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Kresta shares remain in a trading halt pushing it towards seven months without a share traded as the ASX probes the company’s financial records.
Xianfeng Lu, the Executive Chairman of Kresta Holdings limited, issued a corporate update on 21 January stating that the company’s shares will remain suspended from quotation until matters relating to its half-year financial report for the year ended 30 June 2018 have been adequately addressed.
In early January the ASX Listings Compliance department wrote to Kresta a “Financial Condition Query” letter highlighting several areas of concern and requesting answers to over a dozen questions ranging from queries relating to accounting standards, major inaccuracies in the recording of inventory, invoices paid on behalf of other entities and the overall financial position of the business.
“Does the company consider that the financial condition of the company is sufficient to warrant continues listing on the ASX?” Isabell Andrews, Adviser, Listing Compliance (Perth) asked in the letter dated 9 January 2019.
Kresta wrote back that it remains in compliance with its listing rules and that the Board believes that the company’s financial condition remains adequate.
In making this determination, the Directors said they had considered a number of factors including two loans from related entities, a deed of parent company support from Ningbo Xianfeng
New Material Company and its subsidiary Suntarget, a payment deferral agreement with its major supplier and a strategic review released in December.
Whilst the question of the business continuing to function as a going concern is obviously weighing on the ASX, questions also remain about inventory reporting.
“What additional steps does the company propose to take to ensure in future periods it is able to provide its auditor with sufficient and accurate evidence of inventory recording?” Andrews asked.
In its response, Kresta identified four main areas of improvement and said it would continue to actively take steps to ensure sufficient and accurate evidence of inventory recording going forward.
“The company emphasises that it regards the value of these inaccuracies identified with the recording of inventory as immaterial,” Lu said in an announcement dated 21 January 2019.
Kresta has also released its preliminary figures for the full year ended 31 December 2018. The company recorded a pre-tax loss of $22.2M compared to a $5.3M loss in 2017 on the back of a 15% fall in revenue to $64.5M. “Factors contributing to this reduction in revenue include the closure of underperforming Kresta and Vista showrooms and weaker than expected sales revenue in Curtain Wonderland, especially in Ready Made and Made to Measure business amid subdued trading conditions,” the company said in the report.
