Sen Yue engages external auditor to review financial results, suspends trading

THE board of Catalist-listed Sen Yue Holdings has roped in its external auditors Deloitte & Touche to assist in reviewing specific areas of its financial results for the half year ended March 31, in light of the "challenging economic environment" amid the novel coronavirus pandemic.

The audit committee will discuss with the external auditors to finalise the scope of the review, which is expected to cover the areas of accounts receivables, inventory and bank facilities including loan covenants, the waste management firm announced on Monday.

In particular, Sen Yue's management had proposed a percentage of provisions to be made for overdue accounts receivables, considering factors such as the historical credit loss rate and the impact of the Covid-19 outbreak on the collectability of the accounts receivables.

This proposed provision will be subject to the external auditor's review, Sen Yue said in a separate filing on Monday in response to the Singapore Exchange's (SGX) queries. The review will determine the amount of provisions and/or impairment to be made.

The company had disclosed on April 27 that it expected the amount of provisions to be made for doubtful debts to be material, based on the management's preliminary assessment.

Sen Yue first announced the interim review on April 29, when it said that its wholly-owned subsidiary, SMC Industrial, had received a letter of demand by a bank for the repayment of outstanding past due payments. The letter of demand was later withdrawn upon full repayment on April 28.

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The review is meant to look into SMC's and the Sen Yue group's financial positions and to address SGX's previous queries.

Pending the completion of the review, the majority of Sen Yue's board decided to convert its trading halt into a suspension of trading on Monday, although executive chairman Koh Mia Seng disagreed with this decision as he felt that the review may be conducted without a voluntary suspension.

The halt, called on April 28, was meant to provide time for SMC to make full repayment to the bank and for the board to review the subsidiary's financial position.

Meanwhile, chairman Mr Koh, who is also Sen Yue's controlling shareholder with a 37.5 per cent stake, is looking to remove five directors including the chief executive officer Neo Gim Kiong.

Mr Koh on April 20 sent a requisition notice requesting the company convene an extraordinary general meeting (EGM) for shareholders to consider the removal of the five individuals from the board and the appointment of two independent directors.

One reason for the proposed board restructuring is that the company's net profit after tax "has not been up to expectations in the last three years", and these low earnings have contributed partially to the "poor performance" of Sen Yue's share price, Mr Koh said in the notice. He believes that bringing in new board members to set and develop strategies to grow and expand the company, will help maximise shareholder value.

Besides, a smaller board size can reduce the time required for decision making, hence increasing the effectiveness of the board and achieving cost savings, Mr Koh added.

The chairman had said in a filing on April 27, in response to SGX's earlier queries, that he was of the opinion there were no conflicts in the current board on the running of the company.

However, executive directors Neo Gim Kiong and Liew Nyok Wah said they disagreed with Mr Koh on issues relating to the management and operation of Sen Yue's subsidiaries.

For instance, they disagreed on the financial and cash flow management of SMC, especially in relation to the management of accounts receivables, the use of banking facilities and the management of inventory.

Mr Neo and Mr Liew were "concerned" about the collectability of SMC's long overdue accounts receivables, cash flow management and its compliance with loan covenants. On the other hand, Mr Koh believes these accounts receivables were still collectable, albeit at a slower rate, because the SMC customers' businesses had been affected by the pandemic.

The chairman had also proceeded with his proposed pay cuts to conserve cash even though the other directors did not respond to it, according to the April 27 filing. He slashed the salaries of key management of SMC and SYH Resources by 15-75 per cent starting from March, with Mr Koh taking the largest pay reduction.

Following the requisition notice, the company's internal auditor Messrs Foo Kon Tan Advisory Services had reviewed several transactions, including S$95,110 in fengshui services engaged and a joint venture agreement. Two findings were classified as "high risk": the lack of clarity over the terms of the joint venture agreement as well as significant overdue accounts receivables, Sen Yue disclosed in the April 27 filing.

On April 21, Sen Yue said it is seeking legal advice on the requisition notice, and that its EGM will be held as soon as practicable within two months from April 20.

The company's shares last traded at 2.2 Singapore cents on April 27.