The global economic slowdown has forced engineering company Sedgman to write-off $20 million of goodwill value from its Perth-based subsidiary Intermet Engineering, which it bought less than two years ago for $32 million.
The global economic slowdown has forced engineering company Sedgman to write-off $20 million of goodwill value from its Perth-based subsidiary Intermet Engineering, which it bought less than two years ago for $32 million.
In an operations update to the market today, Sedgman said it intends to book the $20 million non-cash write-down against the goodwill value associated with Intermet in the first half of fiscal 2009.
"The current subdued trading conditions in the metals sector are expected to persist for a minimum of 12-18 months so Sedgman has reduced the headcount within Intermet and implemented cost cutting initiatives," Sedgman said.
In June 2007, Sedgman acquired all the shares in Intermet for $32.75 million.
Comment was being sought from managing director Mark Read at time of publishing.
Additionally, the company expects to include a $3.7 million provision for doubtful debts relating to several clients associated with the Intermet business in its interim report, out later this month.
"These clients have been significantly impacted by the lack of available credit in the market place and accordingly, Sedgman has adopted a prudent accounting treatment and provided for the full amounts owed," it said.
"However, recovery of these debts will continue to be vigorously pursued."
Sedgman expects earnings per share to be broadly in line with the previous corresponding period's of 7.9 cents
As a result of the downturn, the company said it may not achieve previous full year guidance of 15 to 20 per cent growth in EPS, which is expected to be flat at 16.1c.
The announcement is below:
Sedgman Limited (ASX:SDM) today issued an operations update following a review of its preliminary half year results and recent discussions with major clients.
FY2009 half year result preview
Sedgman maintained robust cash flows and generated strong operating profits during the six months to December 31 2008. The Company expects to announce earnings per share, excluding amortisation and write-down of intangible assets, in line with the previous corresponding first half result (7.9 cents per share reported for first half FY2008).
Bad debts provision
This anticipated result includes a $3.7 million provision for doubtful debts relating to several clients associated with the Intermet business.
These clients have been significantly impacted by the lack of available credit in the market place and accordingly, Sedgman has adopted a prudent accounting treatment and provided for the full amounts owed. However, recovery of these debts will continue to be vigorously pursued.
Intermet goodwill write-down
Sedgman also intends to book a $20 million non-cash write-down against the goodwill value associated with Intermet in the first half of FY2009. The global slowdown and fall in metal prices have had a significant impact on the Intermet business.
This write down will not impact on Sedgman's banking covenants or ability to pay a fully-franked interim dividend due to positive retained earnings and franking account balances.
The current subdued trading conditions in the metals sector are expected to persist for a minimum of 12-18 months so Sedgman has reduced the headcount within Intermet and implemented cost cutting initiatives.
This half year preview is still preliminary and remains subject to audit.
Updated FY2009 Guidance
Since November last year, demand for Sedgman's businesses has softened. This is likely to impact on Sedgman's ability to achieve previous full year guidance of 15-20 per cent growth in earnings per share, excluding amortisation and write-down of intangible assets.
Earnings per share, excluding amortisation and the write-down of intangible assets, are now expected to broadly be in line with the previous corresponding full year result (16.1 cents per share reported for FY2008).
Managing Director Mr Mark Read said Sedgman's business was underpinned by longer term operating contracts in both the Coal and Metals divisions which continue to generate strong on-going revenue streams.
Mr Read said the Coal division was also well positioned to secure several new design and construction contracts involving both domestic and international projects.
"Our recent announcements on securing the $25 million Bengalla Coal Handling and Processing Plant Upgrade (CHPP) contract and the $13.6 million New Acland Mine CHPP Upgrade is evidence that Sedgman continues to win new work," he said.
"Furthermore, we have recently received a letter of intent to proceed with the $55 million design and construction of a coal handling facility upgrade in Chile, reinforcing the benefit of the Company's geographic diversification strategy."
Sedgman is acknowledged internationally for its leadership in coal processing and materials handling technologies.
"Sedgman remains confident of its future growth and is committed to its long term strategic direction," Mr Read said. Further information in relation to dividends and full year guidance will be provided when the Company reports its first half result on 24 February 2009.
