Screenshots

TM:
"A: What is not told is that Proton had borrowed from ABN AMRO a sum of €70 million for capital injection into MV Agusta for the shares.

So, when it sold MV Agusta for€1, ABN AMRO would execute the cash deposit that Proton had placed with the bank as loan collateral.

So, Proton will be poorer by €70 million -- that translates to about RM328 million.

In other words, cash will leave Proton."

This is not such a shocking revealation.

It is not clear at all from TM whether this EURO 70 million referred to the loan taken up for the acquisition of MV,or further fund borrowed and injected into MV as equity capital after the takeover.

But it does not really matter as this was fund committed by TM's management for the takever of MV,and it is a liability undertaken by his management.

Unless and until MV can make profit,and generate cash payback for Proton,the liability would be there and the loan fr ABM would have to be paid back in due course whether Proton sold or Kept MV,by saying so,TM is just confusing the average Joes.

But looking at the current financial situation of Proton, as revelaed by TM,I would fairly quickly conlcude that Proton was rite,it was in no position to carry on with this rescue operation.

Unless there is a huge cash cow some where that can keep feeding it,one name came to my mind,Petronas which generated net profit of about RM 52 billion last year.

But personally I do not garee that Petronas should continuoe with National Service as the time when TDM was calling the tune.It is ridiculous to say the least.

JEFF OOI says: DELL, I have provided the Q4 FY ended March 31, 2006 unaudited financial report for Proton Holdings (the present management took over from July 2005). Could you read -- from the document I provided -- me some figures on Proton's cash balances, inventories, and cash flows generated from operating activities. That will be more informed than just rant. Unless, you are closing an eye to what is going on on Proton's financial health. I believe this generation should be a generation that makes informed decision anchored on data. No?

It's not comparing apple-to-apple by benchmarking Patronas against Proton as the former is in a monopolistic situation in Malaysia while the latter is not, Secondly, the demand cirve experienced by oil industry -- in the last 3 financial quarters -- differ starkly vis-a-vis global automobile sales. Thus, your premise of argument lacks the fundamental anchorage, and makes your argument a laughing stock. Is this how Malaysians are capable of arguing a business case? Come on, we Malaysians should be better at that!

I expected Screenshots readers to NOT take TM's figures at face value, but to explore empirical figures -- Proton monthly units sold, inventory tolling out from production lines, trade receivables for inventory that never travel out of stockyards, market share vis-a-vis Perodua etc -- to substantiate your arguments. These are the building blocks that make an auto industries... not hot-air rant and drools!

...i wonder if Proton is involved in OTHER foreign adventures like what Petronas is allegedly doing...?

Jeff,

Sorry,I do not quite understand yr message.

Perhaps also my own message was not very clear,allow me to explain a little further.

My point about the current financial standing of Proton is largely taken as facts following by TM:

TM:
"A: The cash reserves the previous management left behind was about RM2.4 billion. You heard it from Dr Mahathir also. But that RM2.4 billion is now depleted to about RM694 million only.

Proton Edar has about RM700 million at one time, but it now has only less than RM50 million in cash reserves."

So based on that fact,I came to the conclusion that current financial standing of Proton did not allow it to inject further fund into MV,which TM also admitted was necessary.

From there I latch into another point:that unless a very rich company with strong cash inflow like Petronas becomes the owner of Proton,then with its vast financial resources,it would definitely be able to take the drain of funds for MV for many more years to come,which I do not think even TM or TDM can disagree,they may disagree on the time frame required to turn around MV,but not the necessity of further fund allocation-a drain.

It was not my intention to compare Proton with Petronas,my point is largely based on the fact that TDM is now a rather powerful adviser of Petronas and he had the distinct track record of asking Petronas to rescue troubled,totally unrelated companies in the past.

I hope I clarify my points to certain extent.and I would take my time to read up the annual report of Proton which I have not done,frankly.

Thanks

JEFF OOI says> Many thanks for the attempt. I just intended to be an agent provocateur to sharpen Malaysian minds, i.e. to sieve information to make informed decisions. I am, however, equally mindful that the eerie alternative is that of a "Devil's Advocate".

The fact is TDM is the ex-management. While he is free to question and raise issues on the way Proton is being handled now, the new proton management is also free to manage proton in the best way it sees fit.

It is not unusual in restructuring exercises for corporations to trim off non-core business units. TDM can quote a hundred examples of why Augusta was such a good buy, or even why he thinks that Augusta IS aligned to Proton's core business, but the fact remains that Augusta was no longer part of the new 'gameplan' of the current management.

