MACC freeze order and forensic audit cast spotlight on Caely

TheEdge Tue, May 03, 2022 04:00pm - 1 year View Original


PERAK-based lingerie maker Caely Holdings Bhd has come under the spotlight amid a freeze order on its subsidiary’s bank accounts and an ongoing forensic audit probe into allegations of suspicious and irregular transactions.

Caely announced last Monday that its subsidiary’s bank accounts were frozen by unnamed authorities, which was later revealed to be the Malaysian Anti-Corruption Commission (MACC) in a statement issued on Wednesday.

In the statement, Caely’s executive director and CEO Lim Chee Pang said that the unfreezing or partial unfreezing of the bank accounts is the company’s top priority and that it is exploring all avenues to resolve this issue to sustain its business operations.

However, the company did not reveal the reason that prompted the MACC to freeze its bank accounts.

Less than two weeks prior to MACC’s freeze order, Caely on April 7 appointed an independent forensic auditor, Virdos Lima Consultancy (M) Sdn Bhd, to investigate allegations of suspicious and irregular transactions in its wholly-owned subsidiary Caely (M) Sdn Bhd (CMSB), which is involved in property development, construction, sales and trading of undergarments, garments, and personal protective equipment.

Four days after the appointment, Bursa Malaysia queried Caely on the reason for and scope of the forensic audit.

“One of the independent non-executive directors received an anonymous package containing documents raising concerns on several suspicious transactions involving CMSB,” said the company in a reply to the exchange.

At the time, Caely said it was unable to ascertain the financial and operational impact of the forensic audit, which is expected to conclude by May 31.

Amidst the account freeze and ongoing probe, Caely CEO Gok Ching Hee, who was also the chief financial officer (CFO), tendered his resignation effective April 18. The reason cited was to “pursue his personal career and interest”. Gok was first appointed as CFO in April 2019 and promoted to CEO two years later.

The company then appointed Ting Yi En as CFO on April 11 but the official announcement came three days later.

The lingerie maker’s boardroom also saw an overhaul last month. There were no major changes in shareholders over the past 12 months.

Caely’s largest shareholder is Datuk Seri Goh Choon Kim holding a 21.05% stake, followed by Datuk Wira Louis Ng Chun Hau with 16.96% and Datin Fong Nyok Yoon with 7.38%.

Caely appointed two new independent non-executive directors — Noor Azri Azerai, a 23-year old who sits on the boards of Bintai Kinden Corp Bhd, Serba Dinamik Holdings Bhd, Malaysian Genomics Resource Centre Bhd and Sarawak Consolidated Industries Bhd; and former deputy inspector-general of the Royal Malaysian Police, Datuk Seri Mazlan Lazim.

Noor Azri and Mazlan were tapped to replace the outgoing Tan Loon Cheang and Ng Boon Kang, who had left on March 16 and March 14, respectively. Tan had cited that he resigned to “focus on legal practice” while Ng left due to “personal reasons”.

Two directors were given new designations last month. Chee Pang was redesignated as executive director on March 23 while Fong was redesignated as non-independent non-executive director on March 28.

Preceding the forensic audit, Caely’s auditor Messrs PKF had issued a qualified opinion on its audited financial statements for the financial year ended March 31, 2020 (FY2020). The auditor highlighted CMSB’s ability to recover trade receivables of RM11.995 million, which included the retention sum of RM4.863 million for construction work completed at a Felcra Bhd project on Feb 28, 2018.

Caely had via CMSB diversified into property development and construction in 2013, according to its annual report.

PKF had highlighted that CMSB had only received RM250,000 in repayments since completing the work, an issue attributed to the change in government and the Covid-19 pandemic.

“We are uncertain of the full recovery of certain trade receivables of the group amounting to RM11.995 million as at financial year end, as a substantial amount on the completed constructions payments have not been received.

“We were unable to obtain sufficient and appropriate audit evidence on the impairment assessment of the abovementioned carrying amount of the said receivables in accordance with MFRS 9 Financial Instruments. Consequently, we were unable to determine whether any adjustments to these amounts were necessary,” PKF wrote in the qualified opinion.

Nonetheless, the qualified opinion had also stated that Caely’s board had concluded there should not be any impairment loss on the RM11.995 million trade receivables after assessing the situation.

Notably, PKF was appointed as Caely’s external auditor in January 2019 after the voluntary resignation of its previous external auditor, PricewaterhouseCoopers PLT (PwC), as the company could not reach consensus on the proposed increase to the audit fees and cost for the financial year ending March 31, 2019 (FY2019), according to its bourse filings.

A closer look at Caely’s audited financial statements from FY2017 to FY2021 shows that its impairments have shot up in the past three years and have eroded its earnings.

Its receivables stood at RM34.2 million in FY2017, and the figure dropped slightly to RM33.28 million in FY2018 but swelled to RM47.31 million in FY2019. However, the amount had fallen for the past two years to RM32.02 million in FY2020 and RM12.85 million in FY2021.

The drop in receivables was coupled with higher impairments on trade receivables. Caely’s impaired receivables doubled to RM4.28 million in FY2020 and jumped to RM18.65 million the year after when its trade receivables more than halved to RM12.85 million. Such impairments were slightly more than RM2 million each year from FY2017 to FY2019.

In addition, Caely’s investments in subsidiaries do not seem to fare that well as the company’s cumulative investment impairment swelled to RM35.56 million in FY2021 from RM28.79 million in FY2020 and RM19.79 million FY2019, according to annual reports.

The company’s total investments that were listed as unquoted shares at cost in its subsidiaries remained the same throughout the five-year period at RM61.8 million.

Revenue contraction did not help Caely’s earnings performance either, on top of ballooning impairment.

Caely’s revenue shrank to RM58.89 million in FY2021 from a record high of RM119.03 million in FY2017. The company slipped into the red in FY2020 and FY2021, posting a net loss of RM7.36 million and RM14.28 million respectively.

The slew of events does not paint a rosy picture of Caely, which has been listed since 2003, but it would be too early to draw any conclusion.

Virdos Lima Consultancy is expected to finish the forensic audit in about five weeks. The investing public will have to count on the audit report to shed more light on the truth regarding Caely’s financials.

 

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