SINGAPORE (Aug 29): Less than a year after executive chairman Lim Hee Liat and executive director Chia Cher Khiang were hauled up to assist in investigations by the authorities, coffeeshop operator Kimly is back in the spotlight for the wrong reasons.

Kimly’s former director, Alain Ong Eng Sing, is facing a lawsuit by Japanese-owned beverage giant Pokka for conspiring with others to divert business to another beverage company, Asian Story Corporation (ASC).

Pokka alleges that Ong had breached his duties as a director and employee.

Top photo: Alain Ong Eng Sing (far left), with Lim Hee Liat (third from left) and Chia Cher Khiang (second from right), in Kimly’s FY17 annual report.

Ong, the former deputy group CEO of Pokka Corporation (Singapore) and CEO of Pokka International, is also accused of inflating the value of ASC in the run-up to its acquisition by Kimly. He was removed from his posts in Pokka in September last year following internal investigations.

Another former Pokka International employee, former commercial director Chin Ghim Wah, has also been named as a defendant in the lawsuit.

Kimly in July last year had completed the acquisition of ASC for $16 million in cash. But barely five months later in November, the company announced it was cancelling the deal.

See: Kimly acquires seller of Asian Story drinks for $16 mil

Besides selling drinks in local flavours such as chrysanthemum tea, soya bean and bandung under its own “Asian Story” brand, ASC also distributes other companies’ products. The company also claims to have a 7.7% market share among the so-called Asian drink market in Singapore.

In a Nov 29 announcement, Kimly said ASC outsources the production of drinks to Pokka, and that it had received a letter from Pokka a week earlier giving six months’ notice that the arrangement will be stopped.

According to Pokka’s court filing, it had entered into a manufacturing agreement with ASC to develop recipes and make Asian drinks on behalf of ASC on Ong’s advice.

The beverage manufacturer claims that Ong’s true intention was to use the Pokka brand to promote the ASC drinks, and alleges that the agreement was "without merit or commercial justification" as it diverted its business opportunity of producing its own range of Asian drinks.

In addition, Pokka alleges that Ong had conspired with others to offer preferential trade deals on ASC products, give incentives for Pokka International employees to sell ASC products, and attempt to divert corporate opportunities from Pokka to ASC.

Pokka says it also incurred significant advertising and promotional expenses, which were for the benefit of ASC.

The group alleges that Ong was part of a conspiracy that caused Pokka at least $10 million in losses.

In a separate announcement on Nov 29 last year, Kimly also revealed that its executive chairman Lim and executive director Chia were under investigation by the Commercial Affairs Department and the Monetary Authority of Singapore for a suspected offence under Section 199 of the Securities and Futures Act.

See: Kimly chairman and director under probe; $16 mil acquisition cancelled

The duo were later arrested on Dec 4, but released on bail the next day. The company said they continue to assist in the investigations, but that no formal charges have been made against them by the authorities.

It is not known if the investigations are related to the Pokka lawsuit and Ong. Media reports said Ong had been instrumental in Kimly's ASC acquisition.

Citing court documents, local media reported that ASC was set up in December 2009 by Amos Wang Chia Ye, who was employed as a sales and marketing director in Pokka International between July 2013 and February 2018.

In April 2015, Wang’s entire shareholding in ASC was transferred to Seah Li Ling, the wife of former Kimly executive director Glenn Seah.

Pokka says its investigations found that Kimly’s Lim became the beneficial owner of the ASC shares under Seah's name around March 2016.

Ong, the husband of actress Vivian Lai, was appointed by Kimly in February 2017 as a non-executive and non-independent director. He was also a member of the group’s audit and remuneration committees.

The group made its debut on the Singapore Exchange a month later in March, in what was one of the hottest initial public offerings of 2017.

Its shares opened trading at 55 cents on Mar 20, more than double of its IPO price of 25 cents.

But things have gone downhill for the coffeeshop operator since then. Shares in Kimly closed half a cent down at a 52-week low of 22.5 cents on Aug 29.

In January 2018, Kimly announced the retirement of Ong, then 42, from the board as well as the audit and remuneration committees.

Although eligible for re-election, Kimly said in a filing to SGX that Ong had stepped down due to “other principal commitments”. According to the announcement, Ong at that time held 5.14 million shares in Kimly.

Ong was not included in Kimly’s FY18 annual report and has also since been removed from its website.

For the latest 3Q19 ended June, the coffeeshop operator reported a 6% drop in earnings to $4.7 million, despite a 3.5% increase in revenue to $51.6 million.

The bottom-line decline came on the back of higher expenses.

Cost of sales rose 3.9% to $42.1 million, mainly due to cost contribution from the newly acquired businesses Tonkichi and Rive Gauche.

Meanwhile, selling and distribution expenses jumped 38.8% to $1.2 million on an increase in delivery charges, cleaning and packaging materials used, and administrative expenses rose 5.1% to $3.3 million due to higher depreciation of property, plant and equipment.

See: Kimly posts 6% drop in 3Q earnings to $4.7 mil on higher expenses