To further substantiate that, the simple fact agreed by all is that Augusta MV was in the red, and will be for some time. Long term investment u say? Indirect benefits in terms of tech transfer and know-how you say? That is a grey area, which should only be determined if such an investment is worthwhile considering the present situation, by the current management and no one else.

All other questions about the transparency of the whole situation, I think, has been fairly well explained by the new management, and has been done in accordance to all local laws.

What really is left to really talk about? Everything else is just mud-slinging from the disgruntled party.

No,ther is still one vital question that the management of Proton has not bothered to explain and which both TM and TDM insisted must be answered.

I agree.

The process of sales,and how the price of EURO1 was arrived at.

They need to convince the owners of proton-that is the people of Malaysia,that they did try their very best to exhaust all posssible avenues of looking for buyers,and did make very serious attemp to find some SUCKERS,who like Proton were willing to pay for "goodwill"to take over a so called technological sophisticated company,that is MV,and that failed.

There are suckers and there are suckers,why didn't they get one?

JEFF OOI says: I just earnestly hope that Malaysians have the capcity to look beyond personality and personification and instead look into the business operations within Proton. It;s taxpayers' money that's at stake.

It is not about whether Augusta is a good buy or it is worth injecting further fund/paying debt. It is about why the current Proton management has to sell it at RM4.75. Have they tried to find better bid? Is GEVI SpA the best bidder?

Well, this blog just support my thought that : besides getting the MVA brand, TM has no long term plan about MV.

IMHO, selling of MV is due to mismatch sentiments of existing management about forex and TM clueless long term plan.

When talking about MV issues, one must always take FOREX into considerations. Besides the debts in Euro(€), MV staff is pay on €. IMHO, since many P1 political appointed higher management are paid in Ringgit, it DOES HURT their FEELING when they find out MV payroll are many time more than Proton management(after converting 1€ = RM4).

IMHO, the whole FOREX session is too complicate for a political appointed board. Unlike private business expose to global trade, the whole issue can be isolated with allocated forex funds. And guess which entities in MYland has the most FOREX funds?

To Petronas, it can channel money earn in € to MV, which isolate P1 from volatile FOREX risk. In addition, since the funds channel in €, it will be "relatively less" since no conversion taking place.

Honestly, the € funds pilling in Petronas should have better use of reinvesting than stay inside the bank. Although investing in MV is not a bright idea, but it does give Petronas return with some interest payments.

About MV branding, IMHO, it is a good idea but overpriced and doesn't make sense to P1 business. Does TM know that MV is using Honda engine now?

Hi Jeff, thanks for this thread which is getting rather absorbing. I remember, years ago, an accounting lecturer once told us that figures may not be what they appear to be. Hence would it not be possible for you to co-ordinate some of your readers who have the accounting/finance expertise to interpret and comment on the available data (Proton's Q4 financial report) for the benefit of non-accounting people like me?

The summary of unaudited balance of Proton dated 31 March 2006 is as follows:

ALL FIGURES IN RM

Current assets:4.4 billion
Non current assets:3.9 billion
Total assets:8.3 billion

Current liabilities:2.3 billion
Non curretn liabilities:0.1 billion
Shareholders fund:5.9 billion
Toatl:8.3 billion

I believe that no one would dispute that this is a financial very sound company.

But we need to note that the perofrmance of financail 2006 is largely at the same level as 2005,that means there was vey little growth.

In fact the sales dropped fr 8,5 billion RM to 7.8 billion RM.A 9% drop.

We can also safely specuilate tha operatining enviroement would be geeting more difficult with the liberalisation of auto market in Malaysia.

This is a company under very extreme market pressure.

So with shareholders' fund of about RM 5.9 billion,and the gamble on MV at this stage is RM 1 billion(nett liabilities),with further losses in sight,should Proton carry on?

My personal opinion is NO,sell at the best price ASAP.

BUT probably NOT at EURO 1 as it is too cheap,I think Proton should wait the appearence of a sucker.

There are two separate issues raised here. One is how Proton has been managed since TM's ouster and the subsequent apparent deterioration of Proton's balance Sheet. I think it would be premature to make any judgment on the new management's ability by looking at these numbers alone.

The other issue which is the bone of contention raise by TDM, is the sale of Agusta. Looking at the comments here and the various news reports of charges and "explanations", I cant help but feel that we are going around in circles. One side says it was potentially very bad so had to be sold. The other side said it was potentially good and sold too cheaply. Whether Agusta had potential or not is IMHO, pretty much irrelevant. What's relevant is could Proton, (regardless whether new or old management) capitalise on whatever potential Agusta presents and generate a positive financial outcome for Proton. Again IMHO, based on the assumption that Agusta could not be managed like Proton (ie, without goverment patronage) and based on the little that has been reported in the public arena, I doubt so.

