Earnings weakness from O&G inevitable

IT must have come as a shock for Petroliam Nasional Bhd (Petronas) to report its first quarterly loss in five years since it started reporting quarterly figures.

The RM7.3bil loss was mainly due to an impairment of assets after a revaluation, but the headline figure does indicate that 2015 is not going to be rosy.

Petronas has said it will cut capital expenditure (capex) by 10% this year and by 30% for some items. This directly means less activity for the sector, and it has started to show in some of the oil and gas (O&G) service providers in the latest earnings season.

Icon Offshore Bhd saw its profit fall in the fourth quarter from RM86.4mil to RM12.9mil. It said revenue fell about 11% due to lower forerunner charter and a lower fleet utilisation rate of 76.1% for the quarter ended Dec 31, 2014 as compared to 86.9% for the quarter ended Dec 31, 2013.

Daya Materials Bhd ’s O&G segment too saw some slippage, as revenue dropped 5% from RM92.8mil in the fourth quarter of 2013 to RM88.1mil in the fourth quarter of last year.

Where Scomi Energy Services Bhd is concerned, its revenue was up about 4.3%, but its pre-tax profit was 5.5% lower, as it saw weaker earnings from West Africa and Russia.

Even for Uzma Bhd , although its revenue and profit grew in the fourth quarter, the pace of both was lower than the average for the full year.

The earnings snapshot of the O&G companies on Bursa Malaysia, plus the national oil giant, shows there is volatility in earnings. A number of them are still profitable, but the trend is pointing downwards. The fact that investors have to remember is that Brent crude oil averaged US$77 in the fourth quarter of last year.

The average will almost certainly be lower in the first quarter, and that, together with spending cuts, will make 2015 a much tougher period than what the 2014 numbers have shown.

Any more Stuart Gullivers out there?

HSBC Holdings Plc CEO Stuart Gulliver this week complained that bankers are being held to a higher standard than bishops, as the UK government promised a legal crackdown on banks that facilitate tax evasions.

Gulliver, for the uninitiated, has been struggling to contain a tax-evasion scandal at HSBC’s private bank in the past fortnight. It has been reported that he sheltered his bonus payments in a Panamanian company via a Swiss bank account. Gulliver has, however, denied any wrongdoing, saying the structure was designed not to avoid tax, but protect his privacy against other members of staff who were able to view employees’ accounts via the company computer system.

A Financial Times report early this week quoted him as saying, “It seems to me that we are holding large corporations to higher standards than the military, the church or civil service.”

HSBC is the largest European bank by market value and has been previously fined hefty sums for alleged money laundering.

The actions of Gulliver give a clue as to the bonuses that bankers make in today’s world. Is it so much that money has to be put in an obscure offshore account?

The case with Gulliver transposes also a different perspective for Malaysia. How would shareholders of a listed Malaysian company react if their CEO parked his money abroad? Maybe the lack of an outcry has something to do with the fact that remuneration amounts are disclosed by the positions executives hold in a company. Maybe it’s time for that to go a step further in Malaysia, where companies should name just who are the beneficiaries of the largest pay packages in their company.

Feeling the pinch from MAS’ revamp

FOR those wanting to see just what the restructuring of Malaysia Airlines (MAS) will mean to its suppliers, look no further than the financial results of Brahim’s Holdings Bhd. The food-based company posted a huge drop in its profit, but interestingly, also disclosed just how tough things are in its main customer MAS.

The company announced a net loss of RM40.3mil for its fourth quarter ended Dec 31, 2014, as revenue shrank from RM109.1mil to RM79.1mil. It said that revenue from its in-flight catering arm had fallen by 28% to RM79.5mil and the company was also hit by a settlement dispute with MAS, where it took a charge of RM56.1mil. That charge was part of the settlement agreement with MAS and if not for the charge, Brahim’s would have posted a profit.

Adding to its woes was the revelation that its outlook would be challenging, as the future profit margin from flight catering and cabin handling may be affected due to the implementation of a new pricing methodology in the new catering agreement currently under negotiations. It is looking at more work from new airlines coming into Malaysia this year.

Brahim’s has a 70% stake in an RM6.25bil, 25-year contract with MAS expiring in 2028, but has been trying to diversify from its the influence of the business from MAS. No one knows just how the terms of its contract with MAS will pan out, but the signs, judging by what the results have been, would certainly not be as good as before.

Brahim’s has indicated that a new catering agreement with MAS will be signed by March 31. Its catering division will provide a reduction of 25% of the monthly final bill to MAS until the new agreement is sgned. Maybe that’s an indication of just how much the cut will be?

Corporate News , short position