This article first appeared in The Edge Financial Daily on May 2, 2017

KUALA LUMPUR: A boardroom tussle between two groups of feuding shareholders of Ire-Tex Corp Bhd has called into question what value does its major shareholders see in the loss-making corrugated cardboard packaging manufacturer.

The group has posted three straight years of losses since the financial year ended Dec 31, 2014 (FY14), which was attributed to impairment losses. Its net loss widened in FY16 to RM27.68 million from RM10.42 million the previous year, while revenue rose 1.3% to RM133.63 million from RM131.88 million in FY15.

The losses have been reflected in Ire-Tex’s share price, which has been on a decline since hitting a seven-year record-high close of 77 sen on June 13, 2014.

In recent times, it has been riddled with irregularities and lawsuits. In 2015, its auditor UHY Chartered Accountants issued a qualified opinion on the group’s financial statements for FY14 concerning the RM16.5 million purchase of machinery by its wholly-owned subsidiary Zoomic Automation (M) Sdn Bhd from Future Rank Sdn Bhd — a related party of Ire-Tex.

And on April 7 this year, Ire-Tex filed a suit against former director and shareholder Datuk Tey Por Yee, Lim Chye Guan, Future Rank, Mohd Zamzuri Zakaria and Musa Abu Bakar for RM11.5 million, claiming that Tey and Lim had allegedly paid out the amount despite there being no purpose for making the payment.

Ire-Tex also saw several changes to its board member structure late last year, with the entry of its executive director Felix Chin Wui Choong and non-executive director Mak Lin Kum.

Ire-Tex also saw the entry of two new substantial shareholders in 2016, namely Famous Bluechip Sdn Bhd in November with a 6.34% stake and Singapore-based Elite Cosmo Group Ltd in December with a 6.09% stake, after Tey exited the group. As at April 28, 2017, Elite Cosmo’s shareholding stood at 16.27%, while Famous Bluechip had a 7.33% stake in Ire-Tex.

The group also appointed Christopher Purcell as managing director in January 2016 following co-founder Datuk Dr Donald Yap Tatt Keat’s retirement from the post in June 2015, but Purcell was redesignated as chief operating officer in February this year, leaving Chin to helm its operations.

Ire-Tex’s boardroom row broke into the open last Thursday, with it announcing two contradicting outcomes of its extraordinary general meeting (EGM) which was called by Elite Cosmo for the removal of seven directors from the board.

While it is not clear how Ire-Tex’s boardroom tussle between its existing board of directors and Elite Cosmo will pan out, its major shareholders appeared headed for a legal tussle.

When contacted by The Edge Financial Daily, Mak, one of the directors Elite Cosmo sought to remove, said Elite Cosmo had issued a lawsuit dated April 20 naming the entire existing board and Ire-Tex as defendants, claiming that the defendants had interfered with the EGM proceedings.

However, Mak is confident that the ongoing issues at the board level will not drag on for too long, saying that the issues “should be settled in a few weeks or so”.

Despite the various changes and boardroom fight, Ire-Tex shares have soared this year. Year to date, the counter has gained 29% to close at 24.5 sen last Friday, outperforming the FBM KLCI’s 8% gain over the same period. Its market capitalisation stood at RM33.75 million.

Meanwhile, Chin — another director Elite Cosmo sought to remove — said Ire-Tex is still profitable from an operational perspective, with the current board working on putting the group back on its feet.

“In fact, we are growing and we are correcting the situation. We are getting new customers. Despite all that’s happening currently, we are still maintaining the company’s operations,” he said.

He blamed the group’s losses on impairments and other extraordinary losses. “Operationally, Ire-Tex is profitable. The losses are extraordinary in nature and are mostly non-operational related causes and irregularities. In FY16, the higher loss was due to a big payment of RM14 million,” said Chin.

He said these “irregularities” included missing assets, the closing down of operations without reason and unjustified expenses. “So yes, we need to clear up the mess to turn the company around,” Chin added.

Mak concurred, adding that Ire-Tex’s business is still viable, noting that the group “already started to pick up the pieces and [is] putting things back in place”.

“The focus is to build on the strong foundation that we are already sitting on. In fact, the business is on a recovery path and it should turn a profit by the end of the year, if all goes well,” he said.

Mak said Ire-Tex should be able to perform with the proper controls in place, noting that other listed packaging companies such as Scientex Bhd and Box-Pak (M) Bhd are doing relatively well.

“There are maybe 10 or 12 other counters on Bursa Malaysia with a similar scope to Ire-Tex and they are making a profit. The packaging industry is an evergreen industry,” he said.

He also said that Ire-Tax is also poised for expansion, especially for its operations in the Klang Valley and Johor which are relatively small compared with its main operations in Kulim, Kedah.

Mak added that the board is looking at areas where costs can be improved, adding that the board is also working on improving the leadership and management of the company, as he said the previous management had not really put emphasis on this aspect.