RE&S able to meet short-term debt obligations as and when they fall due
THE board of directors of RE&S Holdings refers to The Business Times' article published on Mar 2, 2022, titled "Soup Restaurant, Jumbo, ABR show financial strength in weathering pandemic" and wishes to provide clarification with respect to the article.
The article indicated that the financial statements of the group have shown current liabilities exceeding current assets. The company would like to highlight the following.
With reference to the unaudited condensed interim financial statement for the half year ended Dec 31, 2021, announced on Feb 9, 2022, an explanation was provided on page 24 of the H1 FY2022 results in relation to the negative working capital as follows:
"As at Dec 31, 2021, the group had a negative working capital of approximately S$2.2 million due to accounting for lease liabilities. Excluding lease liabilities of approximately S$20.3 million, the group had a positive working capital of S$18.1 million as of Dec 31, 2021. The board believes that the group is able to meet its short-term debt obligations as and when they fall due, as it continues to generate positive cash flows from operations."
The company wishes to clarify that:
1) A significant change in lessee accounting became effective for financial periods beginning Jan 1, 2019 whereby SFRS(I) 16/FRS 116 Leases no longer makes a distinction between operating and finance lease for a lessee. Under this accounting standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. At commencement date of the lease, a lessee will recognise an asset representing the right to use the underlying asset during the lease term (i.e. the right-of-use asset) and a liability to make a lease payment (i.e. the lease liability). Despite there being no fundamental change to underlying business activities or cash flows, the new lease accounting requirements would impact many commonly used financial metrics/measures such as the current ratio - as current liabilities would increase due to an increase in recognition in the current portion of lease liability.
2) The company further elaborated that its board believes that the group is able to meet its short-term debt obligations as and when they fall due, as it continues to generate positive cash flows from operations. The group generated S$18.1 million of net cash from operating activities for H1 FY2022 and, notably, it declared an interim dividend of 0.85 Singapore cent per share to reward its shareholders during the same period.
3) As at Dec 31, 2021, the group's cash and cash equivalents was at a healthy level of S$21.5 million with current and non-current bank borrowings of only S$0.9 million and S$7.0 million, respectively.
4) As working capital is one of the components to derive the Altman Z-score, and a negative working capital will inevitably result in a lower score, this computation does not provide a fair representation of the company's fundamentals.
The board would like to take this opportunity to assure its stakeholders that it will continue to exercise prudent financial management together with high fiscal discipline to ensure that the company's financial position remains strong and robust.
Yap Fang Ling Chief financial officer RE&S Holdings
