Cashflow for FY2019 will be stronger with higher expected uptime for Kraken.

Enquest's announcement:

https://www.enquest.com/operations/kraken

2018 production for Kraken - 21k boepd
2019 expected - 30-35k boepd

On debt restructuring, think about it, who are Bumi Armada's bankers.

These are probably the same set of bankers that lends to Maxis, Astro, Tanjong (TGV Cinemas) that all belong to Ananda Krishnan.

Do you really think they will call the debt and push Bumi Armada to bankruptcy unless absolutely necessary? Has Bumi Armada ever defaulted on a single payment yet since inception? The answer is absolutely no, because it doesn't make sense at all.

A company that goes to bankruptcy usually have these 3 key traits:

1) Defaulted multiple times on interest/principal repayment
2) Low asset utilization with low and unstable cashflow
3) Weak major shareholder

None on the above applies to Bumi Armada.

Also, on the issue of "potential RI" - see Maybank's report.
They have ruled out any possibility of RI.

Hope you guys didn't panic sell at 0.16.

I just read the CIMB research report.
I think Raymond Yap is taking a lot of flak from hedge fund managers for u-turning on his calls.
He wrote a fairly long piece on Bumi Armada.
Sadly, the more he writes, the more he loses his credibility.
He uses a lot of language saying that "this is just pure CIMB's assumption / speculation, BA didn't say this/that".
Right after he published his writing, Armada increased +8.5%.

I'm also very curious who is this "UTSB corporate finance manager".
Looking forward to "5pm announcement" by YAB Pearlwhite VVIP. Lol.

Cashflow doubled, share price increases.
Impairment is nothing but a paper figure.
Institutional investors saw through that bullshit.
Cash is king.

Seems like institutional investors see through this impairment bullshit.

Cash flow is king.
It’s undeniable fact that Armada’s cashflow doubles to RM1.1bn, and still has RM1.2bn cash on balance sheet.

The debt issue is just a technical issue - they got reclassified from LT to ST because Kraken did not receive acceptance last time. Also, because of impairment paper loss, they breached a financial covenant ratio then the long term debt is immediately classified as short term and repayable in the next 12 months.

Kraken already received full acceptance. Impairment has no real impact on day to day operations at all - so I’m sure that’s will get solved.

No need to pity Leon Harland, nasaie24.

Leon Harland is just not CEO material.

He could be a good SVP in FPSO, or a COO, but not a CEO. He is a producer, not a manager.

The CEO should be an all-rounded individual, who's able to communicate well with all key stakeholders - the board, the company, investors, analysts, media etc.

Armada wrongly brought on a COO material person and made him CEO 2 years ago.

I am actually very happy that he gets sacked.

To me, this is the biggest improvement to Armada, aside from the major improvement in cashflow generation.

Creditors will not force Armada to go into bankruptcy, because it will take 3-4 years in the courts before they could get anything back. It is an infinitely better option to let Armada to continue to operate the vessels, and continue getting interest. Armada has not yet defaulted on a single interest / principle repayment in the history of the company.

So, the next 3 months (till end Jun 2019) will be the last straw i guess.

If there are anymore excuses by management that "debt refinancing is still in progress" by then, then I will sell.

Best of luck everyone!

To be fair, Leon did OK operationally (just not very good in communicating with investors).

Operating cashflow doubled in 2016-17 and then doubled again from 2017-18 to RM1.1bn.

Note that interest expense has been included, so basically at Armada has RM1.1bn to repay debt annually at the current run-rate.

In 2018, we see that debt was pared down from 11.5bn to 10.4bn.
Cash on balance sheet is 1.2bn.
So net debt is 9.2bn.

At RM1.1bn cashflow generation per year, it will take Armada 8.3 years to repay all debt.
This is roughly within the firm contract period.

So just need to refinance debt to 7-8 years to remove the significant mismatch between debt tenure and cashflow generation.

Bring Tunku Ali (Chairman) into the discussion with bankers to lend more heft in negotiations.

