Tuesday 15 December 2020 9:00 am

UK companies record highest impairment charges since 2012

UK companies have recorded the highest goodwill impairments since 2012, new figures show, as Brexit uncertainty continues to have an effect on performance. 

In 2019 FTSE 100 companies recorded an aggregate impairment of 16bn, a 248 per cent increase from the previous year, according to research by Duff & Phelps. While UK companies within the pan-European Stoxx 600 recorded a 172 per cent increase in impairment charges, with an aggregate of 19.3bn. 

UK companies also accounted for 64 per cent of the top 10 goodwill impairments combined in 2019, and over half of the total amount for the year. 

The top three industries with the most significant charges were financials and real estate – nearly doubling from 9.6bn to 17.2bn in a year – in large part due to a slowing global economy and a low interest rate environment. 

HSBC reported a goodwill impairment of $7.3bn at the start of the year primarily related to global banking and markets, as well as European commercial banking. 

Duff and Phelps research also found that financial institutions were also “negatively impacted by the continued Brexit uncertainty”. 

The consumer staples industry also saw a rise in goodwill impairments from 1.2bn in 2018 to 7.5bn in 2019, while energy saw 3.2bn in impairments. 

And while the charges reached a record last year, the economic slowdown induced by the pandemic means charges will likely exceed the levels recorded in 2019. 

As of early October 2020, the top 10 impairment events have nearly reached a combined 25bn, which almost matches the level of the top 10 amount disclosed for the previous year. 

“The data is already showing that aggregate goodwill impairments will likely exceed 2019 levels as the effect of Covid-19 as well as Brexit negotiation uncertainty continue to weigh on companies’ outlook,” said Michael Weaver, Duff & Phelps’ managing director and head of valuation advisory. 

“While we are still unsure what the full effect of the Covid-19 pandemic will be, the outlook for European companies has deteriorated significantly from the beginning of the year and analysts have dramatically slashed earnings growth forecasts for 2020.”