Toll Holdings' [ASX: TOL] New Zealand unit recognized a provision of almost $22.9 million in its dispute with the Inland Revenue Department over its use of convertible notes in 2013, a year that saw its annual loss widen by 69 percent as it wrote down the value of its Express Logistics acquisition.
The Australian logistics group, which competes locally with NZX-listed Mainfreight [NZX: MFT], is one of a group of companies being chased by the New Zealand tax department for claiming deductions on interest on convertible notes. IRD claims the securities, which let companies juggle debt and equity to provide a tax advantage, were used simply as a means to minimise tax.
Local subsidiary Toll Group (NZ) flagged the dispute as a $19 million contingent liability in its 2012 accounts, only recognising it as a provision in its latest accounts. Provisions are recognised when the group has a legal or constructive obligation as a result of past events; it is more likely that an outflow of resources will be needed to settle the obligation; and the amount can be reliably estimated, the statements say.
The notes were used to fund local investments between 2002 and 2005, with the disputed deductions on interest ranging from 2002 and 2012, the statements said. The $242.8 million of notes were converted to shares in 2012, meaning the Toll unit didn't have any finance expenses in the latest period, compared to interest costs of $25.5 million a year earlier.
The tax department has previously won in the High Court and Court of Appeal in favour of its assessment of the notes against Western Australia's Alesco Corp, and the Supreme Court will hear the case next month.
Toll's New Zealand unit widened its loss to $60.8 million in the 12 months ended June 30, from $35.9 million a year earlier, writing down the value of goodwill by $42.6 million. Revenue edged down to $379.5 million from $383 million a year earlier, and excluding the charge on goodwill, operating earnings dropped by a quarter to $5.3 million.
The impairment charge was on its Express Logistics freight forwarding unit, which Toll bought in 2009 for some A$50 million.
The ASX-listed group wrote down its goodwill on its global forwarding unit by A$204 million in the year ended June 30, and took an $11.4 million impairment charge on that unit's customer relationships.
Toll bought what is now the state-owned KiwiRail from American investors who had acquired the national rail service in a privatisation deal in the mid-1990s. Toll resold the rail part of the business back to the New Zealand government in 2008, while retaining the TranzLink trucking and freight logistics operations.
The group's shares slipped 0.5 percent to A$5.65 on the ASX yesterday. The stock is rated an average 'hold' based on 14 analyst recommendations compiled by Reuters, with a median stock price A$5.55.