McDonald’s set for a downsize in intangible asset values

Fast food giant McDonald’s has warned the value of its intangible assets in Australia could take a cut because of COVID-19.

One of a number of Melbourne McDonald’s restaurants forced to close for cleaning after a delivery driver tested positive for COVID-19. Picture: Getty Images

Fast food giant McDonald’s has warned the value of its intangible assets in Australia could take a cut because of restaurant closures and a downturn in sales during the coronavirus pandemic.

However it says the slump in in-store dining has been partially countered by a “strong” lift in drive-through and deliveries.

McDonald’s Australia has lodged its latest results with the corporate regulator, showing that for the year to December 31, 2019 - before the COVID-19 crisis struck - its revenue weakened to $1.678 billion from $1.7bn in 2018.

The company posted a net profit of $242 million, slightly down from $259.3m in 2018.

McDonald’s has 980 stores in Australia in one of the biggest private sector employees, with 105,000 staff. It says that since its arrival in 1971 it has hired around 1.3 million Australians.

The food retailer has been hit hard by the coronavirus pandemic and the subsequent regulations on social distancing and home isolation.

As a result of the virus’s impact on business, McDonald’s Australia warned in its 2019 financial report that it might need to review values of its intangible assets.

It said trading and personal distance restrictions implemented as the health crisis unfolded had “directly impacted” its business. Sales had been dented and some restaurants forced to close, although consumers had switched to drive-through sales and deliveries.

“To date, impacts include reduced customer traffic and the closure of some retail and airport sites for a period of up to three months,” the report said.

“A subsequent downturn in sales resulting from the government- mandated closure of dine-in services for all restaurants and cafes, has been partially offset by a strong uplift in drive-through and delivery sales.”

McDonald’s Australia said the timing of easing of restrictions remained uncertain, and earnings and cash flow continued to suffer.

“We note the value of certain assets and liabilities recorded in the statement of financial position determined by reference to fair or market values at December 31, 2019 may have materially changed by the date of this report. These include the recoverable amount of the intangible assets.

“As the outbreak of COVID-19 occurred after December 31, 2019, its impact is considered an event that is indicative of conditions that arose after the reporting period and accordingly, no adjustments have been made to financial statements as at December 31, 2019 for the impacts of COVID-19.”

In recent years McDonald’s has bolstered its traditional menu and business by initiatives like its Uber Eats partnership, revamping its classic hamburgers to ratchet up the quality or luring patrons with coffee. Sales of coffee have doubled in recent years and now make up 10 per cent of sales.