Arrium Writes Down A$474 Million on Strong Currency, Weak Market
Arrium Ltd., which rebuffed a A$1.2 billion ($1.24 billion) takeover offer from a Noble Group Ltd.- led consortium in October, will write down $474 million on its steel assets due to weak demand and a stronger Australian dollar.
The writedown includes A$431 million in the company’s manufacturing unit and A$43 million on its distribution business, Sydney-based Arrium said today in a statement.
Arrium said the expectation of a stronger dollar and “a forecast continuation of the difficult external environment and generally weak construction markets,” prompted the writedown.
Australian steelmakers have struggled in the past two years as a stronger local currency hurts their competitiveness against imported steel, and lower steel prices reduce profit. BlueScope Steel Ltd., the nation’s largest steelmaker said in January it will cut output and eliminate jobs at its Western Port facility to reduce costs.
While the writedown will increase Arrium’s gearing ratio by about 2.6 percentage points the company is “comfortable with its banking covenants,” it said. Arrium has net debt of A$2.14 billion as of June 30, according to data compiled by Bloomberg. Its total assets as of June 30 were A$8.93 billion, according to the data.
The manufacturing writedown includes all the goodwill on the value of its Australian Tube Mills unit, as the company “does not expect to realise this value on a sale of the business,” it said in the statement. The writedown in the distribution unit is related to the ARC steel reinforcing brand.
“These impairments are non-cash in nature and have no impact on operations,” it said. Further details will be disclosed at its half-year financial results later this month.
Arrium, which changed its name from OneSteel Ltd. in July to reflect its increasing focus on iron ore, relied on the steelmaking commodity for more than half its earnings in the year ended June 30 last year.
The stock rose 0.5 percent to 94 cents at the close of Sydney trading, while the benchmark index added 0.8 percent.
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