SENDAI

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AUDIT REPORT - MODIFIED OPINION / MATERIAL UNCERTAINTY RELATED TO GOING CONCERN : QUALIFIED OPINION

EVERSENDAI CORPORATION BERHAD

Type Announcement
Subject AUDIT REPORT - MODIFIED OPINION / MATERIAL UNCERTAINTY RELATED TO GOING CONCERN
QUALIFIED OPINION
Description 
EVERSENDAI CORPORATION BERHAD (THE "COMPANY")
- QUALIFIED OPINION ON THE AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019

Pursuant to Paragraph 9.19(37) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, the Board of Directors of Eversendai Corporation Berhad (“ECB” or “the Company”) wishes to announce that the Company’s External Auditors, Messrs. Baker Tilly Monteiro Heng PLT had expressed the following qualified opinion in the Company’s Audited Financial Statements for the financial year ended 31 December 2019:

Qualified Opinion

We have audited the financial statements of Eversendai Corporation Berhad, which comprise the statements of financial position as at 31 December 2019 of the Group and of the Company, and the statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the financial year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 7 to 109.

 

In our opinion, except for the possible effects of the matters described in the Basis for Qualified Opinion section of our report, the accompanying financial statements give a true and fair view of the financial position of the Group and of the Company as at 31 December 2019, and of their financial performance and cash flows for the financial year then ended in accordance with the Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia.

Basis for Qualified Opinion

 

1. As disclosed in Note 14(a)(ii) to the financial statements, the carrying amount of the Property, Plant and Equipment and Right-of-Use Assets of Eversendai Offshore RMC FZE (“EVORF”) a wholly-owned indirect subsidiary of the Company, in Energy segment, amounted to RM274,711,000 and RM168,434,000 respectively.

 

In view of the adverse changes in the oil and gas market and continuous losses incurred by the Energy segment, an impairment assessment on the Property, Plant and Equipment and Right-of- Use Assets of the subsidiary was necessary as required by MFRS 136 Impairment of Assets. However, due to the circumstances of environment in which the segment operates, the Group has not been able to reliably determine the recoverable amount of the segment using value-in-use. The Group is also unable to determine fair value less cost of disposal as reference to any orderly transaction to determine the fair value of these assets was generally not reliable under present circumstances. Nevertheless, the Group believes that the segment would perform well in the future with its recent job wins and global strategic partnership.

 

As disclosed in Note 16(b) and Note 22(b), the Company’s cost of investment in Eversendai Offshore Sdn Bhd (“EOSB”), which is the holding company of EVORF and amount owing by EVORF amounted to RM39,314,000 and RM203,077,000 respectively.

We were unable to obtain sufficient and appropriate audit evidence on the carrying amount of Property, Plant and Equipment and Right-of-Use Assets of EVORF as at 31 December 2019 as any impairment has not been reliably assessed by the Group in accordance with MFRS 136 Impairment of Assets. Therefore, we could not determine, the effect of adjustment, if any, on the financial statements of the Group.

 

We were also unable to obtain sufficient and appropriate audit evidence on the Company’s cost of investment in subsidiary and amount owing from the subsidiary. Therefore, we could not determine, the effect of adjustment, if any, on the financial statements the Company.

Basis for Qualified Opinion (continued)

2. As disclosed in Note 16(a)(i) to the financial statements, the audit of the financial statements of the subsidiary at Thailand, Eversendai S-Con Engineering Co Ltd (“ESECL”) for the financial year ended 31 December 2019 is yet to be completed and as such, the audited financial statements for the financial year 31 December 2019 are not available for the purpose of consolidation with the financial statements of the Group. The financial position and results of the subsidiary have been consolidated based on available management financial statements.

 

We were unable to carry out procedures to obtain information we consider necessary on the management financial statements of the subsidiary during our audit of the financial statements of the Group. Therefore, we could not determine the effect of adjustments, if any, on the financial statements of the Group.

