SCable to go ‘back to basics’, scaling down loss-making businesses
By:Alvin Tang
Date:
2

KUCHING: Sarawak Cable Bhd (SCable) will refocus on its core manufacturing business while scaling down its loss-making construction and aviation businesses.

Managing director Datuk Ahmad Redza Abdullah said SCable had resolved to go ‘back to basics’ and become a cable centric company once again.

“The group intends to re-align its focus as a manufacturing company specialised in power and telecommunication cables and the manufacturer of steel and galvanised products.

While the cable manufacturing segment generated pre-tax profit of about RM35.8 million in FY2018, the transmission line construction segment incurred pre-tax loss of RM29 million. Photo: Sarawak Cable

“As for the construction industry, the company shall scale down its operations to a manageable level, handling smaller projects which will not place a heavy financial burden on the group.

“The aviation segment, namely the leasing business of our helicopters, shall be scaled down even more and we anticipate the disposal of several helicopters while maintaining only a small fleet which have long-term dry leases,” he added in the company’s 2018 annual report.

SCable’s earnings have been negatively impacted by the losses incurred in its construction and aviation businesses.

In financial year ended Dec 31, 2018 (FY2018), SCable group revenue fell 22.9 percent to RM789.5 million from RM1.02 billion in FY2017 while group’s pre-tax loss widened to RM33.2 million from RM25.6 million year-on-year.

While the cable manufacturing segment generated pre-tax profit of about RM35.8 million in FY2018, the transmission line construction segment incurred pre-tax loss of RM29 million. The power generation, aviation services and corporate segment recorded pre-tax loss of about RM26.1 million.

Ahmad attributed the consolidated losses recorded in the financial year under review to:

* further losses incurred by construction unit with additional and prolongation costs, including liquidated ascertained damages (LAD) suffered in wrapping up a project on hand (Pengerang transmission line and substation project) during the year;

*further losses incurred by aviation unit due to insufficient contract and sales secured to support its high operating cost, coupled with some impairments, and

* cost over-run for the mini-hydro power plant’s construction works in Indonesia, which is now due to complete by mid-June 2019.

He said the 275kV Pengerang transmission line and substation project had suffered substantial losses and the group was weighed down by various unforeseeable circumstances which had resulted in delays for the completion and handing over of the project.

“Be that as it may be, all parties managed to achieve a soft landing to ensure the completion of this project whilst addressing matters such as LAD and variation orders in a final settlement.

“The project is finally at a close and we have been issued with all Taking Over Certificates (TOC),” he added.

Ahmad said the decision to scale down the construction business was to prevent any repetition of such losses like Pengerang project.

“Our experience has let us to conclude that with only razor thin margins in this segment yet laden with a multitude of risk permutations, SCable should channel its energy and resources towards its original core business of manufacturing.”

Going forward, Ahmad said the construction segment’s strategic focus would be mainly on the stringing and erection works for transmission lines where prudent policy had been  sanctioned for more effective cost management.

On the disappointing performance of the aviation business, he said SCable’s board of directors had, on the advice of the management, elected to scale down its operations.

“This entails the disposal of three helicopters namely one unit H125 and two units of H135. We believe that this will not just reduce our borrowings substantially but also our operating costs.

“We hope to achieve the sales of these helicopters in the upcoming months.”

Ahmad said for the existing long-term lease of five helicopters with the Defence Ministry, SCable intends to see through the lease period as it remains profitable.

Upon expiry of the leases or extended leases, he said the company had proposed to also sell these helicopters.

“A substantial part of the losses of this (aviation) segment is attributable to the idling and inability to lease the H225 helicopter.

“Now as it achieves air-worthiness, we are channelling substantial efforts to procure a long-term lease of this unit with the help of reputable aviation consultants. We are confident that we will procure a lease in the very near future.

“This will leave our aviation segment as a much-reduced liability and in turn convert it into a profit centre, albeit on a much smaller scale than initially projected.”

On the 10MW hydro power plant project, Ahmad said once it is fully operational, it would generate a stream of recurring income as the plant has a 20-year power purchase agreement with Perusahaan Listrik Negara (PLN).

On the group’s power cable and telecommunication manufacturing business, he said the segment recorded a 24.8 percent drop in turnover to RM667.6 million in FY2018 (contributes 84.6 percent to group revenue) from RM888 million in FY2017 (86.7 percent) due mainly to lesser requirement from Tenaga Nasional Bhd (TNB).

He said the other factor was the unexpected delays in mega infrastructure projects nationwide after the 14th General Elections from mid-2018 onwards.

In FY2017, higher sales was generated from the extraordinary order from TNB for an enhanced product – trapezoidal shape aluminium conductor (TACSR) – for the latter’s 500kV transmission line in Peninsular Malaysia.

In current FY2019, Ahmad said SCable expects TNB to increase its power cable’s requirements.

“We also plan to intensify our efforts to increase our export sales in the hope of boosting the group’s cable sale growth continuously.”

On the group’s galvanised products and steel structures manufacturing business, Ahmad said SCable had upgraded the existing aging machineries, including replacing a new galvanised kettle.

“Now with the upgrade galvanising facility in place since February 2019, along with the soon-to-be installed additional and dedicated guard rail production line, we anticipate much higher sales delivery during the coming year to timely pay back our machines’ investment.”

According to Ahmad, the proposed Sarawak rural electrification scheme, construction of more telecommunication towers, proposed Second Trunk Road as well as upgrading of coastal roads and bridges would augur well for SCable.

“We have logistic advantages in exploiting great opportunities arising from the forthcoming demand for steel and galvanised products within the next two to five years.

“We will continue to invest and modernise our facilities, production capabilities to ensure that we are well placed to capitalise on these existing opportunities,” he added.

Going forward, Ahmad is upbeat on SCable’s performance.

“We certainly foresee brighter prospects in Sarawak for the group from 2nd-half of 2019 and into 2021 with spin-off demands for our manufacturing products, such as power cables, highway guardrails, steel poles, street lighting columns, steel bridges and components and telecommunication towers.

“Looking at our optimistic current group order book on hand of more than RM700 million, mainly from our cables sales, I am confident that our cable sales will outperform its forecast for 2019,” he added.

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