In its heyday, CSM was viewed as a boring but steady group with activities in manufacturing and distribution of food products, retailing, property management and investment - see Table 1.

Table 1 : Financial highlights (RM mln)

By the end of 2000, its shareholders' fund of RM340.5 mln had been wiped out and there was instead a deficit of RM30.5 mln. What went wrong ? For this exercise, we will review CSM from 1994 until Feb 2001 - the date the group was deemed an affected listed issuer under PN4 - dividing our analysis into 4 periods : [1]. pre-1996, [2]. 1996 to 1998, [3]. 1998 to mid-2000 and [4]. post mid-2000.

[1] Pre-1996

Expansion and management changes

The majority shareholder of CSM then was Cycle & Carriage Ltd (CCL) with a 43.3% interest. Dato' Samsudin, its Chairman, held a 24.44% interest. The group embarked on various expansion plans, including a joint-venture with Nestle S.A., to manufacture ice cream and other dairy products and another with Dairy Farm of HK to build a major discount supermarket chain in Malaysia. The group also expanded its profitable Guardian pharmacy chain and closed and disposed some of its manufacturing & retailing interests - a wise move.

However, various changes in key management occurred in 1995/96. Dato' Samsudin resigned as Chairman in May 95 and sold off his entire 24.4% stake in Jan 96. Mohd Saufi took over but later resigned in Jan 1996. Haji Jaafar Abu Bakar became Executive Chairman. Group CEO Mohd Nazar also resigned in Apr 1996.

[2] 1996 to 1998

Corporate Restructuring

Under a new management team appointed by its majority shareholders, the group undertook an important exercise by incorporating 2 divisions of CSM into separate entities, Cold Storage Retail S/B (Guardian pharmacy chain) and Cold Storage Wholesale S/B, with the objectives of improving accountability and sharpening of business focus in order to expand effectively.

Expansion into Overseas Markets via Swapping of Assets

On Sept 1996, it entered into several joint-venture (JV) agreements with Dairy Farm : (1) acquired 30% stake in Guardian SEA, (2) acquired 70% stake in AMS Health Care Products and (3) sold its 30% stake in Cold Storage Retail S/B. These `swapping' of assets were carried out to allow Cold Storage Retail S/B to enhance competitiveness, access to latest retail management & operating techniques and also to penetrate the overseas markets of Singapore, Indonesia and Brunei.

Divestment of Core Businesses to Entities of Majority Shareholder

In 1997, CSM entered into another restructuring, which packaged its remaining interests in Cold Storage Retail S/B, AMS Health Care Products S/B and DFI Supermarkets (M) S/B into a subsidiary, Selangor Ice Company S/B, to be sold later to its majority shareholder, CCL, for a total of RM62.35 mln. The group also sold its remaining stake in CCL Group Properties S/B and Guardian SEA Pte Ltd to Cycle & Carriage Bintang Bhd and CCL respectively. The above corporate manoeuvres basically signified the sale of its core and profitable businesses (especially its Guardian pharmacy chain) to entities of the majority shareholder. Hence, with the sale of its core retailing interests, the group had undoubtedly parted ways with its prime contributor of both revenue and earnings - see Table 2.

Table 2 : Segmental Reporting ( RM mln )

Exit of CCL

Subsequently, CCL sold its 32% stake in CSM to Excoplex S/B for RM177.7 mln at RM6.75 per share in Sept 97. The balance 11.3% stake was also sold. All 9 directors subsequently resigned on Mar 98, possibly marking the concluding chapter of a detailed strategic plan by its main shareholder to exit the company with almost all of the profitable assets of the group. Unfortunately for CSM, plenty of troubles lay ahead.

[3] 1998 to mid-2000

Journey into the Unknown and Sale of Assets

With the entry of Excoplex S/B, the 5 newly appointed directors immediately acquired several companies involved in property, money lending and quarry operations, totalling RM12.3 mln. The management also sold freehold properties in Georgetown and Johor Bahru for RM14.1 mln, its 49% stake in Nestle Cold Storage S/B for RM50,000 cash. What is most interesting is that upon taking over the business, Nestle subsequently reported in 2001 that the "ice cream business has made a turnaround and shows the highest growth rate in the Nestle world." Whether it is poor management, or the lack of patience and long-term focus, only the management and directors would know for sure.