What may be less arguable is whether the price of 1 Euro is justifiable or not. However, to form an informed opinion, we really need to see Agusta's books and see where the liabilities end. For that, if AAB's team is serious about answering TDM's question, Proton would have to provide fuller disclosure on the entire Agusta saga, from acquisition to the sale.

Maybe the question to ask is, what cost teh new administration willing to incur in order for the demonising of Mahathir sticks? Jeff, you have summed up the net loss here...the joe public reads that to be the cost of rash decisions on the part of Mahathir. Same too with the crooked bridge....what ever cost there too is tagged to Mahathir's decision. Further adds to demonising Mahathir. Does all this help to push Malaysia forward? No. After 3 years we are still shunting at the Gemas Railway Station!

In a sense I can see that the decisions of the new administration only make sense to me when I see it through the looking glass which has demonising Mahathir as its theme. Financial considerations alone as my accounting books have thought me suggest otherwise and my enterprenaurial skills too suggest otherwise.

sad isn't it,

the cash reserves, which mainly contributed by rakyat, who once had confident in proton, and also to avoid paying super high taxed imported car, which rakyat believe the vision of Proton -

now left with the amusing amount, and left so many questions, blame - to rakyat and the management.

what a farce.

Hi Jeff

From the moment MV Agusta was sold at 1 euro, I smelled a rat. I am not a financial guru, I just use my common sense.

My family has been in business for a long time. We are not business superstars but we have enough knowledge to run a business successfully - a business that survives a few rounds of economic recessions and committed to defending the "rice bowl" of the employees.

There are people who make their big bucks just from buying and selling assets – you may call them any fancy names but they are basically commission earners. The bigger the asset, the bigger the transaction, the more commissions they get. So, they are always making “marriage proposals” between buyer and seller.

Of course, there are other people who make money on the sidelines – they get kickbacks or “dowry” from the marriage.

There is a Chinese proverb that says: The snakes and rats are in the same nest.

I do not have the ulterior motive to divert and deflect the issue here. I am only keenly interested in these questions raised by Tengku Mahaleel:

(1) Why sell MV Agusta at €1 when, perhaps, the value of MV Agusta is more than €1?
(2) Why was there no advertisements or public announcements to call for bidders for MV Agusta when it was up for sale?
(3) How was GEVI SpA identified as the ultimate buyer?
(4) Who are GEVI SpA shareholders and what is its paid up capital?
(5) Is GEVI SpA a motocycle company? If not, what it is?
(6) Who are the other companies that bidded for MV Agusta? What were their bids? Did they ask for free, or else how can they bid lower than GEVI SpA who got it for €1?

Dear rakyat Malaysia, our PM says that his government stands for transparency and accountability. As a voting member of the rakyat, I am waiting for the answers.

one question:

is it true that MV Augusta was a company that had ties with the Italian mob, kaka the Mafia?

To be fair to the present board of Proton,we should not just look at the EURO1 as we must remember that there are liabilities involved(up to RM 1 billion),if the buyer does not take over the liabilities,I do not think the banks would agree to the sales.

Still,the board or AAB must give an account of the sales process,this I fully support

Damn. Maybe I missed the advert. But if I had known MV was for sale, I would have submitted a bid for EURO2.00. You think the Gahmen will sell to me? 100% more-LEH! Aiyah...talk so much, EURO10.00-lah. Enough? Don't worry, I can pay up.

Ok, more importantly, I would like to know WHO BROKERED the deal. How much do you think the "commission(s)" will add up to? Usually, the "middle man" gets 3%...so in this case, it works out to be EURO0.30. Not bad I guess for pimping a bankrupt company. Well done son.

Sorry, I meant EURO0.03 :)

Dell,

Indeed, Proton's balance sheet is healthy. After years of it being forced down the throats of Malaysians at exhorbitant prices. However, you missed the point in view of lower sales, we have higher stock holding... isnt that a point for real concern?

For me its the transparency and the manner in which MV Augusta was disposed for mere 1 euro so swiftly upon the arrival of the new CEO. Have they done any due dilligence to arrive at the value before it is being disposed?

Something is just too fishy and I can't point my finger exactly to which.

DELL, I prefer to check a automobile company balance sheet from cost and revenue point of view.

I spot something similar between Proton and NST, both company COST is EXTREMELY high. No automobile company will survive with that kind of profile. For example, the revenue vs operating expense for
2006 - 7.796 bilions vs 8.992 billions (different of 0.97%)

2005 - 8.848 billions vs 8.226 billions. (different of 1.03%)

Those figures are rather shocking.

