*ST Kerry (002072): Checking Accounts But Failing To Sue Subsidiaries

If you want to see a subsidiary's account, you have to take a lawsuit. This ridiculous scene happened on *ST Kerry. On the evening of September 3rd, *ST Kerry announced that it was unable to control its wholly owned subsidiary, Beijing Erie, which was brought to court by the data limited company.

Request to stand up and cooperate with audit

According to the announcement, Erli is a wholly owned subsidiary of *ST Kerry. In June 27, 2019, *ST Carey convened the general meeting of shareholders to adopt the resolution of Beijing standing by the shareholders' meeting of data limited. The contents of the resolution include: 1. To remove Ouyang Jianzhuo from the executive director's office and to remove Sun Liguo from his supervisor; two, appoint Li Yanmei as executive director and Zheng Hanwei supervisor; three, authorize Li Jiang to represent him and *ST Kerry to the administrative department for Industry and commerce to handle the change procedures of the board of directors.

On the second day after the resolution, *ST Kerry sent a letter to the erect standing committee, demanding that he stand up to perform the above resolutions of the shareholders' Union and cooperate with the financial information. *ST Kerry believes that the act of standing up has led to a company unable to exercise shareholder's rights to participate in major decisions, choose managers and access to financial information, and seriously damage the legitimate rights and interests of *ST Kerry as its sole shareholder.

In this regard, *ST Kerry asked the court to judge the financial information from Ernest Kerry, who was in compliance with the relevant resolutions and stood by the sole shareholder of *ST Kerry.

Performance commitments not completed

The main business is to provide network solutions and CDN services. In November 4, 2015, *ST Kerry signed an agreement with Beijing Netcom Network Technology Co., Ltd. and Beijing Wei Yun Creation Technology Co., Ltd., to buy netting through payment of cash, and 100% stake in Wei Yun's creation. It intends to pay 211 million yuan cash to the Netcom, acquire 85% of its holdings, and pay 37 million 300 thousand yuan in cash for the creation of Wei Yun, and acquire 15% of its holdings.

The above acquisition funds were divided into many payments. *ST Kerry paid 30 million yuan in May 2016, paid 98 million 600 thousand yuan in August 2016, paid 100 million yuan in December 2016, and paid 8 million 300 thousand yuan in March 2018 to April. As of the end of August, *ST Kerry paid a total of 234 million yuan to the equity transferor's equity purchase, accounting for 95.28% of the total transaction volume of the transaction.

After the first payment was paid, the company was completed and became a wholly owned subsidiary of *ST Kerry.

According to the announcement at that time, the transferor of the equity assigning firm pledged that the net profit after deducting non recurring gains and losses from audited 2015, 2016 and 2017 was no less than 17 million yuan, 23 million yuan and 28 million yuan respectively, and the total amount was no less than 68 million yuan, otherwise the cash compensation would be made.

But the reality is very skinny. According to its financial data, the net profit from 2015 to 2017 was 18 million 888 thousand and 900 yuan, 23 million 110 thousand and 400 yuan and 14 million 470 thousand and 100 yuan respectively, and the performance commitments were not fulfilled. The original shareholder must pay cash compensation to *ST Kerry for 42 million 158 thousand and 900 yuan. But compensation is not in place.

Impairment of 198 million yuan worth of goodwill

What makes *ST Kerry headache is the purchase of a huge amount of goodwill from the company. According to *ST Carey 2016 annual report, the company acquired a total of 198 million yuan of goodwill, and the first year of the table, that is, 2017, stood on the unfinished performance, the goodwill impairment allowance was 23 million 768 thousand and 800 yuan, the company's net profit also changed from -3510 to $10000. In 2018, the company made the acquisition of 174 million yuan worth of goodwill.

Such a large amount raised the inquiry of the exchange, and *ST Kerry gave the reason: because of the rapid changes in the broadband market, the demand for bandwidth optimization and accelerated services in the market has shrunk sharply, and the performance has dropped sharply in 2018.

In the 2018 annual report, the exchange questioned *ST Kerry about the management and control of Erie. *ST Kerry replied at the time that the company had re appointed its management and core technical personnel. Its production, operation and personnel were also included in the unified management and control of the listed companies. The internal control was effective, the core management team was stable, the division of labor was clear, the checks and balances were coordinated, and there was no significant dependence on individual staff.

Today, there is a situation where litigation is needed to check accounts. The inconsistent statements give rise to doubts about the management of *ST Carey.