The Leeds-based group, which works on projects ranging from Barnsley’s marketplace makeover to improving transport in Bulgaria, said it was unable to create a sustainable shape for its Republic of Ireland business despite its best efforts.
Provisional liquidators have been appointed to the business, which analysts say earned revenues of about £2m in its latest financial year. This should free up about 5m euros (£4m) of costs, mainly tied to property, which the group said will be re-invested in “growth initiatives”.
The group, formerly called White Young Green, has been on a painful restructuring journey in recent years, including hundreds of job losses, office closures and a hugely dilutive capital restructure last summer.
In June the group said its focus “now shifts from internal improvements to creating quality top line growth through the delivery of our global integrated strategy”.
Ireland recently returned to the bond market, to take advantage of improving investor sentiment and continue its rehabilitation after its 2010 European bailout.
WYG said “wider economic conditions in Ireland and the severe decline in the Irish construction market” forced its hand.
The Irish business grew through 12 acquisitions between 1999 and 2008.
The group said the weak Irish economy compounded its unsustainable property costs and legacy claims associated with former acquisitions.
“Although the directors of the Irish business and members of its senior management have made every effort to reshape the business (including its property portfolio) to secure its viability, the legacy cost structure has proved insurmountable,” said WYG.
“The directors of WYG have therefore concluded that it is no longer viable to support this loss-making operation.”
Paul McCann and Stephen Tennant of Grant Thornton have been appointed provisional liquidators of the Irish business. Chief executive Paul Hamer said: “We greatly regret the impact that this decision will have on all those associated with the Irish business. However, despite the very best efforts of its management team, it has become clear the scale and nature of the legacy issues it faces are ultimately insurmountable.
“This move is the only responsible course of action for WYG’s board to take.”
WYG hopes to buy back its Northern Irish business, which continues to trade normally, from the liquidators. It said the operation continues to trade profitably and is unaffected by the property issues that have dragged down its Republic of Ireland business. But WYG said liquidators will also be looking for other buyers for the Northern Irish business over the next few days, and there is no certainty its bid will succeed.
WYG added: “The group remains very much focussed on building a platform from which it can deliver quality (profitable) top line growth, both domestically and in selected international markets.”
In a note to clients, N+1 Brewin analyst Michael Parkinson said the closure is a “positive” move for the business.
“(It is) a positive announcement which provides further evidence of the proactive steps being taken to eliminate legacy costs,” he said.
“Management continues to deliver ahead of the plan set out at the July 2011 placing, yet the shares continue to trade below the placing price of 50p per share.
“We expect the trading statement on September 17 to provide further reassurance that the recovery plan is on track and retain our 75p price target and buy recommendation.”
Will Wallis, analyst at house broker Numis Securities, said: “We see this as continued evidence of management making value-creative decisions in the process of turning around WYG.
“From a financial perspective we view this transaction as a 5m euros/£4m positive surprise for shareholders. This is worth approximately 6p per share, or 13 per cent of the group’s current market capitalisation.”
Numis lifted its target price 6p to 72p.
WYG shares closed last night at 49.5p, a rise of 0.75p
In June WYG reported an operating loss of £3.5m in the year to the end of March, but said its financial performance was improving and it was confident of returning to operating profitability in the near term.
Its second half operating losses of £1m were a big improvement on the £2.5m losses in the first half, WYG said.
However, its UK and Irish operations made operating losses of £4.7m during the year, versus £1.5m losses in the nine months to the end of March in 2011.
WYG had net cash of £23m at the end of March, versus net debt of £29.2m a year earlier.