Powerscreen International is now expected to start to sell off non-core assets, as shares in the troubled Belfast-based engineering group tumbled again after another profits warning. The Powerscreen board warned of an expected pre-tax loss of £65 million sterling for the year to end March, up from an expected loss of £10 million. Following an assessment of preliminary audit findings, the Powerscreen board now expects to report pre-tax losses of £65 million for the year to end March 1998.
In January when Powerscreen disclosed irregularities at its Matbro subsidiary, a pre-tax loss of £10 million was expected for the year. The latest forecast reveals that trading at the group's main operations has worsened considerably.
"It has become apparent that the profitability in aggregate of the other Group businesses has fallen short of the management's expectations by approximately £10 million," the company said in a statement.
The £65 million loss forecast is made up of group profits of about £26.6 million which were decimated by losses of £58.6 million associated with Matbro and provisions and charges of £33 million. The announcement indicates that profits from core screening and crushing operations will be about £26.6 million for the year to end March, some £10 million less than expected. A spokesman said the Matbro disclosures had "a knock on effect on the group". Some customers left, he said, insisting that trading had improved since the end of March. However, there were only two months left in the group's financial year when the Matbro announcement was made. Losses and costs associated with Matbro are now expected to reach £58.6 million. Trading losses of £8 million for the three months to end March have been added to the estimated trading losses of £46.6 million for the period to end December 1997 and professional fees relating to the investigation of the irregularities have been estimated at £4 million.
In addition the group is making write-offs and provisions totalling £33 million. Assets at the Brown Lennox crushing operation and at the Royer screening operation are being written down by £11.5 million. A Powerscreen spokesman said these "assets" related to the cost of developing new products which he maintained had been inappropriately capitalised in the Powerscreen International balance sheet.
Provisions of some £14 million were attributed to changes in accounting policies and procedures "to ensure that the accounts are prepared on a more conservative basis". And profits are being reduced by some £7.5 million to cover reorganisation costs and "claims against the company in respect of trading activities". These claims refer to possible legal action by a US customer on the basis of product warranties issued by the group. Of the forecast loss of £65 million about £20 million is expected to relate to prior financial years - mainly the adjustments of results of Matbro, Brown Lennox and Royer. "The company has made, and plans to make, disposals in order to concentrate on its core businesses which continue to trade profitably," it said. Assets which may come on the market include material handlings operations such as Benford, CPV, Guzzler, USTC and Doggett. Industry sources said that Powerscreen is now likely to sell most of its material handling operations and to concentrate on core screening and crushing operations. No information was available from the group yesterday about its current level of debt and the impact of the latest revelation on its ongoing financial viability.
"Our banks have been kept informed throughout and they are reasonably happy with the steps taken and that the disposal proceeds will be used to reduce debts".
The Powerscreen spokesman said that pressure was being put on the group auditors, KPMG, to finalise their audit for the 1997/98 financial year. Asked whether the latest provisions and charges suggested that inappropriate or incorrect accounting policies had been applied in earlier years, the spokesman declined to comment.
Asked if any legal actions were planned against advisers or auditors he said that London-based solicitors Herbert Smith had been appointed to advise Powerscreen on the legal implication of the accounting irregularities including the role of the auditors KPMG. Herbert Smith has appointed external auditors to examine the KPMG report and the irregularities. And the British Serious Fraud Squad is investigating the Matbro irregularities.
