Auditor casts doubt on Koon Holdings as going concern

SINGAPORE - Koon Holdings auditor Ernst and Young LLP has issued a disclaimer of conclusion over the construction and precast firm's interim financial results for the six months ended June 30.

The review flagged that the group recognised a net loss of $50.0 million for the period, and its current liabilities exceeded its current assets by $20.6 million - conditions that indicate the existence of material uncertainty.

Coupled with challenging conditions affecting the construction and precast sectors in Singapore, the material uncertainty may "cast significant doubt" on Koon Holdings' ability to continue as a going concern, Ernst and Young said.

The disclaimer of conclusion was issued as the auditing firm was not able to obtain assurance it would become aware of all significant matters required. The auditor reviewed the interim financial information - which was "substantially less in scope" compared with an audit, which would be able to identify all significant matters.

Mainboard-listed Koon Holdings on Monday announced its results for the first half of the year, along with the independent auditor's report. The firm sunk into the red, posting a $50.2 million net loss attributable to owners of the company, from a net profit of $232,000 a year ago.

This came on the back of lower revenue contributions, impairment losses and higher administrative costs and other expenses, which were partially offset by higher other income and lower share of losses on joint ventures.

Loss per share stood at 19.07 cents, from an earnings per share of 0.09 cent a year ago. No dividend has been declared for the period.

Revenue fell 6.4 per cent to $67.0 million, from $71.6 million the year prior, on lower contributions from its construction division.

Construction revenue declined 23.9 per cent to $39.1 million, from $51.4 million a year ago, due to lower revenue recognition in the period from completing projects. This was partially offset by higher revenue from a Seletar Link project for new road connections, and the widening of the Tampines Expressway between the Jalan Kayu and Punggol West flyovers.

For its precast division, revenue rose by 38.1 per cent to $25.4 million, from $18.4 million a year ago on higher volume of precast products compared to the previous year.

Meanwhile, the group's electric power generation division went up 16.7 per cent to S$2.6 million, from S$2.3 million, mainly from the increase in reserve capacity pricing set by the Independent Market Operator of Western Australia.

The group saw impairment losses on financial assets increase to $26.7 million due to impairment losses on contract assets totalling $26.1 million.

On outlook, the firm said that as at June 30, its construction and precast divisions have outstanding order books of about $55 million and S$88 million respectively.

The two divisions - which are the firm's largest revenue contributors - continue to face a challenging operating environment amid rising competition and costs. This is further exacerbated by the group's tight cash situation, resulting in higher costs and disruption to various projects in both divisions.

In view of this, the firm has started a "major restructuring and realignment exercise", appointing various professionals to advise on the financial impact on the current conditions and the implementation of the restructuring and realignment.

It is also looking at potential options available - such as the sale of its property and electric power generation divisions.

Moreover, non-productive or idling plant and equipment have also been disposed of or have been scheduled to be disposed in order to free up cash needed as working capital for existing projects and repaying existing creditors.

The firm has also started talking to creditors to put in place repayment plans for its existing liabilities and most of these creditors, which include financial institutions, have "remained supportive", it said.

To return to being profitable and improve operating cashflow, Koon Holdings has also undergone cost cutting measures such as headcount reduction and streamlining operating processes.

In order to be operationally cash flow positive, the firm said it intends to continue securing more construction and precast projects. It has also started discussions with various strategic parties on possible alliances and corporate exercises, it added.

Koon Holdings called for a voluntary suspension of its shares on Aug 30 pending the release of an announcement regarding its financial condition. Prior to the suspension, the counter last traded flat at $0.042 on Aug 26.