Emeco Holdings says it will cop a $41 million writedown as it closes its Indonesian operations, as well as a further $13.5 million tax hit, the latest in a series of downgrades for the Perth-based mining equipment supplier.
The company said today that it would shut down its Indonesian business after completing a strategic review of the operation, which was launched in August last year.
The review followed a slowdown in Indonesian coal mining activity and a number of significant contract losses.
Emeco said the closure would result in charges of $41 million in the current financial year, including a non-cash charge of $38.5 million, relating to the impairment of rental equipment sold during the second half.
A further non-cash impairment of $13.5 million will be incurred as a result of deferred tax assets and foreign currency translation reserves.
The exit from Indonesia will remove $3.5 million in annual operating costs.
Emeco managing director Ken Lewsey said closing the Indonesian business would remove an operation that had been making a loss in recent years.
“This will also allow us to focus our time on driving improved utilisation across our three core markets of Australia, Canada and Chile, and also exploring broader strategic options for the company,” Mr Lewsey said in a statement.
He said the dynamics of the Indonesian mining industry did not support Emeco maintaining an ongoing presence in that market.
“Our strategic review considered a range of factors, including uncertainty of government policy for the mining industry, significant excess equipment in the market and the diminishing quality of the customer base,’’ Mr Lewsey said.
“This has led us to conclude that utilisation is likely to remain very low for an extended period.”
The writedowns follow Emeco’s $180 million first-half loss, reported in February, which occurred largely because of a $158 million goodwill impairment charge.
Continued volatility in the company’s key markets has reduced its equipment utilisation to around 50 per cent, down from 54 per cent in February, with Emeco not expecting any material improvement on that front until the next financial year.
Emeco said it now expected its FY2014 operating EBITDA to come in between $72 million and $75 million, down from a range of $82 million to $94 million predicted earlier in the financial year.
However, Emeco said it was successful in winning a number of longer-term contracts which would provide it with a positive start to FY2015.
“Pleasingly these contract wins are Australian-based and are a strong demonstration of our ability to work closely with our customers and to provide real value during a difficult time in the market,” Emeco said in a statement.
“The current business development activity also provides a positive outlook for the Chilean and Canadian business moving into FY15.”
Emeco is scheduled to release its FY2014 results on August 21.
At 11:20AM, WST, Emeco’s stock was down 3.7 per cent, trading at 25.5 cents.
