Arrium has taken a writedown of almost $500 million on the value of its steel division that analysts say reflects its lack of value amid a high Australian dollar and weak construction markets.
Although Arrium said it had managed to turnaround the performance of its manufacturing business, the board of the steelmaker and iron ore miner decided to go ahead with an impairment charge, a non-cash writedown of $474 million.
"The board decided to write down goodwill in manufacturing having regard to the impact of an increase in market consensus forecast for the Australian dollar, as well as a forecast continuation of the difficult external environment and generally weak construction markets," the company said in a statement on Wednesday.
Arrium said manufacturing impairments totalled $431 million while distribution impairments totalled $43 million, but would have no impact on operations.
The writedown in distribution relates to the carrying value of the company's ARC steel reinforcing brand.
CMC Markets chief market strategist Michael McCarthy said investors were keenly awaiting the release of the company's upcoming half year profit results on February 19.
"This is a recognition of reality by the executives at Arrium," Mr McCarthy said.
"To be carrying any value for goodwill in an industry that is under extreme pressure was always going to result in writedowns."
He said the impairment charge was largely expected and would be seen as a step towards a cleaner balance sheet for the company.
Goodwill associated with the Australian Tube Mills business is also included in the total impairment charge because the company does not expect to realise the value of the business once it has been sold.
The company will now continue to focus on divesting non-integrated businesses, including Australian Tube Mills.
"The company continues to be comfortable with its banking covenants, including maintaining a very significant level of headroom under its gearing covenant test," Arrium said in a statement.
Shares in the company closed 0.5 cents higher at 94 cents.