ASPEN (Group) Holdings on Sunday (Oct 30) defended its decision to enter the glove manufacturing market, after poor results led the Securities Investors Association (Singapore) (Sias) to seek more information on the company’s due diligence process.

The Malaysia-based property developer had hoped to capitalise on the strong demand for gloves following the onset of the Covid-19 pandemic.

Aspen said it had done its due diligence – conducting “extensive market research and studies”, to which the board had given “due deliberation”.

Contrary to its expectations of a positive contribution, however, demand for gloves experienced “an off-the-cliff plunge worldwide” in a “global phenomenon that none could have anticipated”, Aspen said.

Sias, which periodically submits questions to listed companies in Singapore on behalf of minority shareholders, had asked Aspen to explain its approval process for its diversification into the healthcare business.

For the 18-month financial period ended Jun 30, 2022, Aspen reported a loss of RM180.1 million. This was mainly due to impairments for glove manufacturing machinery, amounting to RM72.2 million; and a factory building, amounting to RM26.2 million.

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Risks of a diversification were identified, Aspen said, but the average selling price trend softened faster than expected, and the margins compressed below pre-Covid-19 levels.

This was due to “heightened competition, global supply chain challenges, higher shipping and logistics costs, high inflation and higher production costs, which had further worsened due to the ongoing Russia-Ukraine conflict, and geopolitical tensions”.

Sias also asked if Aspen has adequate financial resources to fund projects. The company has a flagship development called Aspen Vision City at Batu Kawan, and three new projects on the way.

The total gross development value is estimated to be RM725 million (S$216.6 million), but the group’s cash and cash equivalents amounted to RM26.7 million as at Jun 30, 2022.

Aspen said its funds are sufficient and initial construction costs on new projects will be funded through bridging financing. It intends to subsequently rely on internally generated funds, through progress billing on the projects.

In its financial report, Aspen said the carrying value of its completed units has increased to RM132.4 million from RM44.8 million.

Sias asked whether it would be prudent to sell down the inventory before committing additional capital to new phases or projects.

But the group said it has “a relatively low inventory”, which necessitates the launch of new projects “to enhance business continuity and operational resilience and to capitalise on the growing demand for its development in Aspen Vision City at Batu Kawan”.

“Moreover, it is necessary for the Group to recover the opportunity loss during Covid-19 lockdown,” it said.

Addressing a question about the impact of its divestment of its 30 per cent interest in Bandar Cassia Properties at a loss to Ikano, Aspen said that it “will not in any way affect the established good partnership between the group and Ikano”, with both parties “fully committed” to their collaborations.

Sias was also concerned about the suitability of several of Aspen’s board members. It asked the company’s nominating committee (NC) to explain the re-election of a member and the continued office of directors who had been reprimanded by the Singapore Exchange Securities Trading Listings Disciplinary Committee (LDC) for causing the company to breach mainboard rules.

Aspen said: “Similar to the findings of the LDC, the NC is of the opinion that the breaches did not imply any character or integrity issues on the part of the executive directors.” The breaches were partly due to inadequacies of the company’s former standard operating procedures, which have since been updated to “a more robust compliance procedure”.

It added that removing the executive directors, who play a “key role” in the company, may be detrimental to the group and its shareholders. The company’s appointed internal auditor has also assisted it to further strengthen and implement its internal control policies, Aspen said.

On the question of underlying reasons for omissions of impairments and reclassifications that resulted in material variances in its unaudited and audited financial statements, Aspen said: ”The deteriorating market conditions and rapid changes of healthcare segment showed further impairment was needed.

“Hence, on a prudent basis, the group had further recognised impairment loss on factory building and plant and machine, and further written down on amount owing by subsidiaries.”

Reclassifications were also made due to differences in the interpretation of accounting standards, oversight of the nature of transactions and to better present the accounts to shareholders, which did not have any impact on the bottom line, it said.