Global Dairy Holdings (1007 HK)

Global Dairy Holdings is a mainland Chinese milk powder producer. It was listed in 2010. The company requested suspension of its shares in March 2012 following the resignation of Deloitte as its auditor. Deloitte had raised a number of issues during the 2011 audit, which the company had not been able to allay. In its resignation letter, Deloitte stated:

“We continue to have concerns about matters pervasive to the financial statements including: 1) certain milk procurement transactions brought to the attention of management and acknowledged by them to be fraudulent; 2) unexplained differences between sales receipt notes sighted during audit work in February 2012 and documents purporting to be the same sales receipt notes returned to the Company in March 2012 ostensibly following a Tax Bureau investigation; 3) the explanation provided by management- The Tax Bureau investigation – for removing accounting records which were then not available to us continuously during the audit; 4) the validity and commercial substance of acquisitions of milk stations, farm houses and Holstein cattle; and 5) difficulties we encountered during our visits to the local branch of one of the Group’s banks.”

Incomplete records made it impossible to produce consolidated financial statements for 2011 and subsequent years. It appears that records were deliberately destroyed. In January 2013, the company reported flooding at its head office “due to cracking of the heating pipes, the first and second floors of the offices have been soaked, where extensive damages were caused to the office facilities, computers and documents”. The required forensic audit was not completed. The shares remain suspended. The company is seeking to resume trading by acquiring a hotpot restaurant business in mainland China.

Global Dairy Holdings: Annual Report 2010

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