Sakae Holdings auditor issues qualified opinion amid fishy sugar deal and Griffin suit

Sakae Sushi outlet in Johor Bahru, Malaysia; taken September 2018.Sakae Sushi outlet in Johor Bahru, Malaysia; taken September 2018.

Sushi restaurateur Sakae Holdings said in its annual report released on Friday that its auditor issued a qualified opinion on its financial statements in the wake of a soured commodity sugar transaction and the outcome of a lawsuit over alleged misappropriation of funds from an associate.

For the 18 months ended 30 June, Sakae adjusted its revenue to S$94.15 million after the audit, from a preliminary S$99.54 million. That was after the group reversed the commodity sales transactions and related receivables and made a provision of S$5.7 million in the inventory related to those transactions, the financial statement said.

That transaction were one factor behind Sakae’s independent auditors issuing a qualified opinion of the audit.

In a note included in Sakae’s annual report, the auditor pointed to S$5.93 million of commodity sales transactions and related receivables, under which the S$5.7 million provision was made.

“There were no appropriate procedures that we can design and perform to obtain sufficient appropriate audit evidence to evaluate the nature and veracity of the transaction and whether the reversal of the sales and related recognition of inventory provision are appropriate as
well as the related disclosure in the group’s financial statements,” the auditor statement in the annual report said.

In the fishy sugar deal, Sakae has previously said the 12,800 metric tonne sugar transaction was brought to subsidiary Sakae Capital, or SCPL, by a representative, which Sakae didn’t name, in July-August 2017, and it was purportedly sold to two customers, which Sakae also didn’t name, but labeled A and B.

Customer A took delivery of 3,457 metric tonnes of sugar and paid SCPL US$1.6 million in October 2017, but customer B took delivery of 9,343 metric tonnes of sugar with a sale value of US$4.3 million, and did not pay, Sakae has previously said; the company has filed a police report after an internal auditor could not locate either the representative or the shareholders and directors of customer B.

After initially delaying its annual general meeting to investigate the fishy sugar deal, Sakae has scheduled the AGM for 29 October.

Griffin Real Estate concerns

The auditor also pointed to concerns over the accounting for its associates Griffin Real Estate Investment Holdings (GREIH) and Gryphon Capital Management (GCM).

Sakae invested a total of around S$6.64 million in GREIH over 2011 and 2012, and S$150,000 in GCM in 2011, to acquire 24.69 percent and 20 percent stakes respectively, the annual report said.

The auditor said Sakae hasn’t used the equity accounting method for its share of the results and net assets of those associates since the end of 2012, with the company providing full allowance of impairment loss for its investments in the two.

During the current financial year, the impairment losses on those investments were reversed due to High Court and Court of Appeals rulings in its favor, the auditor said, but added that it wasn’t able to see enough audit evidence to evaluate the recoverable amounts and whether the full reversal was appropriate or when it should have been recorded.

In its annual report, Sakae noted that in early August, a former director, Andy Ong, had been charged in court for offenses including allegedly transferring a total of S$15.8 million from the bank account of GREIH to accounts of ERC International and ERC Unicampus.

The annual report also said that Ong had allegedly duped Sakae into paying S$2.64 million to GREIH and then signed a cheque from GREIH’s bank account to transfer S$8 million to his own account. GCM, which ERC Holdings had a stake in, managed GREIH’s properties.

Shenton Wire attempted to contact Ong for comment via the Entrepreneur’s Resource Centre (ERC), which he founded in 2002; an email sent outside of office hours wasn’t immediately returned.


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