Date: January 23, 2024
To:
1. Non-Executive Chairman
2.Board of Directors
3. CEO
AEM Holdings Ltd
Dear Mr Lok Wai San & Mr Chandran Nair,
SIAS refers to the company’s announcement titled “Internal stock-taking exercise – Shortfall in inventories” dated 14 January 2024.
The company noted that, based on preliminary estimates, the group’s inventories as at 30 September, are expected to be 5% to 7% lower than the figure reported on 9 November. The shortfall is currently estimated to be between S$17.9 million and $25.1 million.
The company has attributed the shortfall to human error in transactions with the group’s ERP system during the migration of production from Singapore to Penang. According to the company’s earlier announcement, the grand opening of the new 365,000 sqft manufacturing plant in Penang took place on 9 January 2023.
Furthermore, the company clarified that these errors were not detected by the existing controls and processes that are in place. It plans to review its inventory and stock monitoring and tracking processes and systems.
The company anticipates that the shortfall will negatively impact the group’s profitability for the year ending 31 December 2023.
SIAS would like to follow up with the following questions:
- Can management provide further details on the reasons for the internal stock-taking exercise outside of the audit by the external auditors?
a. For example, was it a routine exercise or were there any whistle-blowing reports, negative findings from the internal audit or did the group face challenges in fulfilling customers’ orders?
b. When was the board and management first informed of the shortfall? - What was the level of involvement/oversight provided by the audit committee after the discovery of the shortfall in inventories?
a. Can the board/management confirm that there are no other discrepancies in the group’s financial statements and financial position?
b. How did the company conclude that this was due to human error? - Can management also provide shareholders with greater clarity on how the shortfall in inventories may affect the group’s operations, such as its order fulfilment schedule or the onboarding of new customers?
- Can the company clarify if the unaudited condensed interim financial statements for the six months ended 30 June 2023, published on 11 August 2023, can be relied upon by shareholders?
- When does the audit committee expect to complete the review of the group’s inventory and stock monitoring and tracking processes and systems?
a. When was the last time the internal audit assessed the risk management controls and procedures pertaining to inventories?
b. What proactive steps are being taken to prevent the recurrence of similar situations in the future? - Does the audit committee intend to carry out a comprehensive review of the adequacy of the group’s internal controls?
- For the benefit of all shareholders, please clearly state the potential financial impact on the group’s P&L for the full year ending 31 December 2023.
- How does the overstatement/shortfall in inventories affect the remuneration (including cash bonuses, stock options etc) of senior executives?
a. Can the board elaborate on the measures and protocol in place to enforce accountability within the group?
Your kind response to our questions above will help your shareholders to understand the issues better. We should also be happy to discuss the above questions.
David Gerald
Founder, President & CEO
SIAS
