Sierra Cables PLC said it was transferred to the watch list by the Colombo Stock Exchange after the company auditor raised doubts over the going concern of two of its subsidiaries.
KPMG, the company’s auditor, in August raised serious doubts over the going concern of its Kenyan subsidiary, Sierra Cables East Africa Limited and its local subsidiary, Sierra Industries (Private) Limited after two companies accumulated continuous losses running into many millions of rupees.
Making its maiden offshore investment, Sierra Cables set up its Kenyan subsidiary, Sierra Cables East Africa Limited in 2015 but ran into troubles over the volatile political situation in the African nation as the country had to go for back to back presidential polls in August and October 2017.
Although at the beginning the company was able to secure sufficient orders from Rural Electrification Authority of Kenya to run the factory profitably, the company was unable to operate at optimum capacity and recover the fixed overhead.
“This was primary due to non-availability of sufficient funds to import the required raw materials,” the company said in its annual report.
However, in a stock exchange filing yesterday, the company said the approval of the respective authorities for the production facility of its Kenyan subsidiary was delayed beyond August 2017 and as a result, the company was not in a position to secure orders from the Rural Electrification Authority in Kenya during the financial year ended March 31, 2018.
As a result, the company was bleeding millions of money and the holding company had pumped US $ 500,000 as fresh capital to keep the company afloat.
Further Sierra Cables has also agreed to release part of its banking facilities to ensure uninterrupted production to cater to the available orders and has also approved an import sub facility of US $ 300,000 to facilitate import sufficient materials to support the production.
The stock exchange filing said the company has a confirmed order book value to the tune of US $ 900,000 and remains confident of generating a turnover US $ 5 million in the next 12 months.
Sierra Cables appointed Ruwan Fernando as a Director of Sierra Cables East Africa Limited and a resident of Nairobi as Chief Executive of the company.
By December 31, 2017, Sierra Cables East Africa Limited had accumulated losses of Rs.17 million and its current liabilities exceeded its current assets by Rs.91.5 million.
Meanwhile, the group’s other subsidiary, Sierra Industries (Private) Limited was awarded a contract for the Attangalle water supply project, which according to the company, will generate revenue of US $ 5 million in the ensuing financial years.
However, this company also ran to serious financial troubles as it had accumulated losses Rs.276.2 million as of March 31, 2018 and the company’s net assets are less than half of its stated capital and face serious loss of capital situation as per Section 220 of the Companies Act No. 07 of 2007, the company said.
However, the company yesterday said it would complete the order prior to the year ending March 31, 2019 and forecasted significantly improved financial results from the project.
In order to meet the commitments and obligations under the supply contract, the holding company had provided corporate guarantee of Rs.350 million to respective financial institutions.
Sierra Cables is a leading power cables supplier to residential, commercial and industrial sectors. The company is a key supplier to the state-owned Ceylon Electricity Board.
For the quarter ended June 30, 2018, the Sierra Cables group reported a net loss of Rs.57 million on revenue of Rs.1.1 billion compared to a net loss of Rs.3.0 million incurred on revenue of Rs.939.5 million in the same period last year.
The company’s share ended 10 cents or 4.76 percent higher at Rs.2.20 at yesterday’s close.