Sushi maker Sakae Holdings has found itself in a pickle yet again.
The company, which runs a chain of Japanese-themed restaurants including the flagship Sakae Sushi, has had to postpone its annual general meeting (AGM) over what one may describe as The Case of the Missing Sugar.
Now that the belated AGM has been scheduled to be held on Oct 29, shareholders who plan to turn up may want to acquaint themselves with the plot from the case file.
On Aug 28, Sakae Holdings released its profit and loss statement for the year ended June 30, 2018 (which was actually an 18-month period as the company was switching its fiscal year-end from December to June). In the statement, Sakae Holdings recorded an impairment loss on trade receivables amounting to S$6.73 million but gave no explanation.
Ten days later on Sept 7, it provided the following account:
In early 2017 or thereabouts, Sakae Holdings began to dabble in commodity trading. It appointed a representative under its subsidiary Sakae Capital to find a buyer and seller for the commodity, which it did not identify but is probably sugar, based on details that emerged subsequently.
To kick off, four small trades under US$150,000 each were completed successfully and profitably.
Some time in July/August 2017, the representative brought to Sakae Capital a 12,800 tonne sugar transaction. This was purportedly sold to two customers. Customer A took delivery of 3,457 tonnes of sugar and paid Sakae Capital US$1.6 million in October 2017.
Customer B took delivery of 9,343 tonnes of sugar with a sale value of US$4.3 million in December 2017. But it did not pay up.
As the amount represented a substantial transaction, it seemed amiss that no alarm was raised at the board level until Aug 27, 2018 when the group's auditors highlighted this to the audit committee, which, then, on Aug 30, appointed an independent corporate governance and internal audit firm to undertake a review.
Based on preliminary findings, the shareholders and directors of Customer B were uncontactable and a visit to its business premise showed no sign of business activity. Meanwhile, the representative who arranged the deal has also become uncontactable. A visit to the registered residential address drew a blank; the occupiers said no such person lives there.
On Sept 21, Sakae Holdings informed Singapore Exchange it had received a report of the review, which found the transaction with Customer B to be "highly questionable" and recommended the filing of a police report.
Sakae Capital has since reversed the sales transaction of S$5.93 million and made a full provision of S$5.695 million for the missing inventory.
This turn of events is troubling for two reasons.
First, it appears that Sakae Holdings has not learnt its lesson from a previous debacle.
The company has just emerged from a lengthy court battle that went all the way to the apex court over a property investment gone awry. Although Sakae Holdings won, the dispute spanned five years and drained management of much precious time poring over paperwork and uncovering what the court had described as a "systemic abuse" of the company's interest by its joint venture partner, financial publisher-turned-financier Andy Ong.
Ong had, in 2009, proposed to Sakae Holdings chairman and chief executive Douglas Foo that they come together to acquire more than 90 per cent of the units in the shopping mall Bugis Cube and redevelop them for sale at a profit. Ong was then an independent director of Sakae Holdings, a position he held from 2003 to 2013 when he was voted out by shareholders after Mr Foo discovered his oppressive actions.
Unbeknownst to Mr Foo, Ong had illegally diverted assets from their joint venture vehicle to his own companies.
Ong is now facing criminal charges over various alleged offences ranging from cheating and criminal breach of trust to offences under the Companies Act.
After its horrible experience, why did Sakae Holdings allow itself to fall so easily for what appeared to be a classic foot-in-the-door trick - in which the victim is lulled into complacency by an initial genuine transaction, only to be duped big time by a subsequent whopper?
Second, the lack of details on the parties involved raises further questions: Why didn't Sakae Holdings name the representative and the buyer of the unpaid sugar? Did it do sufficient due diligence or background check on the agent? Who introduced him or her to the company?
As far as its internal processes are concerned, Sakae Holdings has said that the review showed no indication of criminal misconduct on the part of either the company, group or its officers. But is the company's management less than thorough in its business decisions? Are its internal controls adequate? At the very least, were the people involved careless?
In its last financial year, the company embarked on a rationalisation exercise to weed out non-performing outlets in Singapore.
However, restaurant turnover is only one part of the problem. Aside from an acute labour shortage, the costs of food, labour, rental, and utilities are expected to continue to rise in the foreseeable next 12 months.
Considering the stiff competition in the restaurant business, it is understandable that the group wants to diversify its business.
But it's one thing to fail at diversification. It's another to fall for a rudimentary scam.
As the saying goes: "Fool me once, shame on you; fool me twice, shame on me."
This article was first published in The Business Times. Permission required for reproduction.