Us Foray Absorbs Adsteam Dividend
Sydney Morning Herald
Tuesday May 20, 2003
Adsteam Marine warned shareholders to expect another two years of pain after the debt-ridden tug boat operator scrapped its full-year dividend and signalled a humiliating exit from the US towage market.
Yesterday unveiling his much-anticipated plans to revive the company, Adsteam's managing director, John Moller , said the acquisition binge under his predecessor, David Ryan , would result in the write-down of $64 million in goodwill and $24 million in restructuring costs.
The massive charges mean that, just three months after scrapping its interim dividend, Adsteam has now also dropped its full-year dividend. The news sent shares crashing 19c, or 14.5 per cent, to a six-week intra-day low of $1.12, before they closed at $1.15.
Mr Moller effectively sounded the death knell for Adsteam's costly and now discredited bid to become the world's most dominant towage operator when he declared he would sell the company's half-share in Alaskan tug operator Northland. Adsteam paid $US56 million ($86 million) for the business just three years ago.
He blamed poor results at Northland, the vehicle mooted as Adsteam's most attractive entry point into the US harbour towage market, for a downgraded full-year net profit target of $22 million before the one-off charges, compared to the previous year's $30.5 million.
In re-tagging Adsteam purely as a ``ship assist business", Mr Moller said the logistics of Northland's tug and barge freight operations did not fit at all with Adsteam's core skill of towing ships to their berths.
However Mr Moller said Adsteam's push into the US would have been restricted anyway as the US Merchant Marine Act (aka Jones Act) requires all merchant vessels, including tugs, operating in the US to be built in the US.
Adsteam will instead seek to expand overseas by securing outsourcing deals with oil and gas companies which currently use their own tugs.
Mr Moller said a ``significant" improvement in earnings would not occur until 2004-05, when the restructure is expected to save $10 million in costs.
The restructure will involve Adsteam centralising its key Australian and UK operations. It also calls for a reduction in Adsteam's estimated $420 million in debt its market capitalisation is $270 million.
``This is a relatively low-risk [restructure] not dependent on large revenue growth. It is dependent on flat revenue growth," Mr Moller said.
JP Morgan's Michael Willoughby said that Adsteam could still have $300 million in debt by the end of 2003-04, even applying an estimated $50 million in proceeds from its sale of Northland and pre-tax earnings.
Most of Adsteam's debts were incurred through the acquisition of Howard Smith Towage in 2001.
Adsteam will retain its share in the South Australian ports operator, Flinders Ports, but would sell its bunkering operations which supply fuel to ships and its stevedoring business in north Queensland.
© 2003 Sydney Morning Herald