Transfield Services (ASX: TSE) has had enough of New Zealand hydrocarbons. The operations, maintenance and construction services company announced today that it is handing off its 50% stake of a joint venture project to existing partner WorleyParsons (ASX: WOR) for $30 million.
"Though this is a good business, it was our only exposure to the New Zealand hydrocarbons sector," said Chief Executive of Transfield Services Resources and Energy business Joe Sofra in a statement today. "We have decided to focus our Resources and Energy operations on Australian markets such as Queensland's Coal Seam Gas sector, and markets in the United States. The price paid represents good value for our shareholders and the cash from the sale will be applied to reducing our balance sheet gearing."
With operations across 20 industries and 11 countries, the Transfield Worley joint venture equates to less than 2% of the company's total sales. With fiscal 2011 revenue clocking in at $2.76 billion, that means the partnership pulls in about $55 million a year in sales, although profitability wasn't mentioned in the news release.
While this move consolidates the company's hydrocarbons operations, Transfield plans to maintain its 40+ depots and services centres across Kiwi country, collectively employing around 2,500 New Zealanders. Transfield also made clear that this latest divestment isn't indicative of severed ties with Worley Parsons. The company release states that is remains "committed to jointly operating a series of contracts and businesses in the hydrocarbons, mining and power sectors ."
What the press release didn't say
Although strategic focus is almost never a bad thing, Transfield's in a tough spot and may be getting out faster than it should. The company reported a whopping $254 million loss for fiscal 2013, due mainly to a $296 million hit in after-tax impairment charges.
The company's minerals business has been killing its profitability, and Transfield isn't the only one. Other competitors offering services to this sector have also seen sales slumps, with McMahon Holdings (ASX: MAH), Emeco Holdings (ASX: EHL), and Boart Longyear (ASX: BLY) all heading into the future with squeezed forward book orders. Transfield's fell 13.6% to $9.5 billion, and its divestment strategy may be more to keep its books balanced than shuffle off unprofitable business segments.
Transfield's adapting to the times, and downsizing can keep the company nimble as it navigates new waters. But if it trims off too much fat, this corporation could be left too lean on the other side of a resources recovery.
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Motley Fool contributor Justin Loiseau has no position in any stocks mentioned in this article. You can follow him on Twitter @TMFJLo.
