KUALA LUMPUR (May 14): Oil and gas services company Sapura Energy Bhd’s (KL:SAPNRG) external auditors have red-flagged the group’s ability to continue as a going concern, as its current liabilities have exceeded its current assets. 

In their audit of the group’s financial statements for the financial year ended Jan 31, 2025 (FY2025), Messrs Ernst & Young PLT (EY) issued an unqualified audit opinion with an emphasis of matter on material uncertainty related to the going concern.

According to Sapura Energy in a bourse filing, EY highlighted that the group’s and the company’s current liabilities had exceeded their current assets by RM11.25 billion and RM4.31 billion respectively as of end-January, indicating that Sapura Energy is facing severe liquidity constraints.

Among the key audit matters identified by EY was the impairment assessment of goodwill on consolidation and property, plant and equipment (PPE). As of end-January, the carrying amounts of goodwill and PPE stood at RM118.6 million and RM4.83 billion respectively, representing approximately 34% of the group’s total assets. 

The goodwill is attributed to the engineering and construction (E&C) segment. For PPE which includes vessels, these were subjected to impairment testing due to the group’s continued losses and the ongoing challenges in the oil and gas sector.

Another key audit focus was on the recognition of revenue from construction contracts, which accounted for approximately 56% of the group’s total revenue in FY2025, said EY. 

The group applies the percentage-of-completion method, using the input method to measure progress based on the proportion of costs incurred to date over the estimated total contract costs. EY noted that this method requires significant management judgement, particularly in estimating costs to complete and assessing foreseeable losses.

This marks the fourth consecutive year in which Sapura Energy’s auditors have raised a material uncertainty regarding the group’s going concern status. The concerns relate to extensions of restraining orders, the outcome of legal claims related to terminated E&C contracts, and the successful and timely implementation of the proposed scheme of arrangement (SOA), which requires the approval of at least 75% of the relevant scheme creditors at court-convened meetings.

Nevertheless, EY said that the FY2025 financial statements had been prepared on a going-concern basis, which remain valid only if the group successfully obtains the necessary approvals and completes its proposed regularisation plan by the long-stop date of March 11, 2026. 

This timeline is critical for the effectiveness of the SOA, the conditional funding agreement, and the commercial settlements related to the terminated E&C projects.

Sapura Energy has announced its audited financial results for FY2025, marking a turnaround with a profit after tax of RM190 million — its first return to profitability in six years. This compares with a loss after tax of RM509 million in FY2024, according to a statement released on Wednesday.

The group’s revenue rose 8.9% year-on-year to RM4.7 billion, while earnings before interest, tax, depreciation, and amortisation stood at RM524 million, according to the statement. 

In response to its auditors’ emphasis on material uncertainty, Sapura Energy expressed confidence in obtaining the necessary approvals for its proposed regularisation plan from both Bursa Malaysia and its shareholders. 

The company pointed to several key developments in support of this view, including the court’s sanction of its proposed restructuring scheme, and the conditional funding agreement secured from Malaysia Development Holding Sdn Bhd or MDH (a special-purpose vehicle under Minister of Finance Inc), the successful divestment of SapuraOMV Upstream Sdn Bhd, and the conclusion of various commercial settlements related to terminated contracts.

Sapura Energy said its board anticipates the company to submit its proposed regularisation plan this month, and to achieve a restructuring effective date by August, or latest by the long-stop date.

Shares of Sapura Energy were unchanged at 4.5 sen at the time of writing on Wednesday, giving it a market capitalisation of RM826.9 million.

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