The Australian Securities and Investments Commission (ASIC) has made it three out of three victories in forcing Australian media companies to impair the value of intangible assets in the just-completed December interim reporting season. The victories put every Australian company on notice that ASIC will force them to write down the value of assets, especially intangibles such as goodwill, where it feels they are out of alignment with market values.
“ASIC noted the decision by ASX-listed Pacific Star Network Limited (PNW), announced on February 28, to record an impairment charge of $4.5 million on publishing mastheads and goodwill arising from the acquisition of Morrison Media,” the regulator said in a statement posted on its website last week.
“ASIC had previously made enquiries of PNW regarding the carrying value of non-current assets in its 30 June 2016 financial report as part of its financial reporting surveillance program. We were concerned that the assumptions used in the impairment models for the publishing business were too optimistic.”
ASIC’s statement echoed similarly worded comments in releases relating to Seven West Media (which was forced to write down the value of its Yahoo7 joint venture by more than $75 million) and the big one: forcing Nine Entertainment to impair the value of the goodwill on its TV licences by $260 million.
The Pacific Star move drives home the significance of ASIC’s wins over a very well-connected corner of corporate Australia — and the boardrooms of three of the best connected companies in Australia. The write-downs and ASIC statements will have been, by now, noted by boards and advisers in most Australian companies.
The banks to these companies will have also noted the write-downs and ASIC’s move and should have, by now, started checking their clients in these sectors to make sure loan covenants won’t be breached by any future impairments. Pacific Star, in fact, made the point in its latest interim report that it remains within its banking covenants.
In fact, Pacific, Seven West and Nine Entertainment impairments totalled $340 million. They were joined in the December reporting period by Foxtel/News Corp in writing down the value of the pay TV business, and the value of News Corp Australia’s long life assets. These totalled nearly A$700 million (or US$537 million). The total impairments reported for December 31 in the Australian media was just over A$1 billion.
Pacific Star owns radio assets including SEN and digital radio channels, and magazines such as the once highly successful, but now fading, Frankie and several lesser titles. Pacific Star released interim results a week ago today (Monday) and revealed a loss of more than $4 million. A week later, the results have yet to be posted on its own website, but are on the ASX website.
Given the way the value of Pacific Magazines (owned by Seven West) has been cut in the past three years, there could be more cuts at Pacific Star coming in the next 18 months, along with Seven West whose intangibles of more than $1.3 billion considerably outweigh its sharemarket value of just over $1 billion. — Glenn Dyer