The CFO would be very happy.
Bite the bullet now for kitchen sinking, lower depreciation charge for next year.
Come May AGM - net profit again and ask for management incentive plans.
Haha, I look forward to seeing Gary. US guy, probably talks a lot more.
Goodbye Leon Harland - the guy I've been scolding on this forum for this past year.
As I've always said - the biggest problem with Armada is not debt, but it's management.

If you work in corporate finance, you will know that the calculation of "expected economic benefits" is all bullshit.

It all depends on what WACC you use.

Auditors basically take a bunch of trading comparables to estimate WACC.

They also have this thing called the alpha - basically this is based on their judgment, they can +1/2/3/4/5% to the WACC to bring the enterprise value down. When Armada's share price is so battered down, leading to such discrepancy between market cap and book value - to cover their ass, auditors just add a few % to the WACC, and then discount the "expected economic benefit" back to present value - then magic, you have the "impairment figure".

This is practically how it is done, for those who don't work in finance.
It's entirely a sentiment based, judgment call.

I reiterate, look at CASHFLOW.
that is the only thing that management and auditors cannot fudge.
Cash is king.

I've done my accumulation when it was 0.15 in Jan.
Didn't sell when it was 0.255, so certainly not selling now.
Hold until Jun 2019 - there will be lots of changes coming.

1) Debt restructuring should complete by then - this can't drag on forever.
2) Armada Claire will announce outcome - US$284m is equivalent to an instant RM0.20 cents uplift.
3) New CEO will come on board in May 2019. I hope this new CEO knows how to communicate with investors better. I bet you Leon Harland is so ashamed he won't even turn up during the AGM, haha.

Great results.

1) Cashflow from operations (after interest expense) doubled from RM564m to RM1067m
2) As a result, debt reduced from RM11.5bn to RM10.4bn
3) Debt restructuring is expected to go through (Note 21)
4) Favorable outcome for Armada Claire is expecetd (Note 25)
5) Removal of useless management, Leon Harland. Things will start to kick up from here.

Usually, this is what a new CFO will do to show that he has done something.

He will recommend the board to "bite the bullet" and take a heavy impairment charge as "kitchen sinking exercise".

Then in FY2019, Armada's next few QR will show net profit, and it looks like he has done something good and be rewarded.

So remb, it's all about personal gain and money. No one cares about anyone else anyway, lol.

It really doesn't matter what is the impairment figure, if any.

In fact, it's better if they impair all at one shot - RM 1 to 2 billion impairment would be great.

This will bring down the depreciation charge from 2019 onwards, so investors will start to see the "green net profit" they like so much and call this a "turnaround" and "profit growth".

Although in essence, all of the above are just accounting magic.
There's no real impact to cashflow and the actual business operations at all.

Look at the cashflow from operations when the next QR is released - that's the most important thing to Bumi Armada. Net profit, impairment bla bla, all can be fudged - depending on accounting recognition methods.

Operating cashflow (after interest expense):

FY2016: US$65m
FY2017: US$139m
Sep 2018 trailing 12 months: US$271m.

As you can see, the actual cashflow generated from operations of Armada has doubled from 2016-2017, and then doubled again in LTM Sep 2018. This is the result of the 4 FPSOs coming online.

As there will not be much capex going forward based on Armada's status quo, the company is basically generating US$271m in cash per year that can be used to pay down debt.

The total debt is around US$2.8bn, so at the current run-rate it takes about 10 years for debt to clear.

Armada's average firm contract period is around 7-8 years, with optional contract period another 7-10 years.

While critics may say that the firm contract period of 7-8 years is shorter than the 10 years required to pay back debt, and hence the company is technically insolvent, that's not quite correct.

If Armada has no new projects for the next 5 years and is focused on paring down debt, it can halve the debt in 5 years time and the balance sheet will be strong enough to take on new FPSO projects by then. Also, in 5 years time, there will be additional cashflow generation from the current lagging OMS section. I believe the O&G sector would be in an upcycle again in 5 years time.

Also, not to forget, I think with the exception of Kraken, Armada's other FPSOs have pretty good performance and the clients are likely to go on with the optional period. Case in point - the Vietnam TGT-1 recently got extended by 6 years into the optional period.

From a big picture basis, this is the main reason why I'm still holding Armada, although I really hate the current management team in their communication methods. At least, the brought the 4 FPSOs online and quadrupled operating cashflow from US$65m to US$270m in the past 2 years.

