Australia’s Largest Companies To Take A$ 50 Billion Balance Sheet Hit on Intangibles

Post by Neil on December 26, 2008 · Under news ·

Australia’s 100 largest listed companies may see an A$ 50 billion hit on their balance sheet as the carrying value of the assets they have acquired declines in line with economic activity.

Intangible heavy sectors such as the media industry and companies which have made big acquisitions are likely to be the most vulnerable, according to a study by brand consultancy Brand Finance.
ASX 100 companies carried A$ 221 billion of intangibles as of June 30, 2008, $146 billion of which was capitalised goodwill from acquisitions. Despite the equity market correcting by 16 per cent in the 07-08 fiscal year, only 1 per cent of intangibles have been written down. Fosters Group adjusted A$ 470 million of its wine assets whilst insurer IAG adjusted its valuation of UK Bath.

Since then the ASX 100 index has tumbled a further 33 per cent.

“Further declines in economic sentiment suggest that significant impairments will be required during the current financial year,” Brand Finance managing director Tim Heberden said. “If current share prices are an accurate reflection of earnings expectations and risk, this would imply goodwill impairments of around $50 billion.”

The consultancy reckons that intangibles on average account for just 26 per cent or A$ 221 billion of reported balance sheet values of the top 100 companies compared with A$ 644 billion for tangible assets such a property and plant. The ratio is vastly understated because accounting standards do not allow for the recognition of internally generated goodwill and other intangibles such as brand names.

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