UK roadheader and tunnelling shield manufacturer Dosco Overseas Engineering has been sold by Billington Holdings to German mining equipment group SMT Scharf AG.
In addition to selling Dosco, Billington has also agreed to sell its Hollybank Engineering unit - the other part of Dosco Holdings - in return for a total cash price of £1.8 million (US$2.7 million) payable upon completion of the transaction.
Billington said Dosco Holdings had a pre-tax loss of £800,000 (US$1.2 million) on turnover of £12.8 million (US$19.3 million) for the year to 31 December 2009.
Dosco is active in the mining and tunnelling sectors. Hollybank supplies support arches mainly to the UK mining sector.
SMT Scharf specialises in mining transport equipment. The acquisition of Dosco Holdings complements and slightly widens its portfolio. It said the businesses would benefit its activities both in terms of customers and technologies, and that the acquisition is expected to impact earnings positively in the current financial year.
Last September, in reporting its group half-year results for 2009, Billington said that, while operating losses for Dosco had reduced to £83,000 in the first six months of 2008, (US$136,000 in June 2009 currencies) from losses of £339,000 (US$678,000 in June 2008 currencies), it anticipated weaker results ahead. Orders from 2008 were by then being completed and the weak levels of new order and activity expected in the second half of 2009 meant losses were expected to increase.
A Dosco roadheader and backup were used last year on BAA's new 1.8km long baggage tunnel at Heathrow Airport, but there have been difficulties in recent years for the business due to the volatility in international markets, especially in the mining sector, which has affected customers' capital spend and therefore Dosc's cashflow. The challenge to the Billington business also presented a need to give much more management time to Dosco.
In addition, a further burden for Billington, according to its statement, has been 'ongoing uncertainty' about the potential impact of the final salary pension liabilities for the Dosco business. The divested businesses have not contributed to Billington's profits in recent years after accounting for payments due under the pension scheme recovery plan. Billington added that it saw little prospect for improvement in earnings contribution to the group.
The net asset value of Dosco Holdings is £3 million (US$4.5 million),after accounting for a pension deficit of £5.2 million (US$7.8 million). The impact for the divested business is a stated loss of £1.5 million (US$2.25 million) after transaction costs.
In a statement, Billington notes that the problems of orders, cashflow and the pension scheme for Dosco were "issues that have adversely impacted the operations of the continuing business". It continued; "Disposal of the businesses eliminates the potential pension liability for Billington related to Dosco, and also marks the completion of its programme of selling non-core activities."
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