Darco emerges from the dark

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The troubled project developer released an encouraging set of 2011 results on 30 May. Doubts remain over its ability to continue as a going concern.

Singapore-listed industrial water specialist Darco Water Technologies reported its preliminary unaudited results for 2011 on 30 May, revealing net profits of S$3.7 million (US$2.9 million), despite a 7.1% reduction in revenues to S$62.9 million (US$49.2 million).

Better cost controls enabled the troubled company to effect a much-needed turnaround, as it recovered from net losses of S$24.8 million (US$19.4 million) in 2009 and S$1.37 million (US$1.07 million) in 2010.

Darco has been in the doldrums ever since rumours of misappropriation of funds in its Taiwan unit first surfaced in 2010. It was subsequently forced to abandon a rights issue last summer after its auditor at the time issued a disclaimer stating that it was unable to form an audit opinion.

The company released re-stated results for 2009 and 2010 simultaneously with its 2011 numbers, although replacement auditor Baker Tilly also declined to express an opinion on Darco’s financial statements for 2009 and 2010. The auditor found that recent losses, combined with ongoing litigation in Taiwan and covenant breaches on existing borrowings, together indicated that there is “a material uncertainty which may cast significant doubt about the Group’s and the Company’s ability to continue as a going concern”.

Having agreed to sell a majority stake in two of its Chinese municipal concessions to Salcon in May, Darco will continue to look at divesting existing assets over the next 12 months as part of an “asset-light” strategy.

The shares have been suspended from trading since 2nd March.