank loans were classified as current liabilities after certain subsidiaries breached their loan agreements when the company, as corporate guarantor of its subsidiaries' loans, did not fulfil the requirement to maintain a minimum consolidated tangible net worth of S$40 million.

In response to the auditor's report, USP said its board believes the group can continue as a going concern, citing several reasons.

USP said that, for one, it has obtained written agreements from the relevant bank to accommodate the breach of loan covenants on a one-off basis for FY2019.

As a result, management is of the view that the bank will not request for immediate repayment of the outstanding loan amounts even though there was a breach of loan covenants, said USP.

If not for the breach of the loan convenants and resultant classification of non-current bank loans to current liabilities, the group said its total current assets would have exceeded total current liabilities by S$9.2 million.

The group also cited its legally-binding agreement to sell its Biofuel Research subsidiary for S$5.6 million in cash to allay concerns over its ability to operate as a going concern.

It said it had already received S$100,000 as a deposit and S$1.4 million as a first payment tranche.

Management added that proceeds from development property sales in Singapore, its ability to generate sufficient cash flows from operating activities to support operating expenditure, and efforts to raise additional equity financing from new investors will help it continue as a going concern.

The mainboard-listed firm operates in oil trading, marine equipment trading and property segments.

Shares of watch-listed USP Group were flat at S$0.043 as at 9.45am.