$100 million goodwill write-down for GEON

Largest regional sheetfed print company bites the intangibles bullet in last year’s $180 million loss.

Ahead of last November’s re-financing by the Bank of Scotland, GEON took a haircut in its annual report on the monetary value of its reputation. It slashed the book value of good will by almost 50% to leave it at $121 million.
Ashley Fenton, CFO, described the move as “prudent and responsible. It is a non-cash, non-recurring loss that continues our positioning of the business,” he said.

The cut highlights the often ephemeral nature of good will on company’s books, especially when it is built as a result of takeovers. The value of printing companies is often tied up with the senior management or owners. When they leave after a takeover, the good will on the book can often be illusionary.

Figures in GEON’s annual report, which is a snapshot of the company’s position at June 30 2009, reflect the savage downturn in business as a result of the GFC. Revenues dropped by 12.7% to $334.9million, while the reversal of interest rates caught the company off guard to the tune of $17.4 million in its financial hedging.

Taken together with restructuring costs it means GEON suffered an operating loss of $55 million. “Not an attractive result, but a reflection of the tough year for everyone in the industry,” said Fenton.

The lodgement of the annual report in New Zealand last Friday gives an insight into the situation that saw GEON’s PE backers, Gresham Partners, plough extra cash and guarantees into the company last November. The $302.1 million loans give the company breathing space with major interest repayments at the discretion of management until 2013. The maturity date can be extended for two more years, provided the company meets targets by 2012. What these targets are remains ‘commercial in confidence’.

GEON faces a huge task to meet its commitments over the next three to five years. According to Graham Morgan CEO, in an exclusive interview with Patrick Howard, demand is still subdued and volumes are still reduced.

However he does believe the worst is over, that we have bottomed out and the company has been repositioned to take advantage of any upturn.

Even so it is an uphill battle to service such a huge debt, which must eventually be repaid.