CEO says recovering unit Borsig helping to bring down debt level
Process equipment manufacturer to the oil and gas industry KNM Group Bhd expects the company's debt levels to fall further as unit Borsig GmbH is doing better now.
KNM chief executive officer and executive chairman Lee Swee Eng said the company's overall debt levels (at RM1bil) were coming down now as Borsig was doing well.
The company's plans to use Berlin-based Borsig, which was acquired in early 2008 for RM1.7bil, to expand business was somewhat derailed following the global economic recession, which saw oil prices drop as low as US$33 a barrel from over US$147.
Since then analysts and fund managers have been concerned about KNM's ability to pare down debt.
This was made obvious when KNM's share price fell to a nine-week low of RM2.43 last Thursday after the company's net profit for the fourth quarter ended Dec 31, 2010 tumbled 63.99% to RM20.63mil from a year ago while revenue was 7.75% lower at RM384.23mil.
For the full year, the company posted a net profit that was 49.64% down at RM131.20mil from revenue that fell 15.24% to RM1.55bil on lower job orders, lower contribution margins and higher operating costs.
“I don't understand the concern really,” Lee told reporters yesterday following a road show by Germany Trade & Invest to showcase the soon-to-be-completed Berlin Brandenburg International Airport, which would serve as a catalyst to draw more investments and business travellers from Asia to Germany's eastern states.
He said the high fixed costs were related to the business but that the company's finances would see ups and downs due to falls in margins.
“Nevertheless, the industry we're in is always strong and sustainable,” Lee said, adding that the company's orderbook now stood at RM4.5bil versus the pre-Borsig acquisition high of RM3.5bil, and a net cash in hand of RM296mil.
Lee declined to comment on whether there were any renewed plans to take the company private after a deal by Mettiz Capital and GS Capital Partners VI Fund LP, a Goldman Sachs unit, at 90 sen a share fell through.
OSK Research analyst Jason Yap said in a report dated Feb 25 said the tax incentive the company has been enjoying for the past two years would continue to play a big role in the future.
He said the company's fourth quarter earnings were lifted by a tax incentive (which was supposed to enable the company to price its products more competitively and make gross margins that were one to three percentage points lower) of RM14mil.
Yap said KNM's current orderbook “should keep the company busy for the next two years”. The company's tenderbook on the other hand, stood at more than RM16bil.
