PETALING JAYA: UMW Holdings Bhd undertook a massive kitchen-sinking exercise on its oil and gas (O&G) business with an impairment of RM1.16bil on its listed and unlisted assets.
The impairment resulted in the group taking a big hit in its fourth-quarter ended Dec 31, 2016 results, recording RM1.57bil in net losses, believed to be among the biggest losses in its history.
The bulk of the impairment was from the group’s listed assets, amounting to RM780mil, which is under UMW Oil & Gas Corp Bhd (UMW-OG). UMW Holdings has a 56% stake in the O&G subsidiary.
The remaining RM382mil hit that the automotive group took came from writing down the value of its unlisted assets and were not part of UMW-OG.
In a filing with the stock exchange, UMW Holdings said the continued slump in the O&G industry since mid-2014 had adversely affected the group, specifically in the O&G segment.
It said the O&G segment was impacted by the lower exploration activities that contributed to the steep decline in asset utilisation, with lower charter rates.
“Whilst tender activities increased progressively in 2016 as a result of improving oil prices, asset utilisation was lagging behind due to the long lead time from tendering to asset mobilisation,” it said.
The group’s latest impairment exercise was not unexpected, as its president and group CEO Badrul Feisal Abdul Rahim had already warned the market about the company taking a hit in its books.
His warning came after UMW Holdings announced a corporate exercise that would see the company exiting the O&G business.
In the exercise, UMW Holdings will distribute its shares in UMW-OG to shareholders, call for a rights issue and eventually take over Icon Offshore Bhd .
In the exercise, Permodalan Nasional Bhd, the major shareholder of UMW Holdings, will fork out RM750mil as part of the fund raising.
The group said its planned strategic exit from the sector was to enhance the operations of its core businesses of automotive, equipment, manufacturing and engineering.
Since the announcement of UMW Holdings divesting its O&G business, the stock has moved up 96 sen from RM4.62 to close at RM5.58 yesterday.
Dragged down by the fourth quarter, UMW Holdings saw its net losses for the full year ballooning to RM1.69bil from RM37.17mil a year ago, with revenue for the year at RM10.97bil, down 24% year-on-year.
Excluding the impairment and provisions for financial guarantee contracts, the group said it posted a profit before tax of RM89mil for the year.
On its prospects for the year ahead, the group said it would now focus on its three remaining core businesses – automotive, equipment, and manufacturing and engineering – in line with the proposed distribution of the (listed) O&G shares and exit from the unlisted O&G companies.
“However, in the near term, the group’s performance will still be affected by the downturn in the O&G industry and continued strengthening of the US dollar,” it said.
UMW-OG, which also reported fourth-quarter results yesterday, saw its net losses widening to RM918.4mil, as the company incurred impairment losses on its assets amounting to RM780.2mil.
The impairment during the quarter was more than double the RM336.4mil in impairments booked during the same quarter a year ago.
The bulk of the impairment for the quarter was from the group’s drilling services segment, which incurred higher losses of RM892.7mil compared to RM410.0mil previously.
The group said the impairment losses of RM764.4mil from the segment was mainly due to the revision in basis and assumptions caused by the slower than expected recovery in oil prices and charter rates.
The group reported RM53.5mil in revenue for the quarter, down 59% from the same period a year ago.
The drilling services segment contributed RM50.8mil or 95% of the total revenue for the quarter, a 59.3% decrease from a year ago.
UMW-OG’s oilfields services segment contributed RM2.7mil or 5% of the group’s total revenue for the quarter, representing a 57.8% drop.
Moving forward, the group expects its asset utilisation to improve in 2017, in view of the potential recovery in the O&G industry.
“This will gradually improve the financial performance of the group, as the number of idling assets declines,” it said.
It added that further improvements were expected in the second half of 2017 upon the completion of the planned corporate exercises.