While for the asset part,that is a SAD news. IMHO, assets like plant, property and equipment are NEGLIGIBLE. It is WORST than intangible like goodwill. One must realise, those assets need continous R&D, maintenance and upgrade. In addition, those assets CANNOT convert to cash when required.

Just take computer as example, if the manufacturer build machinery and plant for Pentium 3, they will be out of business if they didn't upgrade the plant for Pentium 4. If they company fail to churn out enough product to cover the cost and upgrade of the plant, they will be in deep shit trouble.

So from the balance sheet,I notice Proton is really in deep sh*t of trouble because they fail to curb the operation cost. Any major upgrade required can easily deplete their so called "cash reserved" and pay up capital.

While looking at their inventory, that's another SCARY story. Inventory is JUNKS as long as it remain in your warehouse. JIT(Just in time) management is one idea to tackle this excessive inventory issues.

And the scariest story of the balance sheet lies on page 12. There is a mixing term loan of pound sterling of 332 millions(2.2 billions RM). And proton must meet the default of RM 331 millions within a year.

Usually, the tendency of new management will be to take a "bath" in terms of the financials. Thus, there are provisions done, e.g. 1) provision for stock obsolescence and 2) provision for doubtful debts. In addition, it is noted that the cash in bank balance has reduced by RM869m between March 2005 and March 2006 with corresponding high reductions in trade payables of RM429m and increases to inventory of RM421m (it is also noted that in the notes to the account that sales have dropped and the component costs increased as compared to preceding year).

Let's take a look at the provision for stock obsolescence. I'm not an accountant but what is the standard basis? Since inventory has increased by RM421m even after providing for obsolescence. How much did Proton produce or products under Work-In-Progress even when sales is unencouraging? Not to forget the inventory system of Proton, is it based on Just-In-Time system where stocks are kept to a minimal? I don't have answers to my questions but I'm sure some of the answers to that might be "Proton has sunk cost, so it's better to produce even when there's no demand. This ensures some level of economies of scale as the unit cost per car sold can be kept lower as compared to the stop of production. Most importantly, it keeps people employed."

What about the RM429m reduction in trade payables? It is noted that are corresponding significant decreases in the cash in bank amount. Thus, would it be safe to note that these are cash payments to suppliers who may have been long overdue accounts which explains the decrease in cash?

Aiks.. ter-press post button.

Anyway, please be aware there are no simple solutions faced by the current management. I think the reason to sell the shares in MV Augusta may be possibly, there are better things to improve than spend time and effort to enhance the value in MV Augusta. Not that it does or does not have potential but rather let's take care of our own backyard, i.e. the company, first. And since we don't have the time to look in that, we might as well sell it off and focus on improving our operations as we do not want to be blamed for dragging the case and have a RM900++ liabilities on our shoulder should we not manage it properly.

If I'm faced with a possibly simple problem - How to increase sales when I have stocks piling up at my warehousing facilities? I'm wrong even I get the sale if I give too much discounts (higher promotion costs and rebates) but if I can even sell at a slight loss, I get rid of a stock, improve my cashflow, reduce holding costs. In essence, if i don't sell I get blamed and if I sell since I assume the stock is already sunk cost and adds to additional variable cost like holding costs, I get blamed too. For me, rather sell at cost without affecting price but throw lots of goodies in like better specs, lower financing costs, etc.

So many things to look at both cost and revenue. For cost - right productivity strategy, supplier relationship, inventory control system, cost minimization, ordering system, management of creditors, cost management of components, facilities to house excess capacity, promotional costs etc. For revenue - growth strategies, revenue mix, revenue diversification, brand strategy, promotional strategy, pricing stategy, access to new markets, growing existing markets overseas, competing with competitors in own market, enhancing quality of products and after-sales service, management of sales and distribution channels, management of workshops, management of financing facilities for company and customers, etc.

JEFF OOI says: Which textbook are you trying to copy-and-paste here? There are occassions you need solutions that they don't teach even at Harvard Business School.

Sigh... after stating the obvious challenges, even I wouldn't want to be the CEO of Proton. We should thank TM for braving the challenge as well as the current management. I can't imagine how they take all these critics after working so hard. Actually, I seem to be out of context now. Signing off!

Hey Jeff,

Err.. I didn't cut and paste from any textbooks. Typed everything off my head.

You're right about solutions can be found by unconventional means but the issues are the same as I have highlighted. The real difference between theories and practicalities are the manner and approach such strategies are implemented and timing seems to be a factor.

