Auditors of Chellarams Plc have warned investors over the dwindling fortunes of the company, saying the continued existence of the company is doubtful in view of the N3.7 billion loss and negative shareholders’ funds of N6.81 billion recorded as well as the withdrawal of financial support by banks in the financial year ended March 2021.
The warning was contained in a Qualified Opinion issued by the audit firm, BDO Professional Services Chartered Accountants, on Chellarams financial statement for the year ended March 31st 2021 released to the Nigeria Stock Exchange (NGX).
Auditors issue Qualified Opinion when they are not confident about any specific process or transaction that prevents them from issuing an unqualified, or clean, report on the financial statement of a company.
Founded in 1923, Chellarams Plc is a fully integrated Sales and Marketing Organisation with Pan-Nigeria coverage through an extensive branch network and distributor base.
The Company’s trading operations are focused on distribution of polyurethane, industrial chemicals, raw materials and also providing warehousing and logistics services. Three subsidiary Companies and five associated Companies further comprise the Group’s operations.
Led by Asiwaju Dr. Solomon K. Onafowokan as Chairman and Aditya Chellaram as Chief Executive Officer, Chellarams recorded another year of dismal performance, as revenue fell by 46% to N1.39 billion resulting to N3.7 billion loss in the financial year ended March 2021.
This development among others prompted the auditors of the company to warn that the company may be unable to continue as a going concerns.
Auditors Cite Material Uncertainty
In their report to the shareholders of Chellarams Plc and its subsidiaries, the auditors stated: “. Furthermore, we also wish to draw attention to the existence of the following conditions as at year end:
“Withdrawal of financial support by bankers due to the inability of the Company to meet up with covenant agreements as noted during the year ended 31 March 2020 still subsists;
“Negative operating cash flows as indicated by historical financial reports;
“Adverse key financial ratios. Decrease in revenue arising from lack of working capital to import products to meet up with customers’ orders;
“A Mareva injunction restraining the operations of the Parent Company’s bank accounts noted during the year ended 31 March 2020 is yet to be lifted.
“These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Company’s and group’s ability to continue as a going concern and therefore, the Company and group may be unable to realise its assets and settle its liabilities in the normal course of business.
“In the event that the Company and the group is unable to continue as a going concern, necessary adjustments would have to be incorporated to the financial statements to reclassify non-current assets and liabilities as current assets and liabilities and provide for further liabilities that may arise.”
CEO blames COVID, CBN
Explaining the reason for the continued decline in the company’s fortunes, Chellarams Chief Executive Officer, Aditya Chellaram, said:
“The recent year was a pivotal and challenging one for us all though our Government did take considered action to reduce the impact of Covid-19 and we see a good number of our customers returning to pre-pandemic levels.
“However, we did have other challenges to face, including a new policy from the Central Bank of Nigeria that prohibits us from importing dairy products and, as such, we have suspended all operations of our subsidiary Chellarams DMK Ltd.”
Highlighting measures to reverse the dwindling fortunes of the company, the CEO said: “To mitigate further losses, we have taken significant steps to increase our rental income and reduce our overhead and expenses. We have shut down our branches and only operate out of our Lagos hub.
“A large number of our staff supported us and either took pay-cuts or worked part-time and we could not have made it through this period until now without their loyalty and support.
“Our subsidiaries Dynamic Industries Limited and United Technical & Allied Services Limited have both seen a growth in demand from their industrial customers. Dynamic Industries has also positively diversified into chemicals sales and this reflects our group strategy to represent strong international companies for speciality products that retain customer’s loyalty and command healthy margins.
“Devyani International Nigeria Limited has performed well during and after lockdown with a significant increase of takeaway business for its KFC restaurants and had put in place plans to open a new store in Port Harcourt.
“We believe that our investment in this business is secure. Conditions for the year ahead are improving, though not perfect. We are putting all of our efforts into increasing our turnover, reducing our liabilities and keeping our expenses under control. We thank you for your support during this difficult time.”