Forum Archive Index - November 2000

[Brian Gale <brigale@i4free.co.nz>]

Hi Peter

You wrote.
>I take it this discussion on goodwill came up with Brian wondering how RMG 
>was going to account for the goodwill relating to their acquisitions - the 
>presumption being there was a lot of it. From their accounts in the Sep 
>announcement there was some goodwill written off anyway. Whether this was 
>some old Frontier goodwill or not I don't know.

 From the half year report of RMG (ASX not NZSE) a figure of $46M is shown 
as Intangibles net., with $570k having been amortized. This is not labelled 
as Goodwill but presumably that is what it must be.
Since then there have been further acquisitions so this figure is likely to 
have grown. My concern is that $50M+  Goodwill will eat into profits for a 
long time. ADV have a similar level of Goodwill and they tried to avoid 
amortization and got themselves into trouble with their initial reporting.

And in connection with some of the other postings:-

Just a further look at putting Tangible/Intangible assets into 
perspective.  Suppose RMG were to be liquidated - the tangible assets would 
have a market value whereas the intangibles would have no value and yet 
they have been paid for either in cash or borrowings or by share issues. 
This comes back to the significance of the NTA value of a company.

In a take-over situation it would be highly unlikely that the purchaser 
would accept a high goodwill figure showing on the books and this would no 
doubt be drastically reduced, whereas the Tangibles would be 
straightforward to value.

I think the key is, if Goodwill has been purchased, profits (after tax, 
which is significant) have to be used to offset the Goodwill which reduces 
the return available to shareholders. Of course the purchaser hopes to do 
so well out of the acquisition(s) that this will not be a problem, but 
nevertheless it is a hurdle to overcome before the company starts to make a 
true return on the funds employed.

Regards
Brian




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