Sharp drop in Silver Base's revenue raises corporate governance issue

Analyst says good guidance from liquor distributor would not have caused market surprise over the 85 per cent plunge in first-half sales

PUBLISHED : Tuesday, 04 December, 2012, 12:00am
UPDATED : Tuesday, 04 December, 2012, 3:10am

An analyst has questioned corporate governance at Silver Base after the company reported an unexpected sharp drop in interim revenue.

The liquor distributor admitted that some managers had left the company and some mainland stores had closed.

Silver Base's share price fell 4.9 per cent to close at HK$2.31 yesterday, while the shares of Kweichow Moutai, which produces the Moutai liquor, dropped 7.3 per cent to 200.19 yuan (HK$249.18) on the Shanghai stock exchange.

Wuliangye Yibin, which makes Wuliangye liquor, tumbled 9.9 per cent to settle at 24.31 yuan in Shenzhen.

Silver Base is the biggest global distributor of Wuliangye liquor.

"The revenue drop was beyond everybody's expectations," said an equity analyst who declined to be named.

Silver Base suffered an 85.4 per cent drop in revenue to HK$235.1 million for the six months to September, while posting a net loss of HK$177.1 million from a net profit of HK$407.1 million in the same period last year.

"If the company gave good guidance on its results, there would not be such a surprise. So there may be corporate governance problems or management problems with this company. With such a huge drop, the company may not attain its expected results for 2013," the analyst said.

According to a Bloomberg consensus analyst survey, Silver Base was forecast to reach HK$3.77 billion in revenue and HK$835 million in net profit for this financial year to March.

Silver Base chairman Liang Guoxing said two managers had left the company and a number of its stores on the mainland had closed recently, but he played down the problem.

Liang said the managers resigned because their contracts had expired, while the stores were closed because their leases had ended and they had outlived their usefulness.

Chief executive Guan Huanfei said the company "didn't suddenly close down half our stores. It's not true".

Guan said the company would announce in a few days the actual number of stores it had closed.

Liang blamed the drop in sales on the slowing economy and government restrictions on mainland officials' consumption of liquor. However, he said officials' consumption of liquor was only a "tiny portion" of sales.

Guan said the drop in revenue had nothing to do with the anti-corruption drive of new anti-graft tsar Wang Qishan. "The fight against corruption and liquor is not related," he said.

In the third quarter, the sales of Kweichow Moutai soared 74.7 per cent to 6.67 billion yuan, while its net profit jumped 106 per cent to 3.42 billion yuan.