208 REDISCOVER | REBUILD | SUSTAIN Notes to the financial statements - 31 December 2015 14. Intangible assets (cont’d.) (c) Key assumptions used in value-in-use calculations (cont’d.) Energy Related Shipping (cont’d.) 3. Terminal value and growth rate - The terminal value is based on expected cash flows for year 2020 into perpetuity with terminal year growth rate of 0% (2014: 0%). Terminal year charter rates are based on tenyear average historical market rates. A decrease of 3.10% or 310 basis points in the charter rates in deriving at the terminal value would result in recoverable amount equal to the carrying amount of the goodwill. 4. Expenses to increase by an annual average rate of 1.5% (2014: 2%). The Directors are of the opinion that the underlying key assumptions used in the estimation of the recoverable amount are reasonable. Based on the above assumptions, there is no impairment to the goodwill of AET. Other Energy Businesses Goodwill for Other Energy Businesses relates to the Group’s interest in Malaysia Marine and Heavy Engineering Holdings Berhad (“MHB”) and Malaysia Offshore Mobile Production (Labuan) Ltd. (“MOMPL”). The recoverable amount of MHB and MOMPL is determined as follows: Key assumptions used in MHB’s value-in-use calculations For the purpose of impairment testing, the recoverable amount of a cash-generating-unit (“CGU”) is determined based on value-in-use calculations using cash flow projections based on financial budgets approved by management covering a five-year period. The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill: (i) Revenue Revenue are estimated based on existing order book and anticipated future projects. (ii) Budgeted gross margins Gross margins are estimated based on forecast margins for order book, customer contract, management’s expectation and past experience for new work. (iii) Discount rate The discount rate reflects specific risk relating to the CGU. The discount rate used is 10.3% (2014: 10.8%). (iv) Growth rate Cash flow beyond the five-year period is extrapolated using a growth rate of 2.8% (2014: 3%). The growth rate is based on published industry research and do not exceed the long-term average growth rate for the industries relevant to the CGU. Based on these calculations, an impairment loss was recognised to write down the entire carrying amount of goodwill for MHB of RM117,709,000.
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