If you asked me for a possible solution, i say relook at the whole supply chain management to ensure that it can cater to an on-demand approach similar to just-in-time inventory or whatever it's called that would probably minimize costs associated to components and reduce inventory. In fact, pay suppliers more promptly so that they won't buffer the long payment terms. In fact, outsource some suppliers who may be foreigners who can produce cheaper. If Proton can reduce its costs, I'm sure it can compete better since pricing will be lower.

Oh.. and quality control! So, focus on suply chain management and quality control to achieve quality products at affordable prices!!! Yippee!!!!

How about developing bio-fuel cars? Hmm.. maybe a niche market is better cos Proton can't compete on price cos it has no economies of scale as compared to its competitors.

Yah Yah! Bio-fuel cars. Target the niche market since Malaysia is so focused on the agricultural industry and renewable energy. I'm sure we are in a good position to capture a slice of the world market through bio-fuel cars manufactured by Proton.

Also, I heard there are these semiconductor companies are are waferless or was it fabless. Anyway, last time when people wanted to setup semiconductor plants, they design and manufacture. It seems in Malaysia, there's this company who just designs and get the cheapest manufacturers. Thus more focus, effort is on the design rather than the manufacturing. Perhaps, Proton can carve a niche reputation of being the best bio-fuel car designer in the world.

Oh about TM and TDM, can't TM, TDM and Proton have a public discussion, mediated by a respectable figure, say yourself, to be televised live on our national stations? If national stations don't allow, how about streaming it from a webcam?

"right productivity strategy, supplier relationship, inventory control system, cost minimization, ordering system, management of creditors, cost management of component...bla bla..."

"Sigh... after stating the obvious challenges, even I wouldn't want to be the CEO of Proton. "

Would appreciate if you could enlighen me which Company's CEO does not need to be involved in those things... I want to become that co's CEO if possible.

I'm an accountant.

Jeff, I agree with you that we should not take TM's words at face value. Here are my observations:

a) What is the relevance of the €70 million execution by ABN AMRO? If I borrow €70 million from ABN AMRO on the basis of a €70 million fixed-deposit security and it is recalled. Why would I be poorer by €70 million ? I did get my €70 million borrowings in the first place didn't I?

b) TM kept emphasising Proton lost money when it sold Augusta for €1. The loss was already accounted for when the goodwill was written off. And when did it happen? Upon purchase !! ie It was already a loss when it was purchased! If we are so into Augusta'
s technology, Proton could have bought or licence the technology - why buy the company ?

c) Jeff, why would you be one of the 328 millionaire? What is TM talking about? Where did the 328 million suddenly come from? It is as if TM is saying that Augusta is worth 328 million which Proton gave away for €1. We all know that is too far-fetched. If the company is really worth that much, the purchase price will not be written off upon purchase.

d) Jeff said "How about the value behind 57.75% shares, the inventory, the two design centres and manufacuring plants that Proton picked up from a bankrupt company which, minus debts, still commanded a paper value of RM500 million as at September last year?" How did you manage to calculate this? You bought 57.5% of a company for €70 million cash that you borrow from ABN AMRO (by pleding €70 million cash fixed deposit). Then you look at the company and say "Ah, got inventory ah and designcenter wah" and you add them to the value of the shares you purchased. Isn't that double counting? Then you say, the €70 million cash is forfeited, you add on top of the purchase price. Wah like that I also become millionaire la. You are triple counting!

Come on, people, think! If the company is actually negative equity, $1 may be an overpayment.

And not forgetting the €70 million cash that ABN AMRO forfeited and drained out from Proton.

b)

It is important, as Jeff has pointed out, that we leave out the personalities (and our personal biases) when seeking answers to troubling questions. I believe there will be a lot to discover as we go along but I would, for starters would like to know something about the the way the company was run when decisions were taken by the previous and current managements.

For example:
Where was the locus of decison making?

Was there (to use a recently popularized term) an "overriding agreement" tucked away somewhere?

Was due diligence carried out before major decisions were taken and by whom?

There are calls for transparency now. What was the tolerence for transparency then?

Since MV already sold, so let me speculate why TM bought MV agusta in the 1st place.

Did anyone notice TM say "Waja is the Asia BMW". It is obvious that it is Tun M own desire to prove to the world before retirement. Because BMW involvements in superbikes business, getting MV Agustra is some acting that show the world : we have something better than BMW, errrrr, in bikes business.

I'm not interested about the sale of MVA but more interested on why it was bought at the first place? TM should explain all out about the reason before he demanded explaination for the sale.

All this while the reason he told us 'tak boleh pakai punya'. Comparing how BMW, Suzuki etc started with bike before move to car...bla bla, design centre la..bla bla.

BTW, who brokered the MVA deal? Who did the due d of purchase?