So, make your call when the QR comes out.
Remember, look at the cashflow statement - the operating cashflow in particular.
Green or red, impairment or not, these are all paper numbers.
Cashflow is king.

lol, that was sarcasm.

So much speculation, rumours haha, but no one seems to be able to provide any specifics so far.
maybe i shall play along with the rumour train too.

Buy! my neighbor auntie's daughter's nephew has received the good news!

What bad news?

As mentioned earlier, shorties will have the upper hand as the buyers are sitting on the sideline until QR is released. It will continue to face downward pressure / trade range bound at best before QR is released. Institutional buyers are just reluctant to go in big before QR.

So for those short term punters / day traders, now's not the time to go in yet if you're unsure how the QR will turn out. It will continue to face pressure from shorties / worry-sellers.

As for myself, I'm just gonna hold till June 2019.

Ah, found it in Q2 2018 report, Page 13.
Seems like they have already recognized the compensation payable to Enquest in Q2 2018 numbers.

---

The Group posted revenue of RM654.0 million for the quarter ended 30 June 2018 (“Q2 2018”), an increase of RM53.7 million compared to the quarter ended 31 March 2018 (“Q1 2018”). This increase was attributed mainly to the following:

(a) FPO revenue was lower due to recognition of compensation payable to the charterers of Armada Kraken FPSO in accordance with Amendment Agreement No. 2 and lower contribution from the Armada LNG Mediterrana Floating Storage Unit.
(b) OMS revenue increased due to higher contribution from the LukOil project in the Caspian Sea. The OSV vessel utilisation was lower in Q2 2018 as compared to Q1 2018. OSV vessel utilisation continues to be adversely affected by the challenging oil and gas market environment with a utilisation of 38% for the Group’s vessels and 39% for the Group’s vessels including those held by joint ventures in Q2 2018.

---

Thanks superpanda. Yeah i vaguely recall that the one-off penalty of US$15m to Enquest has to be paid by 17 Dec 2018 or something from the earlier AA2 agreement announcement. However, not quite sure whether they have already done the provision for this in Q3 2018 - there was no breakdown on the Kraken impairment charge of >400m earlier - this could be part of it.

The strong cashflow generation over time is also the reason why management has emphasized again and again that there will be no need for RI. The only scenario that I see could trigger an RI is that the short term debt cannot get restructured, and BA runs into a cash crunch. But even in that situation, going for an RI will take at least 3-4 months to execute, with all the regulatory and shareholders approval etc. The debt needs to be repaid or restructured latest by May 2019. Now is already almost March 2019. With the current timeline, I would say it's one month too late to issue an RI to get the money in time in May 2019. Hence, an RI is extremely low probability as the means to raise cash.

Raising cash at this share price is useless.

There is no point in pursuing new projects at this point.

Focus on using the strong cashflow generation to pare down debt and increase equity value - this will push share price back up.

After 2-3 years, when debt is lower, share price is higher and O&G market is at its peak again, then only BA should do an RI to pursue new projects.

This is probably the gist of the internal memo that Leon Harland sent to employees.

Instead, investors who got access to the memo only see the word "debt" and "limited ability to pursue new projects" and freaked out, tanking the share price.

There is nothing bad at all in not getting new projects. At this point of the O&G cycle, any new FPSO project will tend to have very tight pricing. Banks are not that convinced in increasing their exposure as well to new O&G projects and tend to charge a higher interest rate for project financing. Correspondingly, new FPSO projects awarded now probably has a high single digit IRR at best.

As you can see, don't get fooled by the net income number, there are so many non cash items such as depreciation and amortization, asset writedown, provision, impairments.

Even your stock based compensation expense (i.e. free incentive shares) for Leon Harland and team is included in the net income number, but these are all paper expenses, not real cashflow.

I reiterate, cash is king. Look at cashflow, don't look at net income alone.

