Arrium takes $474m hit to steel mills
STEEL-MAKER 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 company, formerly known as OneSteel, said on Wednesday it would book a heavy $474 million write-off 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 steel making in South Australia and western Sydney, along with sundry processing units, to only about $120 million.
The write-off reflects its view that the Australian dollar will remain overvalued and that 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 write-off.
Arrium has said previously that it wants to sell further non-core assets, which analysts had speculated would include its Australian Tube Mills unit, which uses externally sourced steel.
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," Morningstar analyst Matthew Hodge said. The write-off "could have been larger", with the prospect of further write-downs, he said. "I'm not expecting any steel turnaround any time soon."
Arrium said the impairments "are non-cash in nature and have no impact on operations". The write-off is equal to 37 per cent of the company's sharemarket worth.
The Australian Tube Mills unit makes pipe and tube at plants at Acacia Ridge in Brisbane, Newcastle, and Somerton in Melbourne, along with precision tube at Sunshine in Melbourne, and Kwinana in Western Australia.
The state of negotiations for the sale of these units is not known.
Higher sales of iron ore in the second half are expected to give earnings a lift after a weaker first half, analysts said.
The write-off will slash the group's combined goodwill on the balance sheet of $2.82 billion to about $2.34 billion.
Arrium declined to give fiscal 2013 profit guidance at its recent annual meeting in November, citing uncertainty around iron ore prices, the exchange rate and global and Australian economic conditions.
The company expects profit will be skewed to the second half due to higher iron ore volumes. The first half is affected by weaker iron ore and steel prices.
Arrium expects iron ore sales volumes of 8-9 million tonnes in fiscal 2013, up from 8 million tonnes. It forecasts exports at a long-term rate of 12 million tonnes a year from July-August 2013.