Transfield to take $285m hit on mining arm

TRANSFIELD SERVICES has revealed it 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 results next week.

TRANSFIELD SERVICES has revealed it 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 results 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 seven percentage points but that it would act to reduce its debt to keep it in the target range of 25 per cent to 35 per cent.

The company said the write-down would not force it into an equity raising or 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," the company said in a statement to the stock exchange.

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

Analysts expect the contractor to report an underlying profit of $35 million, and earnings before interest, tax, depreciation and amortisation of $109 million, Bloomberg reports.

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

Analysts and investors consider the 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 was hit by 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 major infrastructure projects.

At the time, Mr Hunt refused to provide any forecasts for the group's full year earnings due to market volatility.

It had previously forecast an operating profit at the lower end of a range between $125 million and $135 million.

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