Still the impairment seems silly. Surely the carrying value should be conservative. I don’t see other FPSO operators facing this issue. Simply means we as investors need to be wary that Bumi Armada’s FPSOs carrying values are likely overstated on their balance sheet. Especially Armada Olombendo, which is their golden goose. I shudder to think what the impairment for that would be come 2029.
Impairment means bringing the depreciation costs forward earlier hence future depreciation costs are going to be lower. Cash flow is not immediately affected negatively next few quarters before Kraken new extension contract kicks in after 1 April 2025. Armada still has about a year before the management finds new source of income though I cant see where can they find it.
A brief study of the financial deck given by Niki reveal that the "Impairment" is not what we normally understand as write down in value of the FPSO. What it is here is the adjustment needed to reflect the difference between the PV project cash value of the asset vs the NBV. The former is sensitive to prevailing capital cost ie interest rates while NBV is calculated base on the accounting policy on depreciation ie straight line. I suspect that they need to make this adjustment due to accounting convention ie has to provide for any known adverse impact. Note however that the cash flow for the next few quarters up to expiry of the Firm period will be a real shit load of cash as the Project loan for this FPSO has been fully paid up in March 2023. Even the cash flow for this project will more than during the first 7 years of the Firm period as there is no more finance cost ( for this FPSO) involved for the "Extension" period.
Whether there is any further such "Impairment" charges will depend on prevailing capital cost. However this is probably unlikely as likelihood of interest rate increases is low ...in fact it is expected to reduce...
As for why BA is still not paying any dividends even though the business has been generating loads of cash is obvious. It still has net debt of 3.65B. Also need to conserve cash for future projects. Just simple good cash management.
Big impairment at the most profitable quarter or year may have its tax benefits as it reduces the taxable income for the year. Is this one of the hidden reasons for the timing ?
Also on whether the Income tax dept recognizes this concept of PV Project cash value. If capital allowance for the asset has been fully claimed in the first few years, then the former has no impact on taxable profits
Regardless, the depreciation in the upcoming quarters will be reduced. As such, barring any unforseen circumstances, FY2024 might just be the most profitable year, with each quarter's profits above RM250mil.
Let's see where this takes us. I do believe short of a disaster, long-term investors will still be rewarded at current share price levels (assuming zero new business other than extension contracts for existing projects).
Also, I have checked in with Navigator Gas, and according to them, there will be an update on the Bluestreak CO2 JV when their Q4 2023 results are released in the 2nd half of March 2024.
Another update, the Mumbai FSRU project is officially DEAD.
There is no mention of it in the Bumi Armada investor deck, and also SP Energy has removed the project from the "ongoing projects" section of their website.
@Zonefinder, cashflows will not change due to this "impartment" as it is non-cash in nature. However, the future profits are likely to be inflated at the cost of the tanking we saw today.
Niki, the cashflow is not impacted by "impairment" or depreciation but is affected by the fact that the loan for this project has been fully paid up....the cashflow for this project in 2024 is dramatic but overall has already been projected base on the expected debt reduction for BA as a whole.
Niki, you are right...fully paid up March 2023. Kraken project wise, the full benefit cash wise is 2024. Any case, we are looking at BA not just Kraken. Accounting profits will be shitty from 2025 if we do not get new projects to offset the drop in Kraken revenue of 70% during the extension tenure.
This guy copy and paste the same statement every QR.
"Moving forward, we will continue to explore ways to enhance shareholder value, including new projects and possible corporate activities,” Christenson said.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
rohank71
912 posts
Posted by rohank71 > 2024-02-28 14:56 | Report Abuse
Karken failure has cashflow impact hence the collapse. this is just accounting impact on FA.