Shares of Worleyparsons Limited (ASX: WOR) have fallen more than 3% today after the engineering group flagged a major impairment charge, which will be finalised upon the release of its full-year earnings results.
The company said that it had reviewed the carrying value of its assets as part of its usual year-end accounts preparation and, in light of the "expected ongoing challenging market conditions", now expects to book a $200 million impairment on goodwill. That represents roughly 10% of the value of the company's goodwill which stood at $2.08 billion as at 31 December 2014.
Although the impairment won't have an impact on debt covenants, it could impact the group's profit forecasts. Indeed, the impairment was not taken into account when management provided guidance in May, where it said second-half earnings would be approximately 50% of the results from the first half.
Today's impairment comes as more bad news for the company's shareholders who have watched the company fall from the market's grace in spectacular fashion. The stock is now languishing at a 10-year low of $8.39 following numerous profit warnings, thousands of job cuts and various other one-off charges.
This is largely the result of the slowdown in the mining sector in which the miners are increasingly taking their service roles in-house. Indeed, Worleyparsons isn't the only company to have suffered with others such as Monadelphous Group Limited (ASX: MND) and Bradken Limited (ASX: BKN) also falling from the market's favour.
Given the strong headwinds facing the sector, investors would be wise to avoid companies like Worleyparsons altogether and focus on some of the market's safer, potentially more rewarding alternatives.
