Emeco has announced it will completely exit Indonesia and downsize business in the region following a strategic review.
According to the heavy machinery hire and rental company “closure will remove annual operating costs of $3.5 million and realise cash of $40 million in the second half of 2014”.
It first announced the downsizing of the Indonesian business and subsequent review of its operations in the region in late 2013, around the same time it announced a new managing director and CEO Ken Lewsey.
“With this review now complete, Emeco has decided to exit the market due to expected poor earnings from the business over the long-term given the unfavourable conditions in the Indonesian mining industry,” it said in a company statement.
“The dynamics of the Indonesian mining industry do no support us maintaining an ongoing presence in this market,” 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. This has led us to conclude that utilisation is likely to remain very low for an extended period.”
Emeco plans to sell off some of its hire and rental fleet in the region, with around $10 million worth of equipment to be relocated to Australia.
“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 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.
Emeco has also downgraded its operating EBITDA forecast down from between $82 million- $94 million to only $72 million – $72 million.