Food products company United Food Holdings says it is &ldquo making its best efforts&rdquo to complete its exit offer and will make a formal announcement in the subsequent two weeks.

 

The company was directed by the Singapore Exchange Regulation (SGX RegCo) to be delisted in August 2024 after the company was unable to address concerns highlighted by an independent auditor. United Food Holdings was also unable to fulfil the criteria to exit the SGX&rsquo s watch-list so far.

 

United Food Holdings was placed on the watch-list since June 6, 2019, after it recorded pre-tax losses for three straight financial years. Its market capitalisation then was also less than the regulatory $40 million.

 

In its Jan 9 announcement, the company reported revenue of RMB0.0 million in the 2QFY2025 ended Sept 30, 2024, unchanged from the first quarter ended Sept 30, 2023.

 

The company added that it was currently searching for an independent financial adviser (IFA) and expects to appoint one by the end of January.

 

The company, with the IFA, will then finalise amendments to its exit offer and submit them to the relevant regulators for final review.

 

The exit offer is expected to be completed by March.

 

The company is also looking for its new company secretary to handle the delisting process.

Trading in its shares have been suspended since September 2021 the company has also not met criteria to exit watch-list

 

UNITED Food Holdings clarified on Wednesday (Aug 21) that Singapore Exchange Regulation (SGX RegCo) would delist it for its failure to address the concerns raised in an Aug 5 special report by its auditors, KPMG.

 

The company said it had asked SGX RegCo for more time and provided supplemental information in response to the concerns raised in the report, but that the regulator had found that the information given did not address the concerns.

 

United Food said that because it was unable to address those concerns, and also because it fell short of the criteria to exit the watch-list, SGX RegCo would delist it.

 

United Food&rsquo s clarification comes just a day after its bourse filing on Tuesday, which announced that it had received a notice from SGX RegCo on Aug 14 about its delisting.

 

The company had said on Tuesday that it had been asked to provide updates via SGXNet on the status of the company&rsquo s exit offer proposal.

 

Under SGX&rsquo s listing rules, the company or its controlling shareholders are required to make a fair and reasonable exit offer to shareholders no later than one month from the date of the notification of delisting.

 

The issues highlighted in KPMG&rsquo s special audit related to several &ldquo unusual&rdquo cash transactions and potential contraventions of SGX listing rules.

 

Shares of SGX watch-listed United Food Holdings have been suspended from trading since September 2021. 

This came after the company&rsquo s external auditors issued a disclaimer of audit opinion on its financial statements for FY2020 and FY2021.

 

A YEARS-LONG special audit into mainboard-listed United Food Holdings : AZR 0% has found several &ldquo unusual&rdquo cash transactions and potential contraventions of SGX listing rules, among other issues.

 

KPMG Forensic, a division of KPMG Services, was appointed by United Food&rsquo s audit committee to conduct the special audit in December 2021.

 

This came after the company&rsquo s external auditors issued a disclaimer of audit opinion on its financial statements for FY2020 and FY2021.

 

Issues raised by the external auditors related to two companies, namely Hebei Xingrun Shengwu Keji Gufen (HBXR) and Chengde Purun Shengwu Zhiyao (CDPR). United Food announced in October 2017 that it was acquiring an 80 per cent stake in both these companies,

 

While HBXR&rsquo s primary activity is in the production and sale of an antioxidant product and its related equipment, CDPR is said to primarily produce and sell animal feed and traditional Chinese medicine extracts.

 

United Food in May 2023 announced the termination of its proposed acquisition of HBXR, CDPR, and another company as it was &ldquo not optimistic about the prospects of these businesses going forward&rdquo .

 

&lsquo Unusual&rsquo cash transactions

 

Another subject of the external auditors&rsquo disclaimer of opinion involved three closed bank accounts belonging to two United Food entities, Shenzhen Yi Kei Logistics Supply Chain (SZYK) and Shenzhen Bao Yao Agricultural Products (SZBY).