InvestorKING, it's obtained from S&P Capital IQ and Bloomberg.
I use it in my course of work in corporate finance.
Here's the calculation breakdown for you:

---

FY2016
(in USDm)

Net Income (438.8)

Adjust for non-cash items and changes in working capital:

Depreciation & Amort. 115.2
Other Amortization 12.0
(Gain) Loss From Sale Of Assets (0.9)
(Gain) Loss On Sale Of Invest. (6.5)
Asset Writedown & Restructuring Costs 387.6
(Income) Loss on Equity Invest. (17.3)
Stock-Based Compensation 0.5
Provision & Write-off of Bad debts 20.4
Other Operating Activities (71.7)
Change in Acc. Receivable 43.1
Change In Inventories (0.1)
Change in Acc. Payable 21.8
Change in Other Net Operating Assets -


= Cash from Ops. 65.3

---

FY2017
(in USDm)

Net Income 86.6

Adjust for non-cash items and changes in working capital:

Depreciation & Amort., Total 129.7
Other Amortization 11.7
(Gain) Loss From Sale Of Assets (23.3)
(Gain) Loss On Sale Of Invest. (1.4)
Asset Writedown & Restructuring Costs -
(Income) Loss on Equity Invest. (40.4)
Stock-Based Compensation 1.7
Provision & Write-off of Bad debts 0.4
Other Operating Activities 26.1
Change in Acc. Receivable (34.5)
Change In Inventories 0.4
Change in Acc. Payable (18.3)
Change in Other Net Operating Assets -


= Cash from Ops. 138.9

---

Last twelve months Sep 2018

Net Income (235.8)

Adjust for non-cash items and changes in working capital:

Depreciation & Amort. 123.4
Other Amortization 11.5
(Gain) Loss From Sale Of Assets (7.6)
(Gain) Loss On Sale Of Invest. (3.4)
Asset Writedown & Restructuring Costs 251.8
(Income) Loss on Equity Invest. (33.0)
Stock-Based Compensation 1.4
Provision & Write-off of Bad debts 6.4
Other Operating Activities 44.1
Change in Acc. Receivable (59.7)
Change In Inventories (0.5)
Change in Acc. Payable 50.1
Change in Other Net Operating Assets 122.0


= Cash from Ops. 270.7

---

Look at the cashflow from operations when the next QR is released - that's the most important thing to Bumi Armada. Net profit, impairment bla bla, all can be fudged - depending on accounting recognition methods.

Operating cashflow (after interest expense):

FY2016: US$65m
FY2017: US$139m
Sep 2018 trailing 12 months: US$271m.

As you can see, the actual cashflow generated from operations of Armada has doubled from 2016-2017, and then doubled again in LTM Sep 2018. This is the result of the 4 FPSOs coming online.

As there will not be much capex going forward based on Armada's status quo, the company is basically generating US$271m in cash per year that can be used to pay down debt.

The total debt is around US$2.8bn, so at the current run-rate it takes about 10 years for debt to clear.

Armada's average firm contract period is around 7-8 years, with optional contract period another 7-10 years.

While critics may say that the firm contract period of 7-8 years is shorter than the 10 years required to pay back debt, and hence the company is technically insolvent, that's not quite correct.

If Armada has no new projects for the next 5 years and is focused on paring down debt, it can halve the debt in 5 years time and the balance sheet will be strong enough to take on new FPSO projects by then. Also, in 5 years time, there will be additional cashflow generation from the current lagging OMS section. I believe the O&G sector would be in an upcycle again in 5 years time.

Also, not to forget, I think with the exception of Kraken, Armada's other FPSOs have pretty good performance and the clients are likely to go on with the optional period. Case in point - the Vietnam TGT-1 recently got extended by 6 years into the optional period.

From a big picture basis, this is the main reason why I'm still holding Armada, although I really hate the current management team in their communication methods. At least, the brought the 4 FPSOs online and quadrupled operating cashflow from US$65m to US$270m in the past 2 years.

So, make your call when the QR comes out.
Remember, look at the cashflow statement - the operating cashflow in particular.
Green or red, impairment or not, these are all paper numbers.
Cashflow is king.

According to Pearlwhite:

"7 years to go or 28 Quarters to go. RM80 million net profit per Quarter optimistic assumption. That means RM2.24 billion in profits.

It is enough to pay off the RM12 billion debts (excluding interest)?"

