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KUALA LUMPUR (April 29): Concerns over Pharmaniaga Bhd's (KL:PHARMA) financial sustainability have been raised for the third straight year, with independent auditor Ernst & Young PLT (EY) identifying a material uncertainty in the group's FY2024 financial statements that raised doubts about its ability to continue as a going concern.
In its audit, EY pointed out that, as of end-December 2024, Pharmaniaga's current liabilities exceeded its current assets significantly by RM748.8 million at the group level and by RM827.2 million at the company level. The auditor also noted a capital deficiency of RM145.9 million at the group level.
“This indicates the existence of material uncertainties that may cast significant doubt on the group and the company’s ability to continue as a going concern,” it said in a statement filed to Bursa by Pharmaniaga.
Despite these concerns, the financial statements were prepared on a going concern basis, said EY, adding the validity is dependent on Pharmaniaga's successful implementation of its proposed plan to regularise its Practice Note 17 (PN17) status for financially distressed companies, and continuous support from its lenders.
In response, Pharmaniaga said it expects to resolve the going concern issue upon the completion of its regularisation plan, which is targeted for the second quarter of 2025.
In March, Pharmaniaga's shareholders approved the proposed regularisation plan at an extraordinary general meeting. This plan includes a proposed rights issue of up to RM353.5 million, a private placement of up to RM300 million (with a minimum of RM215 million), and a capital reduction of RM520 million.
Proceeds from this plan will be used to reduce borrowings and fund business expansion. Once implemented, Pharmaniaga anticipates reducing its net debt, restoring positive shareholders' equity, and complying with various financial covenants — all of which would enable it to exit its PN17 status.
Pharmaniaga slipped into PN17 status in February 2023 after announcing its quarterly and annual reports for 4QFY2022 and FY2022, after it incurred a substantial RM552.3 million impairment on its inventory of Covid-19 vaccines, which significantly impacted its financials.
At the time, auditor Messrs PricewaterhouseCoopers PLT (PwC) raised going concerns doubts in its audit of the group's FY2022 financial statements, noting Pharmaniaga's current liabilities exceeded current assets by RM632.1 million at the group level and RM411.2 million at the company level, while capital deficiency stood at RM274.1 million.
Similarly, in its FY2023 audit, PwC flagged the same issue, when Pharmaniaga's current liabilities exceeded its current assets by RM895 million at the group level, and RM439 million at the company level; with a capital deficiency of RM227.4 million.
Shares of Pharmaniaga closed half a sen, or 1.85%, lower at 26.5 sen on Tuesday, giving the group a market capitalisation of RM389.1 million. The counter has declined by over 24% since the start of the year.