The corporate watchdog has confirmed that it played a hand in Myer’s $515 million write down earlier this month, saying that it raised concerns about the department store’s fiscal 2017 annual report.
In a statement ASIC noted Myer’s write down of its goodwill and brand name, which drove the bulk of its record $476 million interim loss earlier this month, revealing that it had been in contact with the company.
“ASIC had raised concerns on the value of these assets in Myer’s financial report for the full-year ended 29 July 2017, including the reasonableness and supportability of the cash flow forecasts used in testing the assets for impairment,” the watchdog said.
“Myer has stated that it adopted lower cash flow forecasts in making the 27 January 2018 write down in the value of its assets. Myer also referred to the deterioration in trading during the first half of the 2018 financial year.”
Speculation over whether ASIC was looking into Myer’s books late last year was rife, exemplified by representatives for Premier Investments chairman Solomon Lew, who asked former chairman Paul McClintock whether there was an ongoing investigation at the department store’s AGM last year.
ASIC did not comment on the health of Myer’s balance sheet moving forward, but analysts have raised concerns that the department store may be at risk of breaching its lending covenants.
Myer’s write down leaves its balance sheet equity at around $580 million, which is still above its market capitalisation of around $312 million.
UBS analysts said earlier this month that a covenant breach was unlikely in fiscal 18, but FY19 posed a risk for the business as it looks to renegotiate its $420 million debt facility, set to expire in August next year.
“In our view [a] risk of a breach in FY19 is high, unless a material improvement in Myer’s profitability is seen,” UBS analysts said.
Myer’s chief financial officer Nigel Chadwick said earlier this month that Myer’s auditors had been over its books with a “dose of salts” and had satisfied themselves.
“We firmly believe there’s sufficient headroom to see us through to our next refinancing,” Chadwick said.
But Premier said that the headroom “looks very low” given that the second-half “looks increasingly like a loss”.
“What we know is that as long as the market capitalisation of the company (circa $350m) remains lower than the balance sheet equity (circa $580m) there remains a risk of further impairments and issues on covenants,” Premier said.
ASIC said on Wednesday that the impairment of non-financial assets remains a focus for its surveillance of financial reports.
Myer has been contacted for comment.
