* Write-offs lead to Rs. 354 m loss in FY14 after enjoying Rs. 41.6 m in pre-tax profit in first 9 months
* Longstanding auditors KPMG issues qualified opinion in FY14 accounts; raises doubt on going concern of loss-making subsidiary Sierra Industries
Sierra Cables Plc on Friday revealed far-reaching lapses in book keeping, best practices in accounting and auditing as well as good governance, leading to improprieties worth Rs. 491 million.
The disclosure is following the receipt of final report from its auditors on the difference in the work in progress balance and certain unrecorded transactions.
In a filing to the Colombo Stock Exchange, Sierra Cables (SIRA) said that no additional findings which have material financial impact to the required adjustments disclosed by the Board of Directors on 11 June 2014 have been established.
Furthermore, this has been reconfirmed by the report of the forensic investigation initiated by the Board. Auditors of SIRA are KPMG and Chairman of the Audit Committee of the SIRA Board is Dr. D.G.K.E. Weerapperuma.
The SIRA filing said the Board of Directors confirm that the difference of Rs. 172 million in the value of work in progress of inventories between the General Ledger and the valuation carried out as at 31 March 2014 remains unchanged.
Since the Board of Directors is unable to make a reliable assessment of the impact relating to previous periods in the absence of records, the difference has been written off in the financial statements for the year ended on 31 March 2014.
Further, certain revenue, expenses and assets of the Company have not been recorded in the General Ledger and Financial Statements during previous years disclosed by the SIRA Board of Directors on 11 June 2014 remains unchanged to be (a) income of Rs. 113 million, (b) expenses amounting to Rs. 107 million and (c) assets of Rs. 6 million and have now been brought in and are reflected in the financial statements for the year ended on 31 March 2014.
The Company also revealed that the difference between the physical finished goods stock and the stock value in the General Ledger disclosed on 11 June 2014 by the Board remains unchanged. The difference amounting to Rs. 93 million has been written off in the financial statements for the year ended on 31 March 2014.
Incorporating these changes, the audit of the financial statements for FY14 has been completed.
“The Board of Directors of Sierra Cables Plc assures its shareholders that it will vigorously pursue action against all those responsible for the improprieties following due procedures and thanks its shareholders for their patience, understanding and support,” the SIRA Board said in its filing to the CSE.
The Company has reported a pre-tax loss of Rs. 353.6 million in FY14, as against a profit of Rs. 17 million in the previous year. The Group has posted a pre-tax loss of Rs. 376.3 million in comparison to a loss of Rs. 20 million in FY13. At the end of first nine months the Company reported a pre-tax profit of Rs. 41.3 million and at Group level pre-tax profit was Rs. 14 million.
Group revenue rose to Rs. 2.28 billion in FY14 from Rs. 2.14 billion in FY13.
As at 31 March 2014, Group retained earnings has slump to Rs. 88 million, from Rs. 334 million a year earlier.
In the just released accounts for FY14, external auditors KPMG giving a qualified opinion said the Company has neither followed the established accounting procedures nor used the accounting system of the Company for recording and accounting for these transactions as it has followed for recording and accounting for other transactions of the Company up to 31 March 2014.
In FY13, according to KPMG, the Company has maintained proper accounting records.
However in its original filing to CSE on 3 June, SIRA Board admitted to significant misstatements in financial statements of the Company for the years 2010/11, 2011/12, 2012/13 and 2013/14.
Separately the auditors has also raised doubt on the going concern of Sierra Industries Ltd., a subsidiary of the Group, which has Rs. 93 million in accumulated losses and its current liabilities has exceeded its current assets by Rs. 93 million. The subsidiary is also facing serious loss of capital. However the Directors of the subsidiary have made an assessment of the Company’s ability to continue as a going concern and do not intend either to liquidate or cease trading.
Auditors have also flagged off the non-completion of contractual agreement between the main contractor Sierra Power Ltd., a subsidiary of the Group, and the Company.
Sierra Cables PLC has made a payment of Rs. 53 million on behalf of its subsidiary, Sierra Power Ltd., to one of its main contractor during the year ended 31st March 2014. However the contractual agreement between this contractor and Sierra (Power) Ltd., had not been finalized until 4th June 2014, the date on which the financial statements of the subsidiary were authorized for issue by the Board of Directors.
Sierra Holdings Pvt Ltd owns 58% and with related parties control additional stakes. Browns Investments Plc is the second largest shareholder with 6% stake. Public float of SIRA is 37%.
Board of Directors of Sierra Cables comprises of Priyantha Perera (Chairman), E.A.D.T.B. Perera, D. Shamendra Panditha (Managing Director) D.N.N. Lokuge, D.G.K.E. Weerapperuma, G.S.M. Irugalbandara (Alternate Director F.A.W. Irugalbandara), B.W.N. Rupasinghe, A.K.W. Jayawardane and P.R. Saldin.
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