Sias presses AEM for more details on inventory shortfall, financial impact

SINGAPORE - The Securities Investors Association (Singapore), or Sias, is pressing AEM Holdings for more details on an inventory shortfall that is expected to hit the semiconductor equipment maker’s fourth-quarter earnings.

The shortfall, first disclosed on Jan 14, is estimated to be between $17.9 million and $25.1 million.

It was caused by human error in transactions with AEM’s enterprise resource planning system, the company said on Jan 22, adding that its fourth-quarter 2023 profit before tax would be adjusted.

In an e-mail to AEM’s chief executive Chandran Nair and its board on Jan 23, Sias president David Gerald called on the company to “clearly state” the potential financial impact on earnings for the full year ending Dec 31, 2023.

“Can the board (and) management confirm that there are no other discrepancies in the group’s financial statements and financial position?” he questioned, also asking if shareholders can still rely on unaudited financial statements for the six months ended June 30.

Mr Gerald also called for more details on the reasons for the internal stocktaking exercise through which the shortfall was discovered.

“For example, was it a routine exercise or were there any whistle-blowing reports, negative findings from the internal audit, or did the group face challenges in fulfilling customers’ orders? When was the board and management first informed of the shortfall?” he questioned.

He also asked what level of oversight was provided by the audit committee after the discovery of the shortfall, and how it concluded that the shortfall was the result of human error.

Mr Gerald further queried when AEM’s audit committee will complete its review of the company’s stock monitoring processes and systems.

“When was the last time the internal audit assessed the risk management controls and procedures pertaining to inventories? What proactive steps are being taken to prevent the recurrence of similar situations in the future?” he asked.

Other questions posed by Mr Gerald were:
- How does the overstatement or shortfall in inventories affect the remuneration (including cash bonuses and stock options) of senior executives?
- Can management also provide greater clarity on how the shortfall in inventories may affect operations, such as the order fulfilment schedule or the on-boarding of new customers?
- Does the audit committee intend to carry out a comprehensive review of the adequacy of the group’s internal controls?
- Can the board elaborate on the measures and protocol in place to enforce accountability within the group?

In his e-mail, Mr Gerald told AEM’s management: “Your kind response to our questions above will help your shareholders to understand the issues better. We should also be happy to discuss the above questions.”

AEM shares ended Jan 24 at $2.90, down one cent or 0.34 per cent.

THE BUSINESS TIMES