China's electronics retail giant Gome Electrical Appliances Holding Ltd. (GMELF.PK,GMELY.PK) announced that it has been verbally informed by the Beijing Municipal Public Security Bureau that Gome's Chairman, Executive Director and Controlling Shareholder Wong Kwong Yu, was being investigated by the Bureau in connection with certain suspected economic crime.
Pursuant to the announcement of investigation, the company appointed Chief Executive Officer and Executive Director Chen Xiao as the acting chairman with immediate effect. This action was taken in view of Kwong Yu's apparent inability to perform his duties.
Xiao, with 20 years' experience in the electrical and electronic retail sector in China, has been CEO since the completion of the Company's acquisition of China Paradise Electronics Retail Ltd., which he founded. Xiao is also the chairman of the Shanghai Electrical Products and Appliances Industry Association. Xiao also has a significant shareholding interest in the company.
Gome noted that it has set up a special action committee to closely monitor and assess the impact of the investigation on the company's financial condition and operations. The company also said the committee would propose recommendations to the Board on actions to be taken by it and advise the company on timely disclosure, investor relations and regulatory compliance in connection with the investigation.
The Company believes that the Committee would enable the Board to respond efficiently and hence enhance communications and transparency to the market with respect to the Investigation. Though the company does on find any misappropriation of the assets and funds as per its preliminary internal checks, it would engage external auditors to conduct a risk assessment on the connected transactions.
However, the company revealed that to the best of it knowledge, the investigations are not related to the group and it has not received any legal documents from any regulatory, governmental or judicial authority in the People's Republic of China.
The company also announced that Chief Financial Officer Zhou Ya Fei is being investigated by the Bureau in connection with crime and has been replaced by Fang Wei as the acting chief financial officer.
Trading of the company's stock on the Stock Exchange of Hong Kong Ltd. was suspended with effect from 9:30 am on 24 November 2008 and will remain suspended until further notice.
On Monday, Gome reported its unaudited financial results for the nine months ending September 30, 2008. Revenues reached about CNY36.40 billion, representing growth of 20%. Consolidated gross margins rose by 1.57% to about 16.75%, while profit from operating activities rose by 45.31% to reach about CNY1.87 billion. Net profit attributable to equity holders rose by 111.55% to CNY1.59 billion. Gome's same store sales grew by 3.18% during the nine-month period.
GMELF.PK traded last on the NYSE at $0.18.
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