It reads to me that FEX will need to show $10.8m goodwill on the balance sheet from the FN acquisition from July 2022.
Calculated as initial purchase price of $16.5m ($7.5m cash plus 30m shares at $0.30/share = $9.0m) less 50% of FN's net tangible assets at the acquisition date (50% of $11.4m = $5.7m). $16.5m - $5.7m = $10.8m goodwill (being excess purchase price over and above the net tangible assets acquired) = $2.15m p.a.
When the 60m so-called 'performance shares' are issued in 3 tranches of 20m each from June 2023 onwards at whatever price they are issued (whether 27.5 cents or the original 30 cents) the additional $16.5m to $18.0m will simply add directly to goodwill. Over 5 years this could be an additional amortisation charge of $5m per year.
Although, we do need to take into account that goodwill these days is not directly amortised to the P&L and is subject to an annual valuation test such that the goodwill is written down effectively to a net realisable value of the assets/business acquired.
However, while the business has been acquired 'in perpetuity', the real business acquired only has a 'life' to the extent of the mine/current resources.
Really looking forward to the HY accounts, but ultimately they don't really show much detail. The next annual accounts will be when this acquisition is really tested.
Questions are:
Will the auditors require the 'performance shares' (or I would realistically call them 'deferred payment shares' - as
@mrposhman has indicated) to be accrued at the outset as goodwill (probably not but will be an interesting audit committee discussion with the auditors); and
Will the auditors require the initial goodwill to be amortised from day 1 due to the finite life of the mine being the same finite life of the trucking contract with the wholly-owned FN (whether still in place or not for this purpose is really irrelevant)? FEX would argue, oh, well, we are seeking other contracts as well..the trucking business will go on... Over 5 years this initial goodwill could be an additional charge on profit of $2.0m per year (non-deductible) - then there is the other $5m+ p.a. to consider relating to the deferred payment shares.
This could be where you may want to be a fly on the wall.
I wonder if FEX will invite questions from the floor to the auditor at the next AGM.
(20min delay)