Bursa Malaysia Securities Berhad (635998-W) (Bursa Malaysia Securities) has publicly reprimanded Ingenuity Consolidated Berhad (INGENCO or the Company) and 2 executive directors for breaching the Bursa Malaysia Securities ACE Market Listing Requirements (ACE LR). In addition, the 2 executive directors of INGENCO were fined a total of RM200,000.
INGENCO was publicly reprimanded for the breach of Rule 9.12(1) read together with Rule 9.12(2)(d) and (e) and Rule 9.13(d) and (e) of the ACE LR where the Company had engaged in promotional disclosure activity via issuance of a series of press releases on 15 August 2012 and 16 August 2012 and an advertorial published in The StarBizWeek on 18 August 2012 which were, amongst others, overstated, one-sided and/or unbalanced and had/might have misled investors or caused unwarranted price movement and activity in the Company’s securities.
The following executive directors of INGENCO at the material time were found to have breached Rule 16.13(b) of the ACE LR for permitting knowingly, or where they had reasonable means of obtaining such knowledge, INGENCO to commit the breach of Rule 9.12(1) read together with Rule 9.12(2)(d) and (e) and Rule 9.13(d) and (e) of the ACE LR. The penalties imposed on the directors are as follows:-
| No | Name | Date of Appointment | Penalty |
|---|---|---|---|
| 1. | Wong Hun Liang |
29 March 2011 (resigned on 29 May 2014) |
Public Reprimand and fine of RM100,000 |
| 2. | Low Gah Luen |
27 February 2012 (resigned on 31 October 2013) |
Public Reprimand and fine of RM100,000 |
Bursa Malaysia Securities views the contravention seriously as directors of listed corporations are required to maintain the highest standards of integrity, accountability, corporate governance and responsibility and it is not acceptable for listed corporations and their directors to engage in promotional disclosure activity which affect market integrity and an orderly and fair market.
BACKGROUND
INGENCO had on 15 August 2012 issued / posted a press release entitled ““Ingenuity leaps forward with ZTE’s appointment as sole local vendor for mobile devices” on its corporate website where the Company had made the following representations:-
“This joint venture is competitively poised for growth by gearing up to sell 30,000 units amounting to RM15 million by end of this year, and 120,000 units amounting to RM60 million in sales by end of 2013.”
“Ingenuity believes that it is more than ready for another quantum leap in the ICT distribution business while expecting significant profit turnaround for the financial year Q1 June 2012/2013 which is to be announced tomorrow…. and the turnaround is expected to be material and not merely a case of breaking even.”
“Although the Group has been focusing on its transformation exercise for most of the last financial year March 2012, the time spent would result in huge rewards for the Group. The strategic plan developed by the management, along with on-going transformation, improvements in its products line as well as continued acquisition of strategic partners, is expected to boost sales turnover to RM800 million with the Group’s profit to RM12.5 million for the new financial year March 2013. The management team has set internal targets that they believe are achievable and is planning to see a 20% improvement following the next financial year.”
The above press release had included the statements (in bold) that were requested to be removed by Bursa Malaysia Securities earlier (which the Company did) from the Company’s announcement made on 15 August 2012 to Bursa Malaysia Securities and the market.
The statements and in particular the representation on the expected / targeted sales of RM800 million and profit of RM12.5 million for the financial year ended (FYE) 31 March 2013 (the Sales / Profit Representation) were again disseminated by INGENCO on 16 August 2012 when the Company posted on its corporate website another press release entitled “Ingenuity shows sign of turnaround with remarkable breakthrough of RM3.2 million quarterly profit” where the Company had made the following representations:-
“Ingenuity is showing signs of finally turning itself around and regaining its lost glory.”
“The turnaround and strengthening of its financial position is the direct result of Ingenuity’s sound management approach and transformation success.”
“With the turnaround underway, the Group believes and foresees that with its new strategic plan and on-going improvement in its products line as well as continuation to acquire strategic partners in place, the Group is potentially of achieving its internal target for sales turnover of RM800 million and Group’s profit to RM12.5 million for the upcoming financial year. The Group’s first quarter results have reaffirmed the management’s belief that these internal targets are reasonably achievable barring any unforeseen circumstances, thus aiming for a 20% improvement in the next following financial year.”
“Ultimately, the management’s goal is to apply for transfer of its current listing status to the Main Market of Bursa Securities soonest possible, hopefully within the next 3 years.”
INGENCO also published an advertorial in The StarBizWeek on 18 August 2012 in respect of the Company as Malaysia’s Leading One-Stop ICT Solutions Provider and the Company’s corporate milestones, business growth and strategy. The advertorial was entitled “Eyes firmly set on the Main Board in 3 years’ time” and the Company had again reiterated the Sales / Profit Representation as follows:-
“While most of the last financial year March 2012 focused on the transformation exercise, the strategic plan developed by the management is expected to reap huge rewards for the Group. Together with on-going improvements in its product line as well as continued acquisition of strategic partners, the strategy is expected to boost sales turnover to RM800 million and Group’s profit to RM12.5 million for the new financial year. The management team firmly believes that these internal targets can be achieved and is planning to see a 20% improvement the following financial year.”
