Reference is made to the news article appearing in The Edge on 24 November 2014 entitled, “The trouble with China Stationery”.
CSL wishes to clarify on the following sentence which highlighted in bold and underline:
1. In reference to the above mentioned article – third paragraph
Then, in April this year, the company suffered a fire at its 15,423 sq m plant in Fujian, China, during which 10,000 sq m was damaged. CSL said the fire has destroyed its administrative office, along with its financial records and legal stamps. The incident followed the stepping down of its previous auditors, Messrs Foo Kon Tan Grant Thornton LLP, in January 2014, with no reason given.
Clarification by CSL:
The Board of Directors of CSL had explained to its shareholders at the Special General Meeting held in conjunction with the proposed change of auditors on 10 January 2014 that the previous auditors, Messrs Foo Kon Tan Grant Thornton LLP (“GT”), resigned as the auditors of the Company as the Board couldn’t agree on the proposed new professional fee presented to them. On top of that, the engagement audit partner who in-charge of the Company’s audit with an extensive experience in auditing stationery companies or companies related to the stationery industry has retired from GT.
The Board, having reviewed the fee and engagement proposal received from Messrs RT LLP and in consultation with the Audit Committee, had determined that the proposal from Messrs RT LLP is reasonable and cost effective.
2. In reference to the above mentioned article – thirteenth paragraph
The company’s cash balance has also declined to RM910.83 million from RM1.27 billion at end-December 2013.It has used some RM362.84 million over the span of nine months, but on what?
Clarification by CSL:
The Company’s cash balance as at 30 September 2014 stood at RMB1.71 billion (equivalent to RM893.21 million) compared to RMB2.37 billion (equivalent to RM1.27 billion) reported in the financial year ended (“FYE”) 31 December 2013. The details are outlined in the Unaudited Condensed Consolidated Statement of Cash Flow.
Please be mindful that the Company started the remedial works in the affected area caused by the fire on 26 July 2014, a day after the Police Investigation Report was issued. That was before the insurance comes in.
Apart from that, at the same time, the Company had also compensate customers for not able to supply the products on time due to the fire incident. The services offered by the insurance company in the People’s Republic of China (“PRC”), do not cover for loss of business income applies to the loss suffered by the Company during the time required to repair or replace the damaged property.
3. In reference to the above mentioned article – sixteenth paragraph
This begs the question why CSL has spent so much on capital expenditure (capex) amid such a sluggish outlook.
Clarification by CSL:
CSL has a total of 5 production plants located at PRC measuring approximately 50,000 square metres in total area of, of which the area of the plant gutted by the fire measuring approximately 10,000 square metres, constituting 20% of the total floor area.
The production capacity of the affected plant represents 40% out of the total production capacity of all the plants of the Company for FYE 31 December 2013. Therefore, it is crucial for the Company to reinstate equipment destroyed by the fire in the affected area.
In September 2014, the Company acquired 12 types of 135 units of equipment, costing approximately RMB284.97 million to replace those equipment destroyed by the fire.
4. In reference to the above mentioned article – seventeenth paragraph
Another concern for shareholders would be that it has been more than seven months since the fire at CSL’s premises and yet it is still unable to make insurance claims for the loss of business income.
Clarification by CSL:
The Company had on 8 May 2014 announced that the services offered by the insurance company in PRC, would not cover for loss of business income applies to the loss suffered by the Company during the time required to repair or replace the damaged property.
5. In reference to the above mentioned article – twentieth paragraph
But why have the police sealed off the premises, and why is it taking so many months to conclude the investigation?
Clarification by CSL:
To speed up the process, CSL had requested the authorities in PRC to issue the respective report on the fire incident in order for the auditors, Messrs RT LLP, to carry out their auditing work. This was mentioned in the Media Briefing in CSL’s office on 3 July 2014.
The Company, however was told to be patient as it is a normal procedure taken by the authorities and do not hurry the police in carrying out their duties.
6. In reference to the above mentioned article – twenty-fourth paragraph
Clearly, CSL has been running down its cash on capex and trade receivables over the past year. Is this trend that CSL plans on continuing?
Clarification by CSL:
Nope. The spending on capex was due to the acquisition of 12 types of 135 units of equipment, costing approximately RMB284.97 million mainly to replace the equipment destroyed by the fire.
This announcement is dated 25 November 2014.
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