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Transfield bites mining bullet

20 Feb 2013 THE AGE
BY PHILIP WEN


TRANSFIELD Services will incur a write-down of up to $285 million due to weakness in the mining arm of its Easternwell oil and gas business before its half-year result next week.

Shares in the engineering services provider fell 10ยข, or 5 per cent, to $2 on Tuesday.

Transfield said the write-down would push up the group's gearing ratio by about 7 percentage points, but that it would act to reduce its debt so that it remained in its target range of between 25 and 35 per cent.

It said the write-down would not force it into an equity raising, and would not affect its banking covenants.

"The write-downs are non-cash, do not affect Transfield Services' gearing covenant under its banking agreements and have no impact on operations," Transfield said in a statement to the stock exchange.

"The company will not need to raise equity as a consequence of these write-downs."

Transfield would not comment further as it was in the enforced blackout period before it releases its results on Tuesday.

Analysts are expecting the contractor to report underlying profit of $35 million and earnings before interest, tax, depreciation and amortisation of $109 million, according to Bloomberg.

A write-down at Easternwell has been on the cards, with new chief executive Graeme Hunt undertaking a review of the group's portfolio since taking over last year.

Analysts and investors consider former chief executive Peter Goode to have overpaid when he acquired the oil and gas services business for $575 million in 2010.

And when weak earnings from Easternwell contributed to sharp profit downgrades last year, Mr Goode was forced to fall on his sword.

Although Easternwell's oil and gas business has been performing satisfactorily, its mining arm has suffered from the slowdown in the resources sector.

It also has a diverse maintenance business, which earlier this month sealed a $175 million one-year deal to provide accommodation and operational services at the refugee processing centre in Nauru.

Transfield issued a profit update in November, warning market conditions remained soft because of the resources slowdown, falling discretionary expenditure in minerals exploration and development, and delays in big infrastructure projects.

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