- 2016.12 NEPTUNE GROUP
Company Name: Neptune Group LimitedStock Code: 00070Year end: June 30, 2016
Basis for Qualified opinion
As disclosed in the consolidated financial statements, the net assets of the associate mainly comprised of intangible assets and trade receivables. During the year ended 30 June 2016, the associate did not receive any settlements of the amount due by the junket. Subsequent to the reporting period in October 2016, the junket made a settlement of HK$20,000,000 and the remaining balance of HK$234,015,000 remains outstanding. In assessing the recoverable amount of the interest in an associate, the Group engaged an independent professional valuer to estimate the fair value of the intangible assets held by the associate based on a discounted estimated future cash flows basis. In valuing the intangible assets, one of the major assumptions used is the timing of cash flow settlement from the junket. Given that the junket did not make any settlements during the year ended 30 June 2016 and other than the aforesaid HK$20,000,000, no subsequent settlements were made up to the date of approval of these consolidated financial statements, we were unable to obtain sufficient appropriate evidence to assess the assumptions made by the directors in the valuation of the intangible assets as well as the recoverable amount of the associate’s trade receivables. There were no other satisfactory audit procedures that we could adopt to satisfy ourselves as to the valuation of the interest in an associate of HK$73,100,000 as included in the consolidated statement of financial position as at 30 June 2016 and the Group’s share of profit of an associate of HK$16,650,000 as included in the consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2016. Any adjustments that might have been found to be necessary in respect of the above would have a consequential effect on the net assets of the Group as at 30 June 2016 and of its financial performance and cash flows for the year then ended and the related disclosures in the consolidated financial statements
In our opinion, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph, the consolidated financial statements give a true and fair view of the financial position of the Group as at 30 June 2016, and of its financial performance and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in compliance with the Hong Kong Companies Ordinance
- 2016.12 KINGBO STRIKE
Company Name: KINGBO STRIKEStock Code: 01421Year end: June 30, 2016
Basis for disclaimer of opinion
Acquisition of Kahuer Holding Co., Limited
As disclosed in Note 21 to the announcement, during the year, the Group acquired 60% equity interest in Kahuer Holding Co., Limited (“Kahuer”) at an aggregate consideration of approximately HK$420 million (equivalent to S$74,394,615) (the “Acquisition”). Management considered that the Acquisition is a business combination.
Kahuer and its subsidiaries (hereafter collectively referred as “Kahuer Group”) are principally engaged in the construction, operation and sale of solar power station projects in the People’s Republic of China (PRC).
The directors of the Company had engaged a third party appraiser to assist them in preparing a cashflow forecast of Kahuer Group projects based on financial budgets covering a five-year period (the “Forecast”) to determine the fair values of the identifiable assets and liabilities of Kahuer Group for the purpose of purchase price allocation at the date of Acquisition. The same forecast was used by the management for the purpose of year end impairment testing.
Kahuer Group was established less than one year and did not have any sales transactions since its establishment. There was no other reliable data available from other sources alternatively. In the absence of historical information and reliable documents supporting the inputs and assumptions used in the preparation of the Forecast, we were unable to evaluate the reasonableness of the Forecast.
(1) Identifiable assets and liabilities of Kahuer Group
As referred to in Note 21 to the announcement, included in the purchase price allocation were inventories of approximately S$3.5 million which were stated at fair value. Management determined the projected margin of these inventories based on the Forecast and derived the respective fair value. Deferred tax liabilities of approximately S$0.8 million was recognised which arose from the difference between the fair value and the carrying value of these inventories. As we were unable to ascertain the reasonableness of the Forecast, we were unable to ascertain whether these inventories and deferred tax liabilities were appropriately stated. Consequently, we were unable to ascertain whether the non-controlling interest of approximately S$1.0 million, being 40% of the net assets less liabilities of Kahuer Group at the date of acquisition, and the goodwill ofapproximately S$58 million, being the residual value from the purchase price allocation, were appropriately stated. Any adjustments found to be necessary would have an effect on the purchase price allocation of the Kahuer Group and the related disclosures.
(2) Impairment assessment of goodwill
Included in the consolidated financial statements as at 30 June 2016 was a goodwill of approximately S$57 million which arose from the Acquisition. As referred to in Note 10 to the announcement, the directors of the Company performed impairment assessment on this goodwill by comparing its carrying value to the respective recoverable amount of solar power station project cash-generating unit and concluded that the goodwill was not impaired. The recoverable amount was determined from the Forecast. As we were unable to evaluate the reasonableness of the Forecast, we were unable to ascertain whether the recoverable amount was reliably determined and whether the goodwill was impaired. Any adjustments found to be necessary would have an effect on the net assets of the Group at 30 June 2016 and net profit of the Group for the year then ended.
(3) Fair value of profit guarantee receivable
Included in the consolidated financial statements as at 30 June 2016 was a profit guarantee receivable of approximately S$9 million which arose from the Acquisition (Note 16). This balance was stated at fair value which was determined by an external appraiser. This balance arose from the Acquisition and its initial recognised balance was approximately S$9.6 million. This balance was derived from the same data input used in the Forecast but a different methodology model was applied by the external appraiser. In the absence of historical information and reliable documents supporting the inputs used in the preparation of the Forecast, we were unable to ascertain the reasonableness of this profit guarantee receivable. Any adjustments found to be necessary would have an effect on the profit guarantee receivable, and consequently the net assets of the Group at 30 June 2016, and any changes of the fair value would have an effect on the net profit of the Group for the year then ended.
(4) Prepayments for acquisition of subsidiaries
Included in the consolidated financial statements as at 30 June 2016 was a long term prepayment for acquisition of subsidiaries of approximately S$4.7 million which arose from the Acquisition (Note 17). Further details of this balance are set out in Note 21 to the announcement. As referred therein, there were two entities (namely 青島啟光新能源發電有限公司 and 昌樂中興開合光伏發電有限公司) which formed part of the Acquisition, their legal ownership had not been transferred to the Group until the completion of a series of reorganisation steps. Accordingly, the directors of the Company had made provisional allocation of the consideration of the Acquisition to these two entities. The allocation was made by reference to the Forecast using the attributable data input of these two entities in the Forecast. However, in the absence of historical information and reliable documents supporting the inputs used in the preparation of the Forecast, we were unable to ascertain whether the allocation basis was appropriate and consequently, whether the long term prepayments for acquisition of subsidiaries were appropriately stated, and consequently the net assets of the Group at 30 June 2016.
Disclaimer of opinion
Because of the significance of the matters described in the Basis for disclaimer of opinion paragraphs, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the consolidated financial statements. In all other respects, in our opinion the consolidated financial statements have been properly prepared in compliance with the disclosure requirements of the Hong Companies Ordinance.