---

This is exactly the type of retail investors that mistake net profit with cashflow that i was talking about.

Net profit is not equal to cashflow.

Armada's net profit, according to Pearlwhite, is RM80m per quarter, or RM320m per year.
Armada's operating cashflow (after paying interest expense) is US$270m per year, or RM1.1bn, 3.5x more than net profit.

So the answer is yes, Armada will be able to repay its debt over time.

BAB's Leon Harland just needs to explain better in their cashflow generation capability to the investment community. He seems like a very technical and operational guy that's not very well-versed in explaining financial stuffs. This has led to the share price being very unduly punished, although cashflow generation has quadrupled from US$65m to US$270m in the past 2 years.

Look at BAB's cashflow generation which is very defensive regardless of oil price fluctuation, as FPSOs charter rates are fixed over the contract period. There will be no problem meeting interest expense and gradually repaying debt over time. The only risk is that oil price going back to US$20 per barrel and BAB's client could potentially default on payment. At US$60-70 per barrel, client default risk is a non-issue. The same clients also did not default when oil price was around US$20-US$40 a few years ago, they certainly will not default now.

Maybe BAB's management should widen the net and ask more banks to refinance its current debt (Chinese banks like BOC for example, are very aggressive in growing their loan book). No point going back and forth with its current set of short term debt bankers who keeps dilly dallying in restructuring the debt, just refinance it with another bank.

Piecing all the above together, I conclude that BAB is currently severely oversold because the debt fears have been blown out of proportion, and management has been quite poor in managing investor sentiment.

I guess only time will tell. I will hold until June 2019.

That's okay, it's an opportunity to accumulate if it's a red QR for whatever reason.

The knee jerk reaction provides the perfect buying opportunity.

Sooner or later, the institutional guys who look at actual cashflow will come in and correct the price.

Armada has been the most actively traded / liquid stock on bursa for quite a few months now, so opportunity for price correction will be aplenty, swift, and quick.

However, if it's a green QR, it just makes the price recovery faster and more convenient.

Somehow I'm hoping for a strong red QR (kitchen sinking) and the subsequent knee-jerk reaction to push it down back to RM0.15, then it creates the opportunity to double down at a dirt cheap price. Fingers crossed.

EPF and PNB will not subscribe, because they still will not have control over BAB.

This is unlike Sapura, where PNB now controls 40% and calls the shot.

UTSB will still be controlling the management team and board of directors.

Look at the UTSB team, so complacent getting comfortable salary from AK.

AK, sadly, has past his prime and is too hands off his businesses in Malaysia, relying on the UTSB team to run his businesses.

In essence, UTSB calls the shot behind the scene. They hire/fire management, decide who gets appointed to the board of directors. Look at PNB and EPF - do you see any nominees from either organization on the board? These are pure fund managers who passively invest.

No one will subscribe to RI at 13 sen when share price is at 15 sen.
They need to get buy in from UTSB, PNB and EPF.

S&P Capital IQ

That's from Jefferies report quoting upstream online.

Top 15 shareholders holding almost 80% of shareholding:

Objeklif Bersatu Sdn Bhd 34.9%
Permodalan Nasional Berhad 13.1%
Employees Provident Fund of Malaysia 7.1%
Karisma Mesra Sdn Bhd 4.0%
Norges Bank Investment Management 3.5%
Great Eastern Life Assurance (Malaysia) Berhad, Insurance Investments 2.8%
AIA Investment Management Private Limited 2.7%
Kumpulan Wang Persaraan 2.2%
Ombak Damai Sdn Bhd 2.1%
The Vanguard Group, Inc. 1.9%
Wijaya Sinar Sdn Bhd 1.3%
New Silk Road Investment Pte Limited 1.2%
Lembaga Tabung Haji 0.9%
Wijaya Baiduri Sdn Bhd 0.8%
Yayasan Hasanah, Endowment Arm 0.6%

They keep bidding this and that, solved the debt restructuring issue or completed partial sale of FPSO assets?

