Construction and mining services group Macmahon Holdings (MAH) continues to shower bad news on the market, with news of multi-million dollar losses in asset impairments yesterday – a move that is likely to be the first of many similar reports from the myriad companies servicing the resources sector.
The news yesterday was after the company surprised late last month with the departure of its CEO and deputy chairman as part of what was portrayed as a cost cutting program.
That in turn was after the company sacked 45 people from its Perth offices as part of a cost cutting regime in the wake of the slowdown in spending by the mining and construction sectors, especially in WA and Queensland.
Yesterday it told the market that because demand for its services will remain subdued “for longer than anticipated”, it will take impairment losses of up to $135 million in the first half.
The news is a realisation of the warning given at the annual meeting in November of a challenging year ahead.
At the time, the company cut its forecast full-year revenue to an estimated $750 million to $850 million from an earlier guidance of $750 million to $1 billion, citing "the current tightness in the market" and an ongoing payment dispute with the operator of the Tavan Tolgoi coal mine in Mongolia where Macmahon has a $US500 million coal mining contract.
MAH 1Y – $135m impairment, subdued outlook at Macmahon
A spokesman for Macmahon told the media yesterday that the revenue estimate from the AGM would remain in place for the time being.
But analysts expect it to be again cut when the company reveals its December half year financials later this month.
The non-tax impairment of between $125 million and $135 million involves the carrying value "of certain equipment, goodwill and inventory assets”, Macmahon said in yesterday’s statement to the ASX. In addition it will be making a provision for an onerous lease on certain office premises.
“The decision to make this impairment and recognise the onerous lease provision was made as part of the company’s mid-year review process,” Macmahon said in yesterdey’s statement.
"This review took into account the continued low commodity prices and challenging market conditions for the mining services sector. As a result of this review, Macmahon now considers that demand for the company’s services will remain subdued for longer than anticipated."
The company has been working to take costs out of the business as it battles the impact of spending cuts in the resource sector, especially mining. The impairments and weak outlook casts doubt on a continuation of Macmahon’s return to profits in the 2013-14 financial year.
The shares eased 3.6% to 5.5c.
