KPMG flags material uncertainty for Marine & General's ability to continue as going concern

KPMG flags material uncertainty for Marine & General's ability to continue as going concern
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KUALA LUMPUR (Sept 30): Marine & General Bhd's (M&G) external auditor has issued an unqualified opinion with material uncertainty related to its ability to continue as a going concern.

In a bourse filing on Thursday, Messrs KPMG PLT drew attention to the marine logistics services provider’s net loss of RM218.88 million for the financial year ended April 30, 2021 (FY21), when the current liabilities of the group and company exceeded its current assets by RM18.64 million and RM56.48 million respectively.

“These events and conditions, along with other matters as disclosed in Note 1(b), indicate that material uncertainties exist that may cast significant doubt on the ability of the group and the company to continue as going concerns,” said the auditor.

The key audit matters are impairment of vessels, accounting for debt restructuring, and impairment of investments in subsidiaries.

M&G said it had already started the process of addressing the net current liabilities by negotiating for a financing repayment moratorium with its lenders for a period of up to nine months, which would enable the group to reduce its current liabilities by RM31 million and assist the group to meet its other obligations and plans for the next financial year.

It added that it will continue to focus on cost optimisation and stringent cash flow management, while at the same time maintain safety and quality services to remain competitive.

For the first quarter ended July 31, 2021 (1QFY22), M&G’s net loss widened to RM17.17 million from RM14.97 million a year earlier, on lower finance cost and vessel depreciation.

Quarterly revenue fell 19.3% to RM44.66 million from RM55.29 million. The group noted that this decline was in line with the lower operating level for the quarter under review, as the oil and gas industry remained weak due to shrinking demand for oil caused by the continuing Covid-19 pandemic.

As a result, oil companies have scaled back their drilling activities, which consequently affected the demand for offshore support vessel services operated by the upstream division.

M&G’s upstream division revenue fell 21.7% to RM30.2 million from RM38.55 million in the previous year. Revenue for its downstream division declined by 13.6% to RM14.46 million, from RM16.73 million previously.

“Declining demand for oil and its derivative products has also adversely affected the demand for tanker services operated by the downstream division of the group.

“Consequently, fleet utilisation for both the upstream division and the downstream division deteriorated to 59% and 66% from their respective levels in the preceding year. The upstream division continued as the main revenue contributor, generating 68% of the group revenue, while the downstream division generated the balance 32%,” said the group in a statement.

Looking ahead, M&G said the ongoing Covid-19 pandemic remains a key risk to its outlook for FY22, but the board of the group expects the pandemic-induced restrictions to be gradually lifted by 2022, which would enable economic activities to resume.

“Given this, the board remains cautious on the prospects for the current financial year. On a more longer-term basis, the board will strive to ensure both divisions remain competitive,” said its executive chairman Datuk Mohammed Azlan Hashim in a separate statement.

Besides that, the company also announced that it has triggered the prescribed criteria of Practice Note 17 (PN-17), after the shareholders’ equity of M&G on a consolidated basis fell to 25% or less of its share capital, or below RM40 million, based on the unaudited interim financial results of M&G for 1QFY22. 

“With regards to triggering PN-17, M&G will not be classified as a PN-17, in line with relief measures implemented by Bursa Malaysia, under which affected companies will be accorded relief from complying with the PN-17 obligations for a period of 18 months.

Shares of M&G closed unchanged at 11.5 sen on Thursday, translating into a market capitalisation of RM83.25 million. The stock has fallen 32.35% since the beginning of the year.

Lam Jian Wyn