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Corporate regulator sees ‘really big investigation’ into 2GO’s condition




Posted on July 13, 2017


THE SECURITIES and Exchange Commission (SEC) is giving 2GO Group, Inc. until Friday to submit a written clarification on substantial revisions to its 2015 and 2016 audited financial reports.

From a closing price of P23.30 each on Friday last week, 2GO stocks on Wednesday, July 12, dropped as much as 27% to P17 apiece before significantly paring losses to close just 2.15% weaker at P22.80 per share.
In a statement sent to reporters via mobile phone message on Wednesday, the corporate regulator said its Markets and Securities Regulation Department sent a July 11 letter ordering the listed logistics firm “to provide clarification and additional information on the restatement,” including circumstances requiring the restatement; basis of the restatement and reclassification of accounts, “discussing the impact of the newly adopted accounting policy” and overall impact of the revisions on the company’s operations and financial condition, among others.

“The company is required to submit the written clarification on the restatement by July 14...” read the text sent by Armando A. Pan, Jr., officer-in-charge of SEC’s Office of the Commission Secretary.

The revisions had resulted in about a billion pesos slashed from 2015 and 2016 profits, as well as a net loss for the first quarter of this year from a previously reported net income.

SEC Chairperson Teresita J. Herbosa told reporters separately at the Philippine Stock Exchange on Tuesday afternoon that the regulator will quiz both the former and current management of 2GO.

“I don’t think they are normal,” Ms. Herbosa said of the changes, adding that if the discrepancies are “really that big, that calls for a really big investigation.”

“Financial statements originate from the company’s finance officials. They will also be held liable if proven there is fraudulent misrepresentation or even deficiencies -- meaning failure to comply with international financial reporting standards, internationally accepted principles of accounting,” Ms. Herbosa explained.

The firm that conducted the audit may also be sanctioned, she added, in this case R.G. Manabat & Co., the local partner of international accounting firm KPMG that has since stood by the results of its work.

“... [F]ollowing our authority to accredit auditors when they do publicly listed companies, we will have to look at whether we have to revoke and impose penalties on them.”

Asked how much in fines 2GO faces should it be proven to have misrepresented its financial standing, Ms. Herbosa replied: “It will not be less than a million pesos.”

“And then there is probably a daily fine of P10,000 at least since the time it was discovered and... attention has been called that there has been really wrong accounting,” she added. “So the penalties will run from that time.”

The new management of 2GO, led by businessman Dennis A. Uy’s Udenna Corp. and Henry Sy, Sr.’s SM group hired SyCip Gorres Velayo & Co. (SGV) to conduct a special audit after they took over the logistics company in April.

Among others, that audit zeroed in on receivables as a “key audit matter”, resulting in P3.86 billion worth of receivables in the first quarter, stripped of P1.46 billion in doubtful accounts.

It also reduced consolidated revenue “by the amounts that did not meet the revenue recognition criteria” amounting to P53.7 million and P19.1 million for the three months ending March 31, 2017 and 2016, as well as P222 million and P34.7 million for the years ended Dec. 31, 2016 and 2015, respectively.

Neither did 2GO meet in some cases the minimum current ratio and the maximum debt-to-equity ratio required by the company’s long-term loan agreements, resulting in reclassification of some noncurrent liabilities to current liabilities -- or those falling due within a year. That resulted, for instance, in current liabilities ballooning 39% to P12.119 billion in the first quarter from the original P8.718 billion.

“However, the group has not received a notice of default from its creditors and the group continues to pay the long-term loans based on original credit terms,” the revised report read.

SGV’s review also significantly altered bottom lines, with net income for 2015 cut by 90% to P105.13 million from the P1.08 billion previously reported, 2016 profit slashed by 74% to P344.03 million from P1.35 billion, and this year’s first quarter recording a P264.863-million net loss from a P267.562-million net income originally.

Ms. Herbosa told reporters: “This time, we are going to prioritize this because of the reports regarding the over-inflated figures,” adding that the corporate regulator wants “the parties to explain why that happened.”

“It will probably entail a special audit,” she said, separate from the SEC’s evaluation of companies’ regular reports.

It will take the corporate regulator three weeks to a month to complete the special audit.

In a statement released on Tuesday, Mr. Uy -- speaking as chairman of Chelsea Logistics Holding Corp. that owns about a third of 2GO -- said the restated items are non-cash and non-recurring, hence, “[t]he prospective profitability of 2GO remains strong.”

Trading of 2GO shares resumed yesterday after a two-day suspension on July 10 and 11 upon the release of the restated results.

From a closing price of P23.30 each on Friday last week, 2GO stocks yesterday dropped as much as 27% to P17 apiece before significantly paring losses to close just 2.15% weaker at P22.80 per share. -- Arra B. Francia