The Board of Directors of ICB wishes to announce that its External Auditors, Messrs. BDO have expressed an adverse opinion in respect of ICB’s Audited Financial Statements for the financial period from 1 January 2017 to 30 June 2018.
1.The adverse opinion from the auditors was due to their disagreement with the decision made by the BOD of ICB to treat its subsidiary, IDB Interactive Sdn. Bhd. (“IDB”) as a pure investment (as opposed to a subsidiary to be consolidated), which is in accordance to the law and financial reporting standards.
2.The key reason for this decision emanates from ICB’s inability to obtain access to IDB’s accounting and other records in order to verify the accuracy of the financial information of IDB for FPE 2018 to present a true and fair view of ICB’s financial position and affairs and to facilitate ICB’s regulatory filing obligations with the relevant bodies including Bursa Malaysia Securities Berhad (“Bursa Securities”).
3.The background and circumstances leading to this state of affairs are as follows:-
3.1 In March 2015, ICB completed its acquisition of 100% equity interest in IDB, which involves the provision and distribution of online games and other Information and Communication Technologies (ICT) products to telecommunication companies and general consumers. The consideration of RM25 million was satisfied in cash of RM10 million and the balance RM15 million in the form of shares in ICB, which at that time, represented approximately 18.2% in the share capital of ICB.
3.2 Under the terms of the acquisition, operational management of IDB’s business was initially to be undertaken by the vendors’ named representatives. This was based on the understanding that operational management would be taken over by ICB Group's personnel once operational experience has been obtained. To-date, this transition of operational management to ICB Group's personnel has not taken place.
3.3 Sometime during the last quarter of 2017, shareholders linked and/or associated with the parties having operational management of IDB at the material time requisitioned for an Extraordinary General Meeting (“EGM”) to remove certain members of the ICB’s BOD and to appoint their preferred appointees in their stead. The resolutions were not carried by the shareholders at the EGM held on 3 November 2017.
3.4 Following from this, the parties having operational management of IDB (as named in Suit 194 defined below), ceased all operation management of IDB without any proper hand over of responsibilities and further refused to hand over or provide access to all business, financial and/or management documents and information, which were wholly within their possession, custody and/or control.
3.5 Legal demands by IDB for the return of all business, financial and/or management documents and information from the parties having operational management of IDB were not adhered to. Accordingly, legal action was commenced vide Kuala Lumpur High Court Civil Suit No. WA-22NCC-194-05/2018 (“Suit 194”) ”) against the parties having operational management of IDB, essentially seeking return of all business, financial and/or management documents and information belonging to IDB (collectively referred to as “IDB’s Documents and Information”) [Details of the Suit 194 are disclosed in Note 34 Material Litigations in the Financial Statements].
3.6 As the Group has been denied access to IDB’s Documents and Information, the Group was unable to corroborate or verify the accuracy of the financial information of IDB for this FPE 2018, which includes sales and purchases transactions of RM44.64 million and RM43.53 million respectively recorded in IDB. The BOD viewed that ICB has not met the requirements prescribed under the applicable Accounting Standard for consolidation, namely Malaysian Financial Reporting Standards (“MFRS”) 10 and hence, decided to deconsolidate IDB’s financial statements from the Group’s consolidated financial statements.
3.7 The BOD believes that this decision would enable the Directors to provide a true and fair view of the financial position of the Group vis a vis that of IDB and is also consistent with the requirements of Section 250(2) of the Companies Act 2016 (“CA 2016”).
3.8 The BOD opined that the deconsolidation of IDB provides a true, fair and accurate view of the Group’s financial statements for FPE 2018 and is consistent with the provisions of the CA 2016 and general accepted accounting practices.
4.Financial Impact of Decision
4.1 As a result of the deconsolidation, the Group’s revenue for the 18 months period ended 30 June 2018 is RM22.58 million as compared to RM56.88 million for the 12 months period ended 31 December 2016, the latter of which consolidated IDB’s financial statements.
(Note: As mentioned in note 3.6 above, IDB’s sales and purchases that could not be corroborated nor supported during the 18 months period ended 30 June 2018 is RM44.64 million and RM43.53 million respectively)
4.2 Performance wise, the Group incurred a loss after tax of RM18.47 million for the 18 months period ended 30 June 2018 (as compared to a profit after tax of RM1.13 million for the 12 months period ended 31 December 2016) – primarily due to the BOD’s decision to prudently provide in full the goodwill attributable to IDB amounting to RM15.4 million as a loss of deconsolidation of IDB.
