Casino operator SkyCity wrote off substantial software investments today, the first of what is expected to be a steady drip of similar announcements.
Sky City wrote off nearly $20 million of cloud-related software and configurations due to a global change in accounting standards announced last March.
Retrospective adjustments reduced intangible assets by $18.9 million at 1 July 2020 and $19.3 million at 30 June 2021.
However, the adjustments resulted in a net decrease in profit after income tax of just $0.6 million at 31 December 2020.
The write-offs come after the COVID-19 pandemic created unprecedented headwinds for the travel and entertainment sectors. SkyCity reported revenue from continuing operations for the first half of its 2022 financial year, a period that included the major Auckland lock-down, of $289.8 million, down 35.6 per cent from $449.9 million the year before.
The company went into the red by $33.7 million in the half year, down 143.3 per cent from a $77.9 million profit for the same period in 2020.
In its 2021 annual report SkyCity warned compliance with the accounting decision required it to change its intangible asset accounting policy and make retrospective write-offs.
At the time, SkyCity was examining all historically capitalised software configuration and customisation costs relating to software-as-a-service (SaaS) arrangements to identify the level of restatement required.
"While the financial impact of the revised accounting policy is still being quantified, it is likely to be material for financial reporting purposes," SkyCity told shareholders last year. "The change will reduce intangible assets and associated amortisation, increase operating expenses, and reclassify the relevant spend from an investing to an operating cashflow."
Known cloud applications at SkyCity include Microsoft Dynamics 365, rolled out by Intergen through a contract awarded in 2017. Other partnerships include HP, Palo Alto and Cisco.
“We have replaced or upgraded just about every single key application across the group," CIO Glen McLatchie said in a case study published last year. This included an overhaul of the supply chain and financial system with Microsoft and a redevelopment of point-of-sale systems through TASK Technologies.
Contact Energy, which also reported its half year results today, undertook a similar review of its software assets, after telling shareholders last year no material changes were expected. Today it announced a relatively small write-off.
"During the six months ended 31 December 2021, Contact concluded its review of existing software assets in light of the IFRS agenda decision ... and wrote off $1 million of software assets relating to software-as-a-service arrangements," the company reported.
Last year, an International Financial Reporting Standards committee ruled that costs incurred in configuring and customising software provided under SaaS arrangements had to be expensed unless they met restricted criteria.