Jefferies Report (quoting upstream online):

At least four local contractors are preparing to compete to supply an FPSO vessel for Petronas Carigali’s Limbayong oil and gas field development off Sabah. These are MISC (MISC MK, Buy, RM6.96), Yinson (YNS MK, Buy, RM4.08), M3Nergy and MTC. Upstream also reported that Bumi Armada (BAB MK, Hold, RM0.225) was competing for the project.

JP Morgan Report (quoting upstream online):

Bumi Armada – Shapoorji Pallonji emerges as sole bidder for ONGC’s KG-DWN-98/2 FPSO; MISC
among potential candidates. Bumi Armada – Shapoorji Pallonji grouping is thought to have emerged as the sole bidder for ONGC’ tender for the provision of a FPSO vessel for its KG-DWN-98/2 project after the other key contender Modec pulled out of the tender process. Earlier, SBM Offshore had dropped out of the project.

However, it is believed to be unlikely that ONGC will abandon the FPSO tender process, even though the tender attracted just one bid. ONGC is also believed to show renewed interest to pre-qualify two new players to expand the list of FPSO bidders, with MISC and Bluewater cited as potential candidates. However, considering the tight schedule, the two players are unlikely to have joined the tender process.

Shortsellers wil prevail now that buyers are on the fence until QR is reported.
Simple as that, it will continue to go down until QR / new development comes out.

If can't hold until June 2019 at least, then should sell, else can't sleep at night.
The fear of a red QR will continue to put pressure on the stock until QR is released.
Based on the pattern of Armada's management - usually no news is bad news.
They hide hide hide, then throw a bomb when they're forced to report.
This time round, probably not impairment, but dunno what other hidden bombs they want to throw.
Always got some shit things happening.
Always say nothing nothing nothing working on it working on it working on it, when u force their mouth open, it's full of shit.

If Armada really goes bankrupt in the end, I think all the management and board of directors could be charged with criminal breach of fiduciary duty for not reporting key developments until it is too late. But as usual, this is Malaysian market, very poorly regulated, hence management and BoDs can do whatever they want, and minority shareholders have no say.

Impairment is just on paper anyway, it has no impact on cashflow and real underlying economics.
the most important thing is operating cashflow.

Even in Q2 and Q3 2018, operating cashflow is positive and has been growing overtime as the 4 FPSOs come online.

In fact, when Armada announced a large impairment in Q4 2017, it had no impact on share price at all, and share price gradually went up thereafter.

Don't be too hung up on impairment, it really doesn't matter at all. Zero real world consequences.

Also, I don't know what's left to impair.

The thing is, what is left to impair?
They have already impaired Kraken & 70% of undeployed OSV fleet to market value.
The 30% of OSV that are deployed wasn't impaired.
So, those who mentioned RM1bn impairment, what specifically?

The dice is rolling.

It's in a 1 or 0 binary mode now.
Green QR, straight to 0.25-0.30+
Red QR, back to 0.15-0.20

Lol, reminds me of the roulette table.
Who wins in the end? The brokerage house (casino). Haha.

Management team, it's really time to show some results.
You guys have not been performing at all in the past 12 months.
I know you guys track this forum - especially you, Jonathan.
The next 3 months is your last chance.
No more slacking, wake up, please.

You mean Armada will have a very low probability of getting a green QR? Why?

I just wonder, if Armada posts a green QR with return to profitability, will we see a Dayang?

So, again, if your concern is about debt restructuring and RI, then don't worry, just hold or buy more.

If your concern is about poor management and their inability to execute, then I agree that you should sell. This is the biggest risk, not debt, not RI.

The price dropped 20% from 0.25 to 0.20 because of this resurfaced RI rumour perpetuated by CIMB. I think the analyst is probably pissed at management and Jonathan because they are so secretive and not willing to share any developments. In his report, he described management as "awfully quiet". While I don't agree with his TP cut, I can fully agree with his views on management.

There's not going to be RI at this share price.

If they wanted to do RI, they would've done it earlier when share price was around RM0.80+ and get 4-5x more money.

Management clearly knows that they would have impairment charges in Q2 and Q3 2018, that's when the share price tanked from RM0.80 to RM0.15.

There's no logic for them to announce 2 large impairments, and then only do RI at such a low price.
Well, I guess although management is lazy, passive and secretive, they are not stupid and retarded at least.