Almost half the stock market value of Powerscreen, the Northern Ireland-based engineering group, has been wiped out following revelations that irregularities in one of its subsidiaries will result in massive losses.
The company, whose shares went into free-fall yesterday, is now predicting a £10 million sterling pre-tax loss in the year to the end of March, compared to previous market forecasts of pre-tax profit of almost £50 million. The shares, which had been previously traded at 550p sterling, closed at 254p sterling yesterday. In Dublin the shares fell from a previous 651p to 294.25p in heavy trading.
Analysts said yesterday that Powerscreen, once the star of the engineering industry could now become a takeover target. Possible bidders include Caterpillar and Ingersoll Rand, the giant US group.
Powerscreen announced yesterday morning that, during the course of an investigation into cash flow budgets, certain irregularities had been discovered at Matbro, one of its subsidiaries. Powerscreen is recommending a provision of £46.7 million against pre-tax profits in the current year.
The company rushed to reassure investors that the irregularities would have no impact on the group's other operations "which continue to trade at a level of profitability in line with market expectations". However, it warned that it would result in the group reporting a loss before tax of approximately £10 million.
Matbro is a subsidiary which is based in Dungannon, with an administrative operation in Gloucester. It supplies forklift trucks, makes telescopic lifting gear and employs more than 100 people. A contract with John Deere, a US-owned company, which it won three years ago is said to have enhanced its turnover to around £80 million.
Powerscreen said yesterday that the irregularities uncovered in Matbro concerned the mispricing of machines, unauthorised discounts offered to customers, inaccurate and misleading recording and discounting of bills of exchange and warranty costs. Powerscreen said that as soon as it discovered the irregularities it called in its auditors KPMG. Powerscreen said it received the auditors' report on Monday.
In an interview with Reuters yesterday, Powerscreen chief executive, Mr Shay McKeown said that Matbro, which was expected to contribute in excess of £10 million to annual profits, was the only subsidiary which had its own financing arrangements. Mr McKeown told the news agency that a new management team was already in place and the Matbro organisation budgets were being revised. "This has happened very quickly and our priority is to establish the loss, stop the bleeding and bring the company back to being the company it was a number of years ago."
Mr McKeown said serious work had to be done on restructuring the cost and developing the product range and getting market confidence back again. "We believe, in time, we can achieve that," he said.
Powerscreen chairman, Mr John Craig said the company was very concerned "that this subsidiary, which has an excellent product range and reputation, has necessitated such a provision to be made against profits".
Senior Powerscreen executives could not be contacted for individual comment yesterday. It is understood they spent most of the day in London, fielding calls from worried dealers in Dublin, London and New York, as well as talking to London institutions.
Powerscreen is the second largest publicly-quoted company in Northern Ireland. Around 40 per cent of its shareholders are based in the US. Other shareholders include Ulster Bank, Standard Life, Guardian Royal Exchange and Prudential.
The group employs more than 2,200 people with around 1,000 based in Ireland. It has three main divisions - screening, crushing and recycling and materials handling.
