ARRIUM has taken a dim view of the outlook for manufacturing, slashing the book value of its assets as it struggles to cope with the strong dollar and weak demand from the construction sector.
The steelmaker, formerly known as OneSteel, said on Wednesday it would book a heavy $474 million writeoff against its manufacturing division, principally its Australian Tube Mills unit, since any sale of the unit will not achieve the book value of the business.
The move has slashed the value of the remaining goodwill of the group's steelmaking in South Australia and western Sydney, along with sundry processing units, to only about $120 million.
The writeoff reflects its view that the dollar will remain overvalued and the domestic construction industry will remain under pressure, it said.
In total $431 million has been written off against the goodwill of its manufacturing arm and the other $43 million is against its distribution arm. The manufacturing unit had goodwill of $554.8 million before the writeoff.
The goodwill of Australian Tube Mills has been written down to zero "as it does not expect to realise this value on a sale of the business", Arrium said in a statement to the sharemarket.
"The steel division has earned no money for the past few years," a Morningstar analyst, Matthew Hodge, said. The writeoff "could have been larger", he said, with the prospect of further write-downs.
"I'm not expecting any steel turnaround any time soon," he said.
At its annual meeting in November, Arrium refused to give any profit guidance, largely due to uncertainty over the outlook for iron ore prices along with the adverse effect of the strong dollar.
Higher sales of iron ore in the second half are expected to give second-half earnings a lift after a weaker first half, analysts said.
The writeoff will slash the group's combined goodwill on the balance sheet of $2.82 billion to about $2.34 billion.