Auditors doubt LionDiv’s ability to continue operations

Material uncertainty: Steel product manufacturing is one of the three main business segments of the group.

Material uncertainty: Steel product manufacturing is one of the three main business segments of the group.

 PETALING JAYA: Lion Diversified Holdings Bhd ’s (LionDiv) external auditors Ernst & Young (EY) have issued a disclaimer of opinion on the group’s financial statements for the 2017 financial year (FY17), casting doubt on its ability to continue as a going concern for the second year in a row.

The audit report filed with Bursa Malaysia yesterday showed that significant and multiple uncertainties, along with their possible combined effects on the steel product maker’s financial statements ended June 30, 2017, prevented EY from having enough audit evidence to make an audit opinion.

EY said there was a material uncertainty that might cast significant doubt on LionDiv’s ability to continue as a going concern.

Not only did LionDiv post net losses for FY17 amounting to RM65.9mil (group level) and RM132.2mil (company level), its current liabilities also exceeded its current assets by RM869.6mil (group level) and RM190.8mil (company level).

“The group and the company may be unable to realise their assets and discharge their liabilities in the normal course of business,” EY said.

The audit firm noted that LionDiv’s management was forming a plan to regularise the group’s financial condition, but EY added that it could not determine whether it was proper for the management to use the going concern basis of accounting. This is because of the uncertainties on the plan’s timing and successful implementation.

Due to the shutdown of the operations of wholly owned subsidiary Lion DRI Sdn Bhd in Banting since the previous financial year, EY is also unable to get enough audit evidence in relation to the measurement of revenue, as well as raw materials and consumables used by the group, and the valuation of inventories in the previous year.

Hence, the auditors could not determine whether it was necessary to adjust the results of operations and the opening accumulated losses for FY17.

EY said it could not be certain of the appropriateness of assumptions made by an independent valuer in estimating the recoverable amount of the direct reduced iron plant owned by Lion DRI in FY16. Accordingly, EY’s audit opinion on the FY16 financial statements was modified.

LionDiv has three main business segments – steel product manufacturing, property development and management, and electronic and mechanical contract manufacturing services.

According to LionDiv’s latest annual report, the group posted a significantly lower loss before tax of RM39.3mil for FY17 ended June 30, versus a loss of RM910.1mil in FY16.

The group turned around to record an operating profit of RM30mil on a revenue of RM423.38mil, largely contributed by the property segment.

LionDiv triggered the Practice Note 17 in August 2016 as, based on the unaudited interim financial report for the fourth quarter ended June 30, 2016, its shareholders’ equity on a consolidated basis was less than 25% of LionDiv’s issued and paid-up capital.