First published in Business Times on October 6, 2017
By Mak Yuen Teen
ON October 2, YuuZoo Corporation (YuuZoo) announced that it has added two new independent directors from Finland and five new members to its top management team. It added that with the two new board appointments, four out of the six board members are from Finland, which it said is ranked No 1 on the 2017 list of the World’s Most Transparent Countries and is outstanding in corporate governance based on the 2017 World Corporate Governance Index.
Good corporate governance is not just about adding board members with impressive profiles (or from reputable countries). Companies such as Enron, Satyam and Theranos, just to name a few, had boards stacked with impressive names but that did not prevent them from imploding in scandals.
The fact that YuuZoo has a founder and chairman from Finland has not stopped serious and unanswered questions being raised about its corporate governance, disclosures and accounting practices.
Further, YuuZoo’s principal place of business is not Finland. It is therefore unclear why adding more board members from there would improve the board’s oversight role or YuuZoo’s overall corporate governance.
Even as the market waits for the appointment of an independent third party to undertake a review of its disclosures and the terms of reference of this review, YuuZoo continues to be queried by SGX for its disclosures and its responses to these queries have raised further questions.
Take the case of the two responses it issued on September 25. One relates to the 1Q 2017 and 2Q 2017 results, and the other was related to the incorporation of YuuLog Europe, a joint venture between YuuZoo and the former management of Cinram France.
On August 14, YuuZoo released its restated 1Q 2017 and 2Q 2017 financial statements.
In its press release for the 2Q 2017 and 1H 2017 results on August 15, Yuuzoo said: “For the half year ended in 30 June 2017, the Company’s net profit increased by 342 per cent to S$15.9 million from S$3.6 million in the corresponding period in 2016. The increase was mainly driven by franchise sales in Hungary, Slovakia and Czech Republic.”
MULTIPLE FRANCHISES?
SGX asked YuuZoo to give a breakdown of the total revenue of S$36.8 million for 1H 2017 and to attribute the franchise sales in 1Q 2017 and 2Q 2017 to Hungary, Slovakia and Czech Republic, which it had earlier said are the countries where franchise sales had driven the huge increase in revenue compared to the corresponding 2016 period.
In response, YuuZoo then said there was in fact no revenue contribution from Slovakia during that period.
Further, it now disclosed that the remaining two countries of Hungary and Czech Republic only contributed S$838,000 in revenue each.
The remaining S$22.5 million in franchise sales – which made up 93 per cent of the franchise revenue – are now said to be from “Other Regions”, with no specific breakdown given for individual regions.
How can YuuZoo say in its 1H 2017 announcement that the increase in net profit was driven by franchise sales mainly in Hungary, Slovakia and Czech Republic when contributions were 3.46 per cent, zero per cent and 3.46 per cent respectively for these three countries?
It now said that “the increase was also driven by franchise sales in other regions being: South Korea, United Kingdom, Bulgaria, Congo, India, Poland and Romania”.
A review of its past results announcements shows that franchise sales from these same countries had been mentioned in various announcements from 1Q 2015 onwards. So, did YuuZoo sell multiple franchises in these countries?
YuuZoo’s restated 1Q 2017 results show that revenue declined by 50 per cent compared to 1Q 2016, while its 2Q 2017 revenue declined by 17 per cent compared to 2Q 2016.
When it announced its restated 1Q 2017 results, it said that “the decrease in revenue is mainly due to the change in recognition policy of the Group.
The Group has adopted a more prudent means of revenue recognition which resulted in the decrease in revenue”. When it announced its 2Q 2017 and 1H 2017 results, it said (twice) that “the decrease was mainly due to the change in recognition policy of the Group and lower payment revenue”.
However, when queried by SGX, YuuZoo now said financial statements for FY2016 and FY2017 were prepared on the same basis, which contradicts their earlier announcement.
It now said the decrease in revenue is actually due to lower payment revenue. YuuZoo did not mention what payment revenue means but presumably this refers to its e-commerce revenue.
YuuZoo also said in its 1H 2017 results announcement: “Growth is expected to continue to be strong in all key areas YuuZoo operates in: tribal social networking, e-commerce, online and mobile payments, mobile games and streaming video services.”
This seems at odds with the significant declines in total revenues for the first two quarters of 2017 compared to 2016.
When SGX asked YuuZoo to substantiate the statement that growth is expected to be strong in e-commerce, its only explanation is that e-commerce is expected to be strong as franchisees and marketing partners start to market YuuZoo’s services.
SGX also queried YuuZoo’s announcements made on August 24 and 27, in relation to the incorporation of YuuLog Europe (YuuLog), a joint venture with the management of Cinram France, and also on 3 September in relation to the acquisition of certain assets of Cinram France.
DUBIOUS CLAIMS
YuuZoo had announced that YuuLog had been incorporated with a paid-up capital of 500,000 euros. It had also said this was a joint venture with the management of Cinram France and that YuuZoo will own 51 per cent with the latter owning 49 per cent.
SGX queried the amount that YuuZoo will be contributing in terms of equity and whether it will be providing any shareholders’ loan to YuuLog.
It also asked how much the management of Cinram France will be contributing and the name and background of the other key shareholders of YuuLog.
YuuZoo said that there is no shareholders’ loan, that the shareholder agreement is still being discussed and did not disclose the amount to be contributed by Cinram France’s management.
How can YuuZoo set up a joint venture with the management of Cinram France already said to be owning 49 per cent of this joint venture while the shareholder agreement is still being discussed?
On the name and background of the other key shareholders of YuuLog, YuuZoo mentioned that the only other shareholder is “BTV&CO”, but did not mention who are the shareholders of this company.
An online search and a company registry search conducted on October 3 found a French company called YuuLog Europe. However, it has a paid-up capital of only 1,000 euros with just one shareholder by the name of Jean-Jacques François Berthelon.
YuuZoo’s announcement of changes to its board and management on October 2 mentioned that a Jean-Jacques Berthelon, former head of Cinram Logistics France, has been appointed to the new position of Head of Yuulog Europe. So, is the paid-up capital 500,000 euros or 1,000 euros and is the shareholder BTV&CO or Mr Berthelon?
I had earlier said that in my many years writing about corporate governance of companies here, I have never come across a company quite like YuuZoo. It continues to go where no other company I know of has gone before – in the wrong direction.
- The writer is an associate professor at the NUS Business School where he specialises in corporate governance. This is his fourth commentary on YuuZoo published in The Business Times