Upon Bursa Malaysia Securities’ request for INGENCO to clarify the statements (in bold) (including the Sales / Profit Representation) in the advertorial, the Company had on 23 August 2012 announced that:-
- The representation in the advertorial was merely an internal target set out to be achieved for the FYE 31 March 2013 and 31 March 2014 and should not be construed as a revenue and profit forecast;
- The internal target has not been and will not be reviewed by the external auditors; and
- There was no certainty that the internal revenue and profit targets for FYE 31 March 2013 and 31 March 2014 will be achieved.
The Sales / Profit Representation in the press releases dated 15 & 16 August 2012 and advertorial dated 18 August 2012 was presented as certain and/or as more probable and was one-sided, not balanced and not fair as it did not provide any proper / adequate / reasonable justification, basis and/or assumptions and did not contain sufficient information to enable investors to make informed investment decisions with regard to such representations. This fulfilled the hallmarks of promotional activity under Rule 9.13(d) of the ACE LR read together with Rule 9.16(1)(c) of the ACE LR.
Further, the Sales / Profit Representation which were made repeatedly through the press releases on 15 & 16 August 2012 and the Advertorial on 18 August 2012 was overstated, overzealous and unbalanced particularly in the light of the Company’s bare assumption of the profit based on the 1st quarter June 2012 multiplying by 4 quarters for the FYE 31 March 2013, the historical financial results and estimated increases of sales ranging from 2% to 88,789% for the period from 1 April 2012 – 31 March 2013 as compared to the FYE 31 December 2011 based on unclear, uncertain and unreasonable assumptions.
There was unusual market activity in the trading of INGENCO’s securities during the material period from 10 August 2012 to 14 August 2012 and particularly after issuance of each of the press releases on 15 & 16 August 2012 and the advertorial on 18 August 2012 where In aggregate, the Company’s share price had increased significantly by 244% within a period of 2 weeks from RM0.135 on 9 August 2012 to a high of RM0.465 on 23 August 2012. However, upon INGENCO’s clarification on 23 August 2013, the Company’s share price had decreased to RM0.445 on 24 August 2012 and RM0.35 on 28 August 2012 (i.e. an aggregate decrease of 24.7% within 3 market days) and thereafter RM0.13 approximately 2 weeks later on 19 September 2012.
INGENCO’s series of promotional disclosure activity particularly via the press releases dated 15 & 16 August 2012 and advertorial dated 18 August 2012 which -
- contained the repeated Sales / Profit Representation and the Company’s prospects to the Main Market; and
- were made and publicised during the period where the Company’s shares had significant and unusual market activity;
had or might have misled investors and/or caused / further caused unwarranted price movement and activity in the Company’s shares and in effect promote INGENCO’s securities.
The representations that these press releases and advertorial were legitimate promotional activity of INGENCO and were not subject to the ACE LR as these were not released to / through Bursa Malaysia Securities were not acceptable. This was particularly so in the light of the disclosure obligations under the ACE LR which clearly set out the characteristics of prohibited promotional disclosure activities which extends to disclosures in any form whatsoever including news releases as well as the fact that Bursa Malaysia Securities had communicated its concern to the Company and the executive directors and had required the removal of the Sales / Profit Representation from INGENCO’s announcement to the market on 15 August 2012.
The finding of breach and imposition of the above penalties on INGENCO and the executive directors were made pursuant to Rule 16.19 of the ACE LR upon completion of due process and after taking into consideration all facts and circumstances of the matter including the nature and materiality of the breach; the impact / unusual market activity in the Company’s securities at the material time and the conduct of the Company and executive directors in issuing and releasing the Sales / Profit Representation to the market through other mode of dissemination (via the press releases dated 15 & 16 August 2012 and advertorial dated 18 August 2012) subsequent to the Company’s announcement dated 15 August 2012 to Bursa Malaysia Securities notwithstanding their knowledge / awareness of the unusual market activity in the Company’s securities and Bursa Malaysia Securities’ concerns and request for removal of such representation.
ADDENDUM
Rule 9.12(1) of the ACE LR states that a listed corporation must refrain from promotional disclosure activity in any form whatsoever or howsoever which may mislead investors or cause unwarranted price movement and activity in a listed corporation’s securities.
Rule 9.12(2) of the ACE LR states that such activity includes news releases, public announcements, predictions, reports or advertisements which are –
(a) not justified by actual developments concerning a listed corporation;
(b) exaggerated;
(c) flamboyant;
(d) overstated or
(e) over-zealous.
Rule 9.13 of the ACE LR states that although the distinction between legitimate public relations activities and such promotional disclosure activity is one that must necessarily be drawn from the facts of a particular case, the following are frequent hallmarks of promotional activity:
(a) a series of public announcements unrelated in volume or frequency to the materiality of actual developments concerning a listed corporation;
(b) announcement of products still in the development stage with unproven commercial prospects;
(c) promotions and expense-paid trips, or the seeking out of meetings or interviews with analysts and financial writers, which could have the effect of unduly influencing the market activity in the listed corporation’s securities and are not justified in frequency or scope by the need to disseminate information about actual developments concerning the listed corporation;
(d) press releases or other public announcements of a one-sided or unbalanced nature; and
(e) listed corporation’s or product advertisements which in effect promote the listed corporation’s securities.
