Emeco to exit Indonesia

MINING equipment rental group Emeco will exit the Indonesian market due to expected poor earnings over the long-term in unfavourable coal mining conditions in that country.

Lou Caruana

The dynamics of the Indonesian mining industry do not support it maintaining an presence in this market, Emeco CEO Ken Lewsey said.

“Our strategic review considered a range of factors, including uncertainty of government policy for the mining industry, significant excess equipment in the market and the diminishing quality of the customer base,” he said.

“This has led us to conclude that utilisation is likely to remain very low for an extended period.”

The closure of the Indonesian business will result in charges of $41 million (pre-tax) in 2H14.

This amount includes non-cash charges of $38.5 million, which primarily relates to impairment of rental equipment sold in 2H14. Further non-cash charges of $13.5 million (post-tax) in relation to deferred tax assets and foreign currency translation reserve will also be incurred.

The exit from Indonesia will remove operating costs of approximately $3.5 million per annum.

Emeco will realise cash of about $40 million in 2H14, which includes assets already sold during the current half. Additional fleet of approximately $10 million will be relocated to the Australian business.

“Closing the Indonesian business removes an operation that has been loss making in recent years and releases capital which can be directed towards other opportunities in the future. This will also allow us to focus our time on driving improved utilisation across our three core markets of Australia, Canada and Chile and also exploring broader strategic options for the company,” Lewsey said.