Questions raised after Viet Nhat Medical Instrument's audited report notes significant risk provision.
The Viet Nhat Medical Instrument Joint Stock Company (JVC) has released its audited financial statement for FY2015, recording an unexpected loss of VND1.34 trillion ($60.1 million).
According to its auditors, KPMG Vietnam, the reason for the loss was an increase in JVC’s risk provision for bad debts, which rose from just VND1.4 billion ($62,776) as at April 1, 2015 to VND1.12 trillion ($50.2 million) as at March 31, 2016.
With after-tax profit in 2014 of VND219.5 billion ($9.8 million), the loss during FY2015 has created chaos in the financial market. KPMG Vietnam revealed the risk provision was due to inappropriate use of capital by former members of the Board of Directors (BoD).
Operating revenue in 2015 was VND507 billion ($22.7 million), the same as in its unaudited financial statement. Operating profit, however, was reported at VND3.4 billion ($152,456), much lower than the unaudited result of VND69 billion ($3.1 million).
Risk provision for bad debts consisted of VND594 billion ($26.6 million) for accounts receivables of related parties of the former BoD. JVC’s affiliate companies with 100 per cent of their accounts receivables were considered bad debts, like Huong Dong Company with VND104 billion ($4.7 million) and Triet Ton Tien Medical Equipment Company with VND315 billion ($14.1 million), according to KPMG Vietnam, and these have a “tight relationship” with the former BoD.
As a result, JVC’s total losses for FY2015 were reported at VND1.34 trillion ($60.1 million), even higher than its charter capital of VND1.12 trillion ($50.2 million). As at March 31, 2016, JVC’s retained loss was reported at VND990 billion ($44.4 million), equivalent to 88 per cent of charter capital.
JVC’s audited financial statement for year-ending March 31, 2016 also revealed information regarding the use of capital gained from its public offering on October 22, 2014.
According to KPMG Vietnam, the company received VND749.7 billion ($33.6 million) from the public offering and had a plan to use the capital under Resolution No. 01/2015-NQ-DHCD dated November 19, 2015. KPMG Vietnam, however, believes it has used the capital in a different manner to the resolution.
Those are payments of VAT, corporate income tax, penalties for late tax payment of VND103.9 billion ($4.6 million), and a VND500 million ($22,420) capital contribution in an affiliate company. This, according to KPMG Vietnam, was not notified to the State Securities Commission of Vietnam.
“The company has not completed its paperwork relating to its use of working capital gained from the public offering on October 22, 2014,” KPMG Vietnam wrote in its report. “We therefore could not determine whether the use of the rest of the capital gained from the public offering, of VND645.3 billion ($28.9 million), has been used under the resolution’s adjusted plan.”
Not only had JVC inappropriately used its capital, KPMG Vietnam also noted secured transactions by JVC to two companies KPMG Vietnam believes have a “tight relationship” with the former BoD. This also does not follow policies for listed companies as it had not been approved by a shareholders meeting.
Transactions relating to the purchase and sale of goods along with capital contributions to medical instrument projects of related parties to the former BoD have only been identified during this year. Those transactions were the main reason for the exceptionally large risk provision.