Without consolidating IDB’s financial statements into ICB Group’s consolidated financial statements, the Group still has RM9.6 million net cash as at 30 June 2018, and recorded a positive cash flows generated from operations of RM1.1 million during FPE 2018.
4.3 As for ICB’s cost of investment/advances in/to IDB including the provisions made in the period under review, they are set out as below: -
| | | | Provision / | |
| | | 30 June 2018 | Loss | Balance |
| | | RM’ Mil | RM’ Mil | RM’ Mil |
| | | | | |
| Goodwill | | 15.4 | (15.4) | - |
| Net Assets | | 9.6 | (0.6) | 9.0 |
| | | | | |
| Cost of Investment/Carrying Value | | 25.0 | (16.0) | 9.0 |
| | | | | |
| | | | | |
| Debt due from IDB after provision | | 6.3 | (1.3) | 5.0 |
Notesa)With IDB stated as a pure investment in the books of ICB, as mentioned above, this cost of investment has been written down by RM16.0 million to RM9.0 million, most of the write down being goodwill of RM15.4 million arising from the acquisition.
b)In addition to the above, advances of RM6.3 million made to IDB over the years have been written down by RM1.3 million in order to re-state the outstanding balance in present value terms of RM5.0 million.
c)The BOD is confident on the recovery of the abovementioned sums of RM9.0 million and RM5.0 million respectively, totaling RM14.0 million.
d)It should be noted that even if the above amounts totaling RM14.0 million were fully provided (which the BOD does not deem necessary), this would not result in any adverse financial triggers to ICB, according to guidelines stipulated under Guidance Note 3 of the Bursa Securities. (Note: If fully provided, ICB’s Proforma Shareholders’ Funds would amount to RM18.0 million (RM32.0 million less RM14.0 million) against its Share Capital of RM21.0 million)
5.In fact, the actions of the BOD is what would have been reasonably expected of the Directors of a Company, in accordance with their fiduciary obligations to protect the interests of the Company and its shareholders, i.e. to prevent a commercial dispute from causing the Group to be unfairly and misleadingly classified in a manner which is not reflective of its true financial position. In other words, the Directors have acted with prudence.
6.ICB note that Messrs. BDO takes the position that the “the deconsolidation of the subsidiary is not in accordance with the accounting policies of the Group as well as Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia”.
7.Having taken advice on the matter, ICB briefly set out ICB’s views on the effect of the stated provisions of the CA 2016 read together with the stated provisions in the MFRS and International Financial Reporting Standards.
8.Briefly, section 244(3) of CA 2016 essentially states that the Directors of a company need not ensure that consolidated financial statements are prepared in accordance with the approved accounting standards if the Directors are of the opinion that consolidation of the financial statements in accordance with the approved accounting standards would not give a true and fair view of the matters required to be addressed in the consolidated financial statements or of the results of the business and state of affairs of the company.
8.1 The obligation to ensure that consolidated financial statements give a true and fair view of the financial position of a company and its subsidiaries is also expressly set out in section 249(2) of CA 2016.
9.Section 250(2) of CA 2016 further provides that where a Company do not consolidate the financial statements of a subsidiary of its Company, the Directors shall disclose by way of a note on the financial statements, the reason for doing so.
10.Pursuant to section 250(4) of CA 2016, a holding company shall have the power to request all relevant information from its subsidiaries to enable preparation of consolidated financial statements.
11.In light of the above express provisions, it would be incorrect to suggest that a holding company, who is unable to obtain sufficient information and/or documentation to verify the financial information of its subsidiary, despite reasonable efforts to do so, is still lawfully obligated to prepare consolidated financial statements.
12.The BOD takes the position that consolidation of IDB would not provide a true and fair view given that ICB is not able to verify the financial figures given the lack of supporting records and/or documentation. The requirement to give a true and fair view is the overriding consideration.
12.1 The BOD further takes the view that the disclosures contained in the notes of the financial statements sufficiently provides an accurate information as to the profit or loss and the state of affairs of the Group.
Conclusion & Moving forward
13.In conclusion, the BOD holds a firm view that it has acted in accordance with the provisions of the CA 2016, the general approved accounting standards and in a prudent manner to protect the interests of ICB and its shareholders.
14.The BOD further holds firm that the financial statements prepared by ICB represent a true and fair view of the Group.
15.The BOD reserves all rights of ICB with regards to the actions and conduct of Messrs. BDO in arriving at this adverse opinion.
A copy of the Audited Financial Statement for the FPE 2018 is attached herewith, for your attention.
This announcement is dated 29 October 2018.
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