The following are the Key Audit Matters as reported in the Independent Auditors’ Report of the financial year ended 31 December 2019:-

Key audit matter

How our audit addressed the key audit

matter

Revenue and corresponding costs recognition for construction activities (Note 4(b) and 5 to the financial statements)

 

The amount of revenue and corresponding costs of the Group’s construction activities is recognised over the period of contract by reference to the progress towards complete satisfaction of that performance obligation. The progress towards complete satisfaction of performance obligation is determined by reference to proportion of construction costs incurred for works performed to date bear to the estimated total costs for each project. We focused on this area because significant directors’ judgement is required, in particular with regards to determining the progress towards satisfaction of a performance obligation, the extent of the construction costs incurred, the estimated total construction contracts revenue and costs, as well as the recoverability of the construction contracts projects. The estimated total revenue and costs are affected by a variety of uncertainties that depend on the outcome of future events.

 

Our audit procedures included, among others,

▪ reading the terms and conditions of certain agreements with customers;

▪ understanding the Group’s process in preparing project budget and the calculation of the progress towards anticipated satisfaction of a performance obligation;

▪ comparing directors’ major assumptions to contractual terms and discussing with project manager;

▪ assessing the reasonableness of computed progress towards anticipated satisfaction of a performance obligation for certain identified projects against architect or consultant certificate;

▪ checking the mathematical computation of

recognised revenue and corresponding costs for certain projects during the financial year; and

▪ performing the review of the audit working paper of the component auditor

 

 

Recoverability of receivables and contract assets related to the construction of liftboats for a related party (Note 4(c), 19 and 20 to the financial statements)

 

The Group has significant trade receivables and contract assets related to the construction of liftboats for a related party as at 31 December 2019. We focused on this area because the Group made judgements over assumptions about risk of default and expected loss rate. The assessment on recoverability of the receivables and contract assets related to the construction of liftboats for a related party involves judgement from the directors.

Our audit procedures included, among others;

▪ assessing the related party’s financial position to assess its ability to repay the remaining balances;

▪ reviewing and understanding the Facility Agreement provided by the management relating to the finance of the liftboats; and

▪ performing the review of the audit working paper of the component auditor.

 

Right-of-use assets and lease liabilities (Note 4(d), 14(e) and 28 to the financial statements)

 

During the financial year, the Group has adopted MFRS 16 Leases and has recognised right-of-use (“ROU”) assets and lease liabilities on the date of initial application. We focused on this area because the measurement of the right-of-use assets and lease liabilities requires the application of significant judgement by the Group in determining the lease term, lease payment and incremental borrowing rate.

Our audit procedures included, among others:

▪ evaluating the Group’s assessment on the MFRS 16 impact arising from initial application;

▪ reading the salient terms of certain agreements;

▪ obtaining an understanding on the judgement and estimates made by the Group on key inputs in the computation of ROU assets and lease liabilities; and

▪ testing the mathematical accuracy of the computation of the ROU assets and lease liabilities; and

▪ performing the review of the audit working paper of the component auditor.

 

 

Steps taken or proposed to be taken to address the qualified opinion & the timeline

 

On 29 April 2020, the wholly-owned indirect subsidiary of the Company, Eversendai Offshore RMC FZE (“EVORF”) has inked Memorandum of Understanding (“MoU”) with Hyundai Engineering & Construction Co Ltd as global strategic partner in modular construction and fabrication work for the construction and energy sector. EVORF has also made its maiden venture into the Offshore Wind Renewable Energy industries in late 2019 and more recently has secured two (2) additional European offshore wind renewable energy (“RE”) projects worth RM186mil in June 2020.  EVORF expects a good utilisation of its fabrication yard in 2020 with the order book secured and on the back of these recent diversification efforts, EVORF is positioned well in the modular construction work and in the European Wind Renewable Energy sector to secure more projects going forward which would increase the utilisation of the EVORF fabrication yard.

 

The subsidiary in Thailand, Eversendai S-Con Engineering Co Ltd (“ESECL”) delayed in finalising the audited financial statements for the year ended 31 December 2019 due to Coronavirus Disease 2019 (COVID-19) lockdown. The company shall follow up to complete the audit of the financial statements for the year ending 31 December 2019 by September 2020.

 

This announcement is dated 30 June 2020.



Announcement Info

Company Name EVERSENDAI CORPORATION BERHAD
Stock Name SENDAI
Date Announced 30 Jun 2020
Category General Announcement for PLC
Reference Number GA1-30062020-00089


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