Air Products (NYSE: APD) has announced that the Company will exit its Energy-from-Waste (EfW) business. As a result, the EfW business segment will be accounted for as a discontinued operation effective in the Company’s second fiscal quarter. Also in the second quarter, Air Products expects to record a pre-tax charge in the range of $900 million to $1.0 billion in discontinued operations, primarily to write down assets associated with the EfW business to their realizable value.
In previous public comments, Air Products’ management has communicated the challenges with the Tees Valley, UK projects. Testing and analysis completed during the Company’s fiscal second quarter indicated that additional design and operational challenges would require significant time and cost to rectify. Consequently, the Board of Directors has decided that it is no longer in the best interest of the Company and its shareholders to continue the Tees Valley projects. Air Products will work to optimize the cash value of its investments. Exiting the EfW business will allow the Company to direct its resources to its core business of Industrial Gases.
The Board of Director’s decision to exit EfW is expected to have the following impacts on the Company’s financial reporting and metrics:
- On a historical basis, the impact of moving the EfW segment to discontinued operations will increase EPS from continuing operations by about 3 to 4 cents for FY14 and FY15, as there was a small operating loss reported in the EfW segment.
- The EfW asset write-down is expected to result in an increase in the Company’s Return on Capital Employed (ROCE) from continuing operations by approximately 80 basis points, driven by removing the asset value from the denominator in this calculation.
- A modest future cash tax benefit is expected from the write-off.
- Additional details on these financial impacts will be available with the Company’s fiscal Q2FY16 earnings announcement on April 28.
“Air Products is focused on our core Industrial Gas business. We pushed very hard to make this new EfW technology work and I would like to thank the team who worked so diligently. We appreciate the hard work of our employees and contractors at the site, and certainly understand their disappointment in this decision. We are also disappointed with the outcome,” said Seifi Ghasemi, chairman, president and CEO of Air Products.