Saturday, 20 June 2009
Beauty China auditors troubled by trade receivables
Beauty China’s joint auditors Grant Thornton and HLB Hodgson Impey Cheng steered clear of expressing an opinion on the group’s financial statements for the year ended Dec 31, 2008, after they were unable to verify the recoverability of outstanding trade receivables and found significant uncertainties facing its going-concern status.
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Beauty China auditors troubled by trade receivables
By LYNETTE KHOO
Beauty China’s joint auditors Grant Thornton and HLB Hodgson Impey Cheng steered clear of expressing an opinion on the group’s financial statements for the year ended Dec 31, 2008, after they were unable to verify the recoverability of outstanding trade receivables and found significant uncertainties facing its going-concern status.
‘The significant uncertainties relating to whether the going- concern basis is appropriate are so extreme that we have disclaimed our opinion,’ the joint auditors said.
Beauty China has outstanding trade receivables of HK$85.04 million (S$15.96 million), on which the auditors were unable to obtain sufficient evidence to assess whether they could be recovered in full or to determine the amount of impairment needed.
Any adjustment would have an impact on the net assets of the group as at Dec 31, 2008 and its fiscal year net loss, and related disclosures in the consolidated financial statements.
The group’s net trade receivables of about HK$111.48 million as at Dec 31, 2008 was pared down to HK$85.04 million after some settlement since the balance sheet date. And repayment agreements were said to have been entered into between the company and the customers.
The joint auditors also cited uncertainties over Beauty China’s ability to continue as a going concern. Its going-concern status now hinges on the outcome of negotiations with its syndicated lenders and bankers to reschedule the group’s borrowings, the outcome of the non-binding term sheet entered into by the group and potential investors, and the outcome of the potential financial support from shareholders through a non-binding conditional offer.
Given the absence of sufficient documentary evidence and the uncertainty of the outcome of the various financing negotiations, the auditors said they could not ascertain the going- concern assumption.
Beauty China had in March received a statutory demand from banks for a repayment of an outstanding loan plus interest totalling HK$134 million. Later, in April, it received a non-binding conditional offer from investors holding a combined 27.45 per cent stake in the group to sub-underwrite a proposed rights issue to raise $32.07 million in gross proceeds.
Because of the material differences between the group’s unaudited and audited financial statements for FY2008, Beauty China ended up with a net loss of HK$328.16 million, instead of a net profit of HK$115.04 million earlier stated in its unaudited statements.
There were significant increases in impairments of HK$406.22 million and provisions of HK$36.97 million, as well as a reclassification of a non-current bank loan of HK$74.13 million as a current loan due to the statutory demand from banks.
The cosmetics products maker also marked red ink for the first quarter ended March 31, 2009, with a net loss of HK$22.26 million, compared with a net profit of HK$37.26 million in Q1 2008 after sales slumped.
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