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(v) Valuation processes
The Group calculates the fair value for infrastructure assets using the income method approach,
whereby the measurement reflects current market expectations of future cashflows discounted to
their present value for each cash generating unit that would be considered reasonable by a normal
market participant. The estimated future cash flows are discounted to their present value using a
post-tax discount rate that reflects current market assessments of the time value of money and
the business risk.
ARTC’s policy is to revalue on a triennial basis or in an intervening year if the fair value of the
revalued asset class differs materially from its carrying amount. Property, plant and equipment
reviews are undertaken annually to ensure significant movements are identified and accounted for.
At 30 June 2016 the Group undertook a fair value assessment on an income method approach
as there are no similar market quoted assets. The net present value of the cash flows for each
business unit is compared with the current carrying value and any significant variance is taken
to the financial statements.
The main level 3 inputs used by the Group for this process are derived and evaluated as follows:
•
•
The Interstate business unit comprises the East West and North South CGU’s, the
underlying cash flows are compiled on the basis that the CGU’s operate as a combined
Interstate business unit.
•
•
Due to the long life of the asset base of the business, cash flows are considered for the shorter
of mine life or 20 years.
•
•
Expected cash flows are based on the terms of existing contracts, along with the entity’s
knowledge of the business and assessment of the likely current economic environment impacts,
adjusted to account for an expected arm’s length market participant’s view of cash flow risks.
•
•
Growth rates for income are derived from the underlying contract data, GDP growth rates,
inflation estimates and pricing assumptions. Long term average growth rates used range from
0.8% to 4.9% (2015: 1.6% to 5.0%).
•
•
Discount rates are determined using an external expert assessment to calculate a post-tax rate
that reflects current market assessments of the time value of money and the risk specific to the
business providing a range of 6.8% to 7.2% (2015: 7.0% to 7.3%).
Summarised sensitivity analysis
For the fair values of infrastructure assets reasonably possible changes at the reporting date to one
of the significant unobservable inputs, holding other inputs constant would have the following effects:
Fair Value Impact
2016
2015
Increase
$’000
Decrease
$’000
Increase
$’000
Decrease
$’000
Annual revenue (1% movement p.a.)
153,423 (153,423)
147,509 (147,509)
Maintenance and capital expenditure
(1% movement p.a.)
(58,491) 58,491
(52,481)
52,481
Discount rate (1% movement)
(662,818) 956,836
(642,812) 917,716
NOTE 12 (CONTINUED)
FINANCIAL RISK MANAGEMENT
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