 

In a special audit report issued Monday (Aug 5), KPMG Services said it found &ldquo unusual&rdquo cash transactions between these two entities and third parties based on SZYK and SZBY&rsquo s general ledgers from Jan 1, 2018 to Dec 31, 2021.

Such transactions included receipts and payments made via the three closed bank accounts. United Food&rsquo s audit committee said they were not aware of these receipts and payments.

 

The cash transactions in question mainly involved payments totalling 174 million yuan (S$32.2 million) to Zeng Qiwen, the legal representative of HBXR&rsquo s business partner, Huizhou Kangweijian Biotechnology.

 

Another group of cash transactions flagged by KPMG comprised 35 payments amounting to 85 million yuan made by SBZY to Shenzhen Yizhe Technology, which United Food&rsquo s chief executive Laurent Wu said was related to the group&rsquo s proposed acquisition of Shenzhen Shareihome Technology (SST).

 

KPMG noted that United Food&rsquo s announcements regarding SST&rsquo s acquisition framework agreement at the time &ldquo may be inaccurate&rdquo .

 

This is given how United Food&rsquo s controlling shareholder and non-executive chairman, Song Yanan, was found to have had a 14.7 per cent effective interest in SST, despite the group declaring that none of its directors had an interest in the SST framework agreement.

 

&ldquo We did not identify evidence that Ms Song declared her indirect interest in SST, nor did we identify evidence that the company performed due diligence procedures into SST prior to entering into the SST framework,&rdquo said KPMG.

 

Potential breaches of listing rules

 

In its report, KPMG said United Food and its directors had potentially breached several listing rules, laws and regulations in relation to HBXR and CDPR, such as failing to provide a complete and accurate context on their proposed acquisition.

 

This included an opinion issued by the financial adviser on the acquisition related to the commerciality of patents held by CDPR, as well as a potential impact to both HBXR and CDPR&rsquo s operations resulting from the Chinese government&rsquo s mandate to transition from coal-based boilers to renewable energy. 

 

It was also highlighted that United Food did not make any announcements on the impact of not meeting a profit warranty by the companies&rsquo vendors for FY2020 to FY2022.

 

Other concerns flagged by KPMG include potential lapses in the group&rsquo s internal controls and corporate governance.

 

The professional services firm advised United Food to seek legal counsel to assess these potential contraventions and its potential failure to safeguard the company&rsquo s interest.

 

It also recommended that the company seek legal advice to assess if there was a potential breach of fiduciary duties of the board under Section 157 of the Companies Act.

MAINBOARD-LISTED United Food Holdings posted a second-quarter net loss attributable to shareholders of 1.9 million yuan (S$402,957), narrowing from 2 million yuan in the year-ago period.

 

Revenue was down 53.9 per cent to 293,000 yuan in the 3 months, compared to the 636,000 yuan in the previous year. The group said that revenue mainly came from its additives related segment, as its animal feed/traditional medicine segment was " adversely affected" by the African swine fever in Q2.

 

Cost of sales dropped 94.2 per cent to 19,000 yuan, while the quarter' s gross profit fell 11 per cent to 274,000 yuan.

 

Net outflow of cash and cash equivalents in the three months reached 22.9 million yuan. At the end of the period, cash and cash equivalents summed to 14.2 million yuan.

 

Meanwhile, results for the half year showed a net loss of 3.9 million yuan, from 4.1 million yuan in the year-ago period.

 

No dividend has been declared for the half year as the company is in an accumulated loss position and the available cash is required for working capital, United Food Holdings said.

 

Gross profit was up 67.7 per cent to 592,000 yuan in the 6 months, compared to 353,000 yuan in the previous year. This was driven by revenue which grew 3.5 per cent to 805,000 and cost of sales which shrunk 49.9 per cent to 213,000 yuan.

 

However this was outweighed by selling and distribution costs (545,000 yuan), finance expenses (608,000), and administrative expenses (3.7 million yuan).