KNM Group Bhd

It has terminated plans to buy Belgium-based Ellimetal NV for €20 million (RM91.7 million) after the vendor was unable to fulfil one of the conditions in the master agreement signed in January this year (2008).

The key objective for KNM in most acquisitions is to acquire the expertise of the target companies. In this case, the owner and the key management team are not staying in the company after KNM’s take over. The owner wanted to retire because of old age and the rest of the key personnel were reluctant to continue under a different owner.

This is not the first time KNM scrapped plans to buy companyies. In May 2008, KNM did not proceed with the purchase of Pisces Engineering Sdn Bhd for RM50 million. Last year (2007), KNM aborted a deal to acquire a 90% equity interest in Virgo Pulse Sdn Bhd for RM27.5 million cash.

However, KNM would discuss with Ellimetal to enter into a commercial co-operation agreement following the failed acquisition.

Going Forward …

The company had guided for lower earnings for FY2008 and FY2009 after taking into account a one-off facility fee, the aborted purchase of Ellimetal and delay in capacity expansion plans.

KNM’s management has revised downwards its earnings guidance for FY2008 net profit to RM400 million from RM430 million previously and FY2009 net profit to RM650 million from RM700 million.

FY2008 earnings were revised downwards due to the one-off facility fee on its Maybank loan while FY2009 earnings were lowered after removing Ellimetal’s contribution and not taking into account the proposed capacity expansion by an additional 10,000 tonnes capacity at its Canada plant. The proposed capacity expansion at its Canada plant was to cater for oil sands development, which essentially is extraction of oil from sand.