MISC Annual Report 2018

NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS HIGHLIGHTS OF THE YEAR OUR BUSINESS OUR LEADERSHIP OUR PERFORMANCE OUR COMMITMENT TO SUSTAINABILITY OUR GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 50 TH ANNUAL GENERAL MEETING 281 MISC BERHAD ANNUAL REPORT 2018 280 15. INTANGIBLE ASSETS Group Goodwill RM'000 Other intangible assets RM'000 Total RM'000 Cost At 1 January 2017 1,059,009 212,557 1,271,566 Currency translation differences (84,873) - (84,873) At 31 December 2017/1 January 2018 974,136 212,557 1,186,693 Write-off (Note 5) (721) - (721) Currency translation differences 18,615 - 18,615 At 31 December 2018 992,030 212,557 1,204,587 Accumulated amortisation and impairment At 1 January 2017 162,501 170,389 332,890 Amortisation for the year (Note 5) - 9,424 9,424 At 31 December 2017/1 January 2018 162,501 179,813 342,314 Amortisation for the year (Note 5) - 5,392 5,392 At 31 December 2018 162,501 185,205 347,706 Net carrying amount At 31 December 2017 811,635 32,744 844,379 At 31 December 2018 829,529 27,352 856,881 Impairment test for goodwill (a) Goodwill has been allocated to the Group's CGUs identified according to business segment as follows: Group 2018 RM'000 2017 RM'000 Petroleum 829,304 810,689 Offshore 225 225 Others - 721 829,529 811,635 15. INTANGIBLE ASSETS (CONT'D.) (b) The Group performed a review on the recoverable amount of goodwill during the financial year. Generally, the recoverable amounts are based on the higher of fair value less costs to sell or value-in-use for the CGUs to which the goodwill is allocated. The recoverable amount of a CGU is determined using the value-in-use method, based on cash flow projections derived from financial projections approved by the management covering a five-year period. The discount rate used is based on the pre-tax weighted average cost of capital determined by the management. Goodwill for the Petroleum segment represents goodwill arising from acquisition of American Eagle Tanker Inc. ("AET"). An impairment review of the carrying amount of the goodwill at the reporting date was undertaken by comparing to the recoverable amount of the CGU, which was derived based on value-in-use calculations. The value-in-use is most sensitive to the following key assumptions: (i) Risk adjusted discount rate used is 7.59% (2017: 7.50%). The discount rate reflects the current market assessment of the risks specific to the Petroleum segment. This is the benchmark used by the management to assess operating performance and to evaluate future investments. An increase of 0.81% (2017: 1.18%) or 81 (2017: 118) basis points in discount rate would result in recoverable amount that equates to the carrying amount of the CGU. (ii) Terminal value and growth rate - The terminal value is based on expected cash flows for year 2023 into perpetuity with terminal year growth rate of 2.5% (2017: 2.5%). Terminal year charter rates are based on ten-year average historical market rates. A decrease of 4.81% (2017: 5.91%) or 481 (2017: 591) basis points in the charter rates in deriving at the terminal value would result in recoverable amount that equates to the carrying amount of the CGU. A decrease to 1.05% (2017: 1.5%) or 105 (2017: 150) basis points in terminal growth rate would result in recoverable amount that equates to the carrying amount of the CGU. (iii) Expenses are estimated to increase by an annual average rate of 2.5% (2017: 2.5%). (iv) Spot and time charter rates are estimated based on forecasts by industry research publications.