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(d) Fair value measurements (continued)
(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 asset group 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 2017 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 ACCC approved remaining mine
life for Hunter Valley or 20 years for the
Interstate network.
•
•
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 1.6% to 4.5%
(2016: 0.8% to 4.9%).
•
•
Discount rates are determined using an
external expert assessment to calculate
a post-tax rate that reflects their current
market assessments of the time value
of money and the risk specific to the
business providing a range of 6.5% to
7.5% (2016: 6.8% to 7.2%).
Fair Value Impact
2017
2016
Increase
$’000
Decrease
$’000
Increase
$’000
Decrease
$’000
Annual revenue (1% movement p.a.)
163,454 (163,454)
153,423 (153,423)
Maintenance and capital expenditure
(1% movement p.a.)
(53,173) 53,173
(58,491)
58,491
Discount rate (1% movement)
(504,943) 716,075
(662,818) 956,836
113
NOTE 11
FINANCIAL RISK MANAGEMENT (CONTINUED)
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: