It won a governance award but is now in round-tripping case
LYNETTE KHOO 12 January 2009
This electronic components supplier had once dreamt big - to dominate the Asian market by 2007. It set the pace among listed companies in financial reporting and waved the flag of corporate governance best practices.
But NEL Group, the former Nucleus Electronics, now finds itself coming back to the spotlight for the wrong reasons.
It emerged last week that its auditor KPMG had on Dec 26, 2008 submitted a high-profile report on NEL to Finance Minister Tharman Shanmugaratnam, flagging potential fraud and dishonesty in the company.
The Ministry of Finance told BT that it received 20 such reports in 2008, compared to 18 in 2007, but declined to comment further, given the confidential nature of these reports.
The NEL debacle unwittingly drew much market attention and alarm. One market watcher noted that when times are rough, internal controls tend to suffer as companies feel pressured to meet targets, preserve cash and thus start cutting corners in internal audit compliance.
With some 36.33 per cent of the total issued share capital of NEL in public hands, according to the NEL's 2007 annual report, one wonders what would become of the shares held by minority shareholders. Considering NEL's earlier bright record in corporate governance, investors are mind-blown at its current state of affairs.
Nucleus Electronics, as it was known, was listed here in May 2000 by KLSE-listed AIC Corporation Berhad. The company soon earned a name for its ability to release half-year financial results at a record time of only six working days after close of trade, and full-year results 15 days after its financial year ended.
Such efforts drew praises from the retail investors watchdog. Nucleus Electronics clinched the corporate governance award in 2003 and the Annual Report Award the following year.
As its capital base and financials grew, Nucleus Electronics was upgraded to the main board in April 2005. In the same year, it was ranked 85 in Singapore International 100 - a list of Singapore's top 100 companies in overseas revenue - and moved up 10 places to 75th in 2006.
But one should not get swamped by these good news and flush out the bad, of which NEL has had its fair share.
In what seemed to be its early lapses in corporate governance, two of its executives were charged and convicted of insider trading in 2006. The then-sales director Looi Kim Wah and group financial controller Raymond Ting bought close to 150,000 shares in Nucleus Electronics in July and August 2003, after receiving market-moving information that it was close to buying ATM Electronics. Both were slapped with fines that added up to $200,000 and are no longer with the company.
Meanwhile, the group's earnings report card hardly impresses. Shortly after listing, its earnings took a dip in 2001, no thanks to higher expenses and depreciation costs. Nucleus Electronics swung back to the black in 2002 but its earnings headed south again after 2003, before sinking into the red in 2006 with a net loss of US$3.35 million. It bounced back in fiscal 2007 to a net profit of US$3.22 million, but its H108 earnings showed weakness again with a 81 per cent drop from a year ago - and the group had warned that its earnings for FY08 are expected to fall significantly.
By March 2007, AIC Corp had fully divested its stake in Nucleus Electronics, held through its subsidiary AIC Technology Sdn Bhd.
Despite a name change last June, the group's past lingers on in the minds of investors who have paid some attention to the stock. After two years without a negative spin, NEL crept back to the headlines once again last November.
In its findings as special auditor to Advance Modules, KPMG named NEL as a party to 'round-tripping' transactions used by Advance Modules to cover up a fake sales record of US$14.4 million to meet a profit target for fiscal 2005. Advance Modules was said to have used 'round-tripping' transactions to make it seem like it was receiving payment for the sales.
NEL now needs to appoint a special auditor to probe into its affairs and last Friday, it decided to postpone an extraordinary general meeting (EGM) scheduled on Jan 22, as its draft circular is still being finalised by the Singapore Exchange (SGX).
The EGM was requisited by two shareholders in an attempt to oust statutory auditor KPMG and NEL's existing directors. Pending the outcome, NEL has suspended the duties of KPMG.
While the market has no privy to the identities of these shareholders and their rationale, questions have been raised about whether there is a conflict of interest between KPMG's role as statutory auditors of NEL and as special auditors of Advance Modules.
To present its side of the facts, KPMG sent a written representation to shareholders this month, citing inconsistent explanations by NEL management on the dodgy transactions and a lack of cooperation - allegations NEL vehemently denied.
Until more light is shed on NEL's alleged involvement in the 'round-tripping' transactions and its financials, minority shareholders will probably find their patience severely tested as they look out for any hope of NEL's shares resuming trading.
At this point, all eyes will be on any fireworks at the upcoming EGM, where KPMG is expected to state its case to NEL shareholders.
1 comment:
NEL Goes From Model Company to Debacle
It won a governance award but is now in round-tripping case
LYNETTE KHOO
12 January 2009
This electronic components supplier had once dreamt big - to dominate the Asian market by 2007. It set the pace among listed companies in financial reporting and waved the flag of corporate governance best practices.
But NEL Group, the former Nucleus Electronics, now finds itself coming back to the spotlight for the wrong reasons.
It emerged last week that its auditor KPMG had on Dec 26, 2008 submitted a high-profile report on NEL to Finance Minister Tharman Shanmugaratnam, flagging potential fraud and dishonesty in the company.
The Ministry of Finance told BT that it received 20 such reports in 2008, compared to 18 in 2007, but declined to comment further, given the confidential nature of these reports.
The NEL debacle unwittingly drew much market attention and alarm. One market watcher noted that when times are rough, internal controls tend to suffer as companies feel pressured to meet targets, preserve cash and thus start cutting corners in internal audit compliance.
With some 36.33 per cent of the total issued share capital of NEL in public hands, according to the NEL's 2007 annual report, one wonders what would become of the shares held by minority shareholders. Considering NEL's earlier bright record in corporate governance, investors are mind-blown at its current state of affairs.
Nucleus Electronics, as it was known, was listed here in May 2000 by KLSE-listed AIC Corporation Berhad. The company soon earned a name for its ability to release half-year financial results at a record time of only six working days after close of trade, and full-year results 15 days after its financial year ended.
Such efforts drew praises from the retail investors watchdog. Nucleus Electronics clinched the corporate governance award in 2003 and the Annual Report Award the following year.
As its capital base and financials grew, Nucleus Electronics was upgraded to the main board in April 2005. In the same year, it was ranked 85 in Singapore International 100 - a list of Singapore's top 100 companies in overseas revenue - and moved up 10 places to 75th in 2006.
But one should not get swamped by these good news and flush out the bad, of which NEL has had its fair share.
In what seemed to be its early lapses in corporate governance, two of its executives were charged and convicted of insider trading in 2006. The then-sales director Looi Kim Wah and group financial controller Raymond Ting bought close to 150,000 shares in Nucleus Electronics in July and August 2003, after receiving market-moving information that it was close to buying ATM Electronics. Both were slapped with fines that added up to $200,000 and are no longer with the company.
Meanwhile, the group's earnings report card hardly impresses. Shortly after listing, its earnings took a dip in 2001, no thanks to higher expenses and depreciation costs. Nucleus Electronics swung back to the black in 2002 but its earnings headed south again after 2003, before sinking into the red in 2006 with a net loss of US$3.35 million. It bounced back in fiscal 2007 to a net profit of US$3.22 million, but its H108 earnings showed weakness again with a 81 per cent drop from a year ago - and the group had warned that its earnings for FY08 are expected to fall significantly.
By March 2007, AIC Corp had fully divested its stake in Nucleus Electronics, held through its subsidiary AIC Technology Sdn Bhd.
Despite a name change last June, the group's past lingers on in the minds of investors who have paid some attention to the stock. After two years without a negative spin, NEL crept back to the headlines once again last November.
In its findings as special auditor to Advance Modules, KPMG named NEL as a party to 'round-tripping' transactions used by Advance Modules to cover up a fake sales record of US$14.4 million to meet a profit target for fiscal 2005. Advance Modules was said to have used 'round-tripping' transactions to make it seem like it was receiving payment for the sales.
NEL now needs to appoint a special auditor to probe into its affairs and last Friday, it decided to postpone an extraordinary general meeting (EGM) scheduled on Jan 22, as its draft circular is still being finalised by the Singapore Exchange (SGX).
The EGM was requisited by two shareholders in an attempt to oust statutory auditor KPMG and NEL's existing directors. Pending the outcome, NEL has suspended the duties of KPMG.
While the market has no privy to the identities of these shareholders and their rationale, questions have been raised about whether there is a conflict of interest between KPMG's role as statutory auditors of NEL and as special auditors of Advance Modules.
To present its side of the facts, KPMG sent a written representation to shareholders this month, citing inconsistent explanations by NEL management on the dodgy transactions and a lack of cooperation - allegations NEL vehemently denied.
Until more light is shed on NEL's alleged involvement in the 'round-tripping' transactions and its financials, minority shareholders will probably find their patience severely tested as they look out for any hope of NEL's shares resuming trading.
At this point, all eyes will be on any fireworks at the upcoming EGM, where KPMG is expected to state its case to NEL shareholders.
Post a Comment