Convoy reports three years of financial losses as it seeks to move beyond scandal

Chad Bray
·5-min read

Convoy Group Holdings, the financial services company at the centre of Hong Kong’s biggest corporate scandal, reported it made annual losses in 2017, 2018 and 2019 on Thursday as costs mounted from ring-fencing a group of troubled subsidiaries.

The firm, one of the most prominent advisers to Hong Kong’s pension savings scheme, warned on February 3 that it would report net losses for those years primarily due to de-risking and restructuring its operations following a scandal that saw its former director Roy Cho Kwai-chee and two associates criminally charged.

The trio was prosecuted and acquitted in November 2020 of conspiring to defraud HK$89 million (US$11.5 million) from Convoy, but the Independent Commission Against Corruption (ICAC) is appealing the decision.

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Since December 2017, the new management team has been working on “the total revamp of corporate organisation, re-strategising the company’s long-term business vision, and strengthening corporate governance and control of the company,” Convoy said in one of a series of stock exchange filings on Thursday.

Former Convoy director Roy Cho Kwai-chee was acquitted of conspiracy to defraud in November, but the ICAC is appealing the decision. Photo: Nora Tam
Former Convoy director Roy Cho Kwai-chee was acquitted of conspiracy to defraud in November, but the ICAC is appealing the decision. Photo: Nora Tam

Convoy reported net losses of HK$1.44 billion in 2017, HK$617.8 million in 2018 and HK$540.4 million in 2019.

It marked the first time that Convoy has released any financial results since it reported interim results in August 2017. Convoy reported a loss of HK$104.2 million for the full year of 2016 and an unaudited loss of HK$141.97 million for the first half of 2017.

The latest results featured nearly HK$851 million in impairments of financial assets, goodwill and an investment in an associated company that it later sold, First Credit Financial Group.

The company also reported higher operating expenses over those three years in part because of increased legal and professional fees “as significant effort has been used for evidence gathering, vetting and legal actions,” the company said in its profit warning earlier this month.

Since late 2017, Convy said it had been involved in at least 17 legal cases its considers material, including 10 initiated by the company and seven brought against it.

Convoy had hoped to report its results by the end of January but missed that deadline.

The resumption of reporting marks a milestone for Convoy, one of the largest independent financial advisers in Hong Kong and a manager of the city’s Mandatory Provident Fund (MPF), as the company tries to move past a scandal.

Trading in its shares has been halted since December 2017 following a high-profile joint investigation by the Securities and Futures Commission (SFC) and ICAC in multiple allegations of fraud related to an estimated HK$4 billion (US$516 million) in transactions.

The Hong Kong stock exchange moved to delist its shares last year, which Convoy is challenging. The resumption of its financial reporting could play a major role in whether Convoy can retain its listing in Hong Kong.

Convoy and its network companies were infamously dubbed the Enigma Network by Hong Kong’s activist shareholder David Webb in May 2017 in a list of 50 stocks to avoid.

The financial results provide a window into how the company has navigated the past three years since the SFC and ICAC began their inquiry, from selling and restructuring its businesses to its efforts to retain customers as it saw its once sterling reputation tarnished.

In the aftermath of the scandal, Convoy said it had suspended three executive directors’ duties, appointed new independent and executive directors, completely revamped its management team and terminated others. It also brought in an outside consultant, FTI Consulting, to review compliance.

The company’s independent financial advisory (IFA) business saw a “harsh deterioration” following regulatory changes in early 2015 and it lost more than 250 consultants after regulators began enforcement operations in December 2017, the company said.

Convoy said it has moved to transform itself from being reliant on its independent financial advisory business into a diversified financial services company “empowered by fintech”. Photo: Bloomberg
Convoy said it has moved to transform itself from being reliant on its independent financial advisory business into a diversified financial services company “empowered by fintech”. Photo: Bloomberg

Convoy said it also suffered a loss of HK$883 million in its proprietary investments segment in 2017, primarily comprising legacy investments made under its prior management.

Since the scandal, the company said it has moved to transform itself from being reliant on a single IFA business into a “diversified financial services platform empowered by fintech business technology and collaboration with retail and health care strategic partners”.

“This significant evolution is healthy and vital to the company’s future success.,” Johnny Chen, Convoy’s chairman, said in its 2019 annual report filed Thursday.

The company’s latest financial results also come ahead of an extraordinary general meeting scheduled for March 17 in the latest tussle for control of the company.

Former minister Frederick Ma Si-hang (left) is one of a slate of directors favoured by Convoy’s second biggest shareholder, Kwok Hui-kwan. Photo: K.Y. Cheng
Former minister Frederick Ma Si-hang (left) is one of a slate of directors favoured by Convoy’s second biggest shareholder, Kwok Hui-kwan. Photo: K.Y. Cheng

The meeting includes a proposal to remove the company’s existing board members and elect a slate of directors favoured by its second-biggest shareholder Kwok Hui-kwan, including former Hong Kong minister Fred Ma Si-hang.

Ma led a dramatic walkout of scores of rebel investors during a shareholder meeting in January as they sought to challenge the existing board’s composition. The rebel group, which claims to represent 53.53 per cent of Convoy’s voting rights, hosted their own self-proclaimed shareholder meeting that day and voted in favour of the proposal.

In January, Convoy’s largest shareholder – the family of Richard Tsai Ming-hsing of Taiwan‘s Fubon Financial Holding – moved to expand the company’s board by three members to tighten its grip on the company.

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