The biggest quarterly loss in history is due to provisions made for impairments relating to slow industry recovery and project delays

By SHAHEERA AZNAM SHAH / Pic TMR

SAPURA Energy Bhd’s massive net loss of RM4.23 billion or loss per share of 26.3 sen in its fourth quarter ended Jan 31, 2020 is an ominous sign energy companies are set to face substantial provisions due to the fall in energy prices to decade lows.

Sapura’s biggest quarterly loss in history was due to RM3.7 billion worth of provisions made for impairments relating to slow industry recovery and project delays amid the Covid-19 outbreak.

“In the current quarter, the group has made a provision for impairment on goodwill on the consolidation of RM3 billion and a provision for impairment on property, plant and equipment of RM240.9 million,” it told Bursa Malaysia yesterday.

The impairments were “necessary” due to the “prolonged recovery expected” in the oil and gas (O&G) industry. The company, controlled by Permodalan Nasional Bhd, made a net profit of RM500.43 million a year ago for the same period.

The provisioning included an additional provision of RM438.8 million recognised in anticipation of delays and prolonged durations to current projects arising from the restricted movement and lockdown

measures in multiple jurisdictions brought by the Covid-19 pandemic as well as taking into consideration current market conditions, the company stated.

Revenue for the quarter fell 25.1% year-on-year (YoY) to RM1.11 billion mainly due to lower contribution from its engineering and construction (E&C) business segment.

For the full financial year ended Jan 31, 2020 (FY20), the company made a net loss of RM4.56 billion from a net profit of RM207.55 million it posted for FY19 due to the aforementioned impairment provisions.

FY20’s revenue rose 41.2% YoY to RM6.45 billion supported by increased project execution in the E&C segment.

Sapura’s E&C segment recorded a revenue of RM5.5 billion in FY20 as it saw more engineering, procurement, construction, installation and commissioning (EPCIC) works globally.

Revenue from the drilling segment rose slightly YoY to RM941 million, while the upstream exploration and production business achieved its first gas following the start-up of the Larak gas field under the SK408 production sharing contract.

The group’s orderbook currently stands at RM13.5 billion. It remains “cautiously optimistic” going into FY21 as the O&G industry braces for the full impact of Covid-19 and low oil prices.

As part of the group’s planned capital management programme, a refinancing exercise is underway and is on track to be completed this year.

“The refinancing exercise will enhance the group’s financial position,” Sapura president and group CEO Tan Sri Shahril Shamsuddin (picture) stated in a release yesterday.

He added that following the previous downturn, the group has put in place “an agile strategy designed for the cyclical nature of the industry”, noting the group has also been implementing cost optimisation initiatives since mid-2019.

This massive quarterly loss comes on the heels of an announcement on Monday that Sapura’s senior management would take a 50% pay cut effective immediately as part of its “immediate austerity measures” to sustain the business. These measures will include readjusting employees’ salaries between 5% and 45% across the board after Ramadhan and workforce dislocation.

Shares of Sapura closed unchanged at eight sen yesterday, valuing the group at RM1.36 billion. The share price is at historic lows and has lost some 70% in value since the beginning of the year due to the collapse in crude oil prices on the world market due to excess supplies and demand destruction brought on by the measures taken to combat the Covid-19 pandemic.