Under the new management and shareholder, the group entered into a joint-venture with Saujana Pertiwi S/B (SPSB) to develop a piece of leasehold land in Kelana Jaya into a mixed residential and commercial area. SPSB provided the land and CSM undertook its development. The group also bought, through its subsidiary, Cold Storage Properties S/B, a proposed 12-storey office block at Kelana Jaya (part of the proposed development) from SPSB for RM16.0 mln.

Questionable Acquisition of a Debtor (Ginvest Builder S/B)

SPSB, in Jul 98, had appointed Ginvest Builder S/B (Ginvest) to design and construct a proposed development project in Kelana Jaya for a maximum sum of RM699.8 mln. Subsequently, CSM acquired Ginvest for RM4.5 mln in May 99. At that time, Ginvest owed its creditors RM205.4 mln (RM117.4 mln was owed to CSM), with development expenditure of RM78 mln and an amount due from an associated company, Bright Helm Investments, totalling RM136.1 mln (which was written off in 2000). With such a debt-ridden balance sheet, held up only by a sizeable and questionable debtor, one would really question such an acquisition. Was it in the best interests of CSM ?

Overgeared and Mismanaged

To finance its property development venture, CSM drew down loans amounting to RM107 mln in 1998 that was made at the height of the Great Asian Crisis when interest rates were exceptionally high. In the space of 2 years, the group has increased its development expenditure on investment properties from RM135 mln in 1997 to RM328 mln in 1999. At the same time, short-term borrowings surged from RM0.5 mln to RM130 mln. As a result of these, working capital fell from a surplus of RM47.9 mln in 1997 to a deficit of RM112.1 mln in 1999. The interest expense of the group in 1999 amounted to RM16.4 mln, compared with a mere RM0.03 mln in 1997. The lack of working capital and huge debt obligations affected CSM's cash flows.

Exit of Excoplex S/B in the Midst of Development Project

By Apr 2000, Excoplex S/B had divested its entire 29.2% stake in CSM and subsequently, 4 board members resigned. Chan Yoke Wah took over the helm as Managing Director. The group also welcomed a new majority shareholder, Ta Kin Yan, with a 14.66% stake.

Table 3 : Financial highlights (RM mln)

The timing of the exit by Excoplex is disturbing - see table 3. Is it possible that they know something that the other shareholders do not ? Maybe some answers can be unearthed from the financial statements of the group.

[4] Post mid-2000

Irreversible Financial Damage

With a new majority shareholder and management team, would the fortunes of CSM improve ? Unfortunately not. By end 2000, revenue shrank to RM36.1 mln with operating losses of RM3.6 mln. CSM was unable to generate sufficient cash flows to meet its operating costs, service interest and repay its bank borrowings. It defaulted on some of its banking facilities. To worsen its dire state of affairs, the continued weakness of the property market, the lack of financing for construction and the uncertainties in receiving approvals for its commercial development in Kelana Jaya caused CSM to suspend all works on the project. As a result, CSM had to write-down assets of up to RM361.9 mln (development expenditure of RM200.5 mln and provision for doubtful debts of RM159.7 mln). Bank borrowings stood at RM156.6 mln and shareholders' fund was in the deficit region of RM30.5 mln. Hence, CSM was deemed to be an affected listed issuer under the PN4 category in Feb 2001.

Alleged Mismanagement of Funds and Breach of Fiduciary Duties

On 9 Jan 2002, CSM instituted legal proceedings against certain former directors of the company and CSM Development S/B for breach of fiduciary duty in respect of payment of RM143,351,000 of design fees, included in the development expenditure. Bear in mind the total development costs incurred by CSM Development S/B was RM182,518,000. Questions have been raised on the derivation of such a huge figure for design fees, considering that the estimated sum for development was only RM700 mln. In addition, the company had also initiated legal proceedings against its previous auditor, Arthur Andersen & Co. for breach of contract, breach of fiduciary duties and negligence.