MISC Annual Report 2019

15. INTANGIBLE ASSETS (CONT’D.) Impairment test for goodwill (a) Goodwill has been allocated to the Group’s CGUs identified according to business segment as follows: Group 2019 2018 RM’000 RM’000 Petroleum 819,449 829,304 Offshore 225 225 819,674 829,529 (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 6.90% (2018: 7.59%). 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 0.85% (2018: 0.81%) or 85 (2018: 81) 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 2024 into perpetuity with terminal year growth rate of 2.0% (2018: 2.5%). Terminal year charter rates are based on fifteen-year average historical market rates. A decrease of 4.66% (2018: 4.81%) or 466 (2018: 481) 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 1.12% (2018: 1.05%) or 112 (2018: 105) 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 2.0% (2018: 2.5%). (iv) Spot and time charter rates are estimated based on forecasts by industry research publications. 16. INVESTMENTS IN SUBSIDIARIES Corporation 2019 2018 RM’000 RM’000 At 1 January 18,669,894 15,858,081 Additional investments in subsidiaries (Note a) 14,000 789,148 Liquidation of a subsidiary (Note b) (3,438,308) – Impairment of investment in unquoted subsidiaries (Note 5(a)) (92,825) (41,789) Currency translation differences (166,171) 2,064,454 At 31 December 14,986,590 18,669,894 Quoted shares 265,050 267,959 Unquoted shares 14,721,540 18,401,935 14,986,590 18,669,894 Included in unquoted shares are preference shares of RM9,062,931,000 (2018: RM12,587,056,000) which bear interest ranging from 3.00% to 6.00% (2018: 3.00% to 6.00%) per annum. (a) Additional investments in subsidiaries (i) During the current financial year, the Corporation increased its investment in Eaglestar Marine Holdings (L) Pte. Ltd. (“EMH”) by RM14,000,000 in support of the subsidiary’s debt capitalisation exercise via issuance of ordinary shares. (ii) In the previous financial year: (a) The Corporation increased its investment in MISC Tanker Sdn. Bhd. (“MTSB”), a wholly owned subsidiary by RM789,148,000, in support of subsidiary’s debt capitalisation exercise and as consideration for transfer ownership of Seri Cempaka, Seri Camar and Seri Cemara ships via issuance of ordinary shares and Cumulative Redeemable Preferences shares (“CRPS”). (b) The Corporation had incorporated a new subsidiary, namely Portovenere and Lerici (Labuan) Private Limited (“PLL”) with an issued and paid up capital of USD10 divided into 10 ordinary shares. The incorporation of PLL is for the purpose of investment holding, owning, chartering and operating of ships. (b) During the current financial year, the Corporation had initiated the liquidation of its wholly owned subsidiary, MTTI Sdn. Bhd. via members’ voluntary winding up pursuant to Section 439(1)(b) of the Companies Act 2016. Subsequent to the liquidation commencement, the Corporation derecognised its investment in MTTI Sdn. Bhd. up to the amount of outstanding loan from MTTI Sdn. Bhd. in the current financial year. Details of the subsidiaries are disclosed in Note 39. NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 FINANCIAL STATEMENTS MISC BERHAD PEOPLE. PASSION. POSSIBILITIES ANNUAL REPORT 2019 306 307