Port Group, Asciano took advantage of federal budget day to slip out a $1.1 billion write-down in the value of its ports business because of the imminent arrival of a third stevedore in Brisbane and in Melbourne over a couple of years.
Asciano shares hardly budged from the news, trading only 1.5c down at $1.645.
Nowhere in the Asciano announcement was the arrival of a third competitor mentioned as a reason for the charge, and it was left to ratings group, Moody’s to explain in its statement reaffirming Asciano’s (AIO) current rating with a positive outlook.
Asciano CEO, Mark Rowsthorn, said in the statement, “The Asciano Board, which has a number of new Directors, has completed a thorough and rigorous review of Asciano’s 10 year strategic plans. Both the Board and management were pleased with the strategic position and direction of the Company.
"The strength of Asciano’s core businesses, the exposure it has to the expanding resource sector and the leverage it has to an economic recovery means the Company is well positioned for future growth and performance.
“This is a non cash item and the overall enterprise value is not affected by the impairment due to the increase in value in other parts of the business which under accounting standards are unable to be written up”, Mr Rowsthorn said. Those other parts that had increased in value were not explained any further."
Most of the cuts will be taken in the value of the Patricks port businesses that Toll picked up in the expensive 2006 takeover, and then hived off in the Asciano spin off.
Asciano said in the statement to the ASX, "It is expected that pre tax impairment charges of approximately $1,110 million will be incurred in the second half of the year to June 2010.
"This amount comprises two non-cash components:
- An impairment charge of approximately $960 million relating to goodwill in the Ports businesses as follows:
- $760 million relating to goodwill in the Patrick Container Ports division largely attributable to changes in the long term assumptions of this business;
- $150 million relating to goodwill in the Patrick General Stevedoring division; and
- $50 million relating to the goodwill in Patrick Autocare.
- An impairment of other assets totalling approximately $150 million – including $120 million relating to tangible assets, and $30 million relating to intangible assets such as customer contracts and associated relationships inherited at the time of the Toll-Asciano demerger.
The tangible asset write-down includes $60 million relating to a write-down in the carrying value of Rail-Mounted Gantries at Port Botany.
In its statement, Moody’s said in part, "Moody’s notes that the goodwill value was fixed on Asciano’s demerger from Toll Holdings in 2007, and its subsequent decision to write it off in view of the eventual entry into Australia of a competitive third ports operator, most likely Hutchison Whampoa," says Lewis."
"Additionally, the impact of reductions in projected container traffic — because of an assumed third operator — were originally built into Asiano’s Baa3 ratings," says Lewis, who is also Lead Analyst for the company.
"And Moody’s has already assumed a progressively more challenging competitive situation for the company from 2013."
"Moody’s analysis of Asciano incorporates the effects of Hutchison Whampoa building port capacity at Brisbane in 2013 and Sydney in 2014 and the assumption that it is not likely to start any construction in Melbourne until 2015 at the earliest."
Standard and Poor’s also reaffirmed AIO’s credit rating and made similar remarks.
