KUCHING: Sarawak Cable Bhd (Scable) has not been able to fully capitalise on the strong market demand for power cables because of the company’s insufficient working capital.
According to its newly appointed group chief executive officer (CEO) Russell Walter Boyd, while the group has seen strong demand from the market in terms of cables, it has faced difficulty in fulfilling these orders due to disruptions caused by the group’s on-going financial restructuring.
He said insufficient working capital has resulted in low production of the group’s cable and wires segment as evident by the segment’s lowest absolute revenue contribution over the last five years in financial year ended May 31, 2023 (FY2023).
“This sub-optimal production utilisation has resulted in an inability to offset fixed and operating costs,” said Boyd in Scable’s 2023 annual report.
In FY2023, the segment recorded sharply lower revenue of RM462 million as compared to RM782 million in FY2022, or down by 41 per cent. The segment contributed the bulk or 84.4 per cent to group revenue of RM547.9 million in FY2023 (FY2022: RM819.9 million).
In FY2023, the group saw a 40 per cent increase in its cable and wire order book to RM663.6 million in FY2023 against RM474.9 million in FY2022. Year-on-year, the segment’s gross profit shrank by RM1.2 million in FY2022 to a gross loss of RM10.5 million in FY2023, driven by the low levels of utilisation at its manufacturing factories, particularly Universal Cable (M) Bhd.
“For the first time in five years, our order book exceeded our revenue, a ‘book to bill’ of 1.2x for FY2023. As we resolve the group’s current financial restructuring programme, we expect a return to normalcy in which we have the appropriate level of working capital.
“Adequate working capital will allow for rapid conversion of our order book, causing revenue to return to historical levels of book-to-bill ratios,” he added.
Scable, a PN17 company, held a court-convened meeting with its creditors here on Sept 26, 2023. Boyd said out of the 10 debt settlement schemes, eight were approved by the creditors while two others were not passed.
He said Scable continues to engage actively with its creditors to ensure that the group has a robust restructuring plan to support its go-forward growth aspirations.
At the group level, Boyd said Scable has implemented a series of cost efficiency and production maximisation initiatives, including staffing improvements, energy usage reviews, production streamlining and innovations to mitigate the effects of low utilisation in production capacity.
“To fully reap the benefits of these initiatives, we have set up a new internal division tasked with execution of Special Projects such as these. We have launched these initiatives under the group-wide banner of #makeItBetter and #makeItCount.”
Boyd said Scable remains committed to research & development (R&D) and to stay in the forefront of cable technology development.
“One example of these recorded advancements are the High Temperature Low Sag (HTLS) overhead conductors. The project was successfully enlisted in TNB (Tenaga Nasional Bhd) Grid Product Pre-Approved List for HTLS under the abbreviated overhead conduction name ‘ACFR Bison.’
“We are proud to announce our successful collaboration with TNB and Tokyo Rope International on the technical paper write-up of “Field Evaluation of High Temperature Low Sag Conductor with Composite Core” presented at CIGRE International Colloquium in Sendai, Japan in September 2023,” he added.
ACFR (aluminium conductor fibre reinforced) is developed by Tokyo Rope International Incorp.
“ACFR can carry double the ampacity while maintaining a similar weight profile. This innovation is a game changer in the industry for both transmission line upgrading and uprating activities.
“Our HTLS technology also presents the most similar handling and usage of fitting profiles compared to conventional ACSR (aluminium conductor steel reinforced). These features perfectly align with TNB’s goals of cost and power efficiency for our national grid. To-date, we are the only manufacturer capable of producing HTLS-ACFR conductors in Malaysia,” said Boyd.
Looking forward, he said Scable foresees a huge push from the federal government to upgrade the country’s transmission and grid infrastructure as this will be critical to support the increasing electronification and transportation and creation of electrical charging infrastructure.
“Our rapidly expanding order book is a testimony to these emerging trends, with Malaysia positioning itself to depart from fossil fuel usage as a medium of energy transportation and usage.
“We are optimistic that the (company’s) cable and wires segment will return to profitability in the financial year ending May 31 2024, ramping up production to serve the nation’s increasing power demand,” said Boyd.
On Scable’s other businesses, Boyd said the plan is to streamline the operations of non-core divisions.
“We are in the midst of disposing and/or winding down our aviation and power generation verticals, having finalised the sales of our helicopters and the mini hydro power dam in Indonesia.
“Additionally, we are currently restructuring our transmission lines segment, focusing on a low-risk and low-volatility model for the department.”
For the steel and galvanised products segment, Boyd said Scable will pivot the business away from reliance on large “feast and famine” project businesses and focus on high-mix, low-volume business customers in which the revenue profile is more sustainable with better margins. This change aims to capture the largely underserved domestic market, simultaneously increasing operating margins and factory utilisation. “As the largest galvanising production facility in Sarawak, the group stands to rapidly capture the market share,” he said.
On the group’s transmission lines and construction business, Boyd said as part of the group’s reorganisation and turnaround strategy, “we aim to reduce exposure to the volatility of earnings represented by this segment. Additionally, we seek to reduce management focus required to manage this segment and to instead concentrate on our core business activities.”
Looking ahead, Boyd said the future looks bright for Scable with several positive market developments acting as catalysts for growth.
“We expect three main pillars to support growth in the group’s addressable market, specifically the component of renewable energy (RE) in the New Energy Transition Plan (NETR). The market is developing towards energy connectivity throughout ASEAN, alongside on-going national grid upgrading works.
“The NETR plans calls for Malaysia to generate 31% of national energy for renewable sources by mid-2025. Oftentimes, the sites for renewable energy generation are located in remote areas. Ensuring connectivity to the grid is of utmost importance, a pivotal role that SCB is proud to fulfil.
“In addition to national grid connectivity, the government of Malaysia has embarked on several high-profile commitments with its counterparts in ASEAN to create a more connected region. This include trading energy to Thailand and Singapore as part of smart load balancing between the countries.
“Effectively completing this plan will require both increased regional connections as well as investment into the national grid, especially for high voltage throughput. Under the 12th Malaysia Plan, TNB has committed to investing RM21 billion throughout 2021-2014 to modernise the national grid and support the growth of businesses across Malaysia.
“With growing market tailwinds for Scable and increased access to suitable levels of working capital used to complete an ever-going order book, we remain optimistic for the future business prospects of the group,” added Boyd.
