The accounting policy on intangibles is set out in Note 2.13 and impairment loss on goodwill is recognised in the statement of profit or loss and other comprehensive income.
Impairment test for goodwill – FHL Retailing Limited
Goodwill of $12.112m has been tested for impairment by reviewing the underlying net assets supporting the investment in subsidiary which holds the Group’s 51% investment in RB Patel Group Ltd.
Management value the investment in RB Patel Group Ltd at fair value less estimated costs to sell which is significantly above cost and therefore have concluded that goodwill is not impaired. Fair value for RB Patel Group Limited has been determined based on quoted price of shares traded on the South pacific Stock exchange at 30 June 2015 of $2.98 (2014: $2.58) less estimated cost to sell. A decrease in RB Patel Group Limited’s share price by 82 cents would result in impairment. The fair value measurement was categorised as a Level 1 fair value based on quoted prices. The carrying amount of the CGU in 2015 was determined to be lower than its recoverable amount of $44,686,000 (2014: $38,688,000).
Impairment test for management rights
Management rights is considered a cash generating unit (CGU). The recoverable amount of the CGU is determined based on value in use calculations. Free cash flow from management rights was computed based on the forecast management fee income for the next 15 years (renewed in April 2014) net of management fee expense and income tax expense thereon.
These projections were based on financial budgets approved by management for the year ending 30 June 2016. Cashflows beyond June 2016 are extrapolated using the estimated growth rates in the underlying business.
The growth rate does not exceed the long term average growth rate in which the CGU operates.
The weighted average growth rates are based on management’s assessment. The discount rate used reflects the risk adjusted rate of return.
Management rights is being amortised over its remaining life on a straight line basis.
Impairment test for goodwill – South Sea Cruises Limited
The recoverable amount of this CGU was based on its value in use, determined by discounting the future cash flows to be generated. The carrying amount of the CGU in 2015 was determined to be higher than its recoverable amount of $87.475m (2014: $81.073m) and an impairment loss of $6.1m (2014: $0.812m) was recognised. The impairment loss was allocated against goodwill on consolidation and included in profit or loss.
The key assumptions used in the estimation of value in use were as follows:
The discount rate was a post-tax measure estimated based on the historical industry average weighted-average cost of capital, with a debt leveraging of 40% at a market interest rate of 4%.
Five years of cash flows were included in the discounted cash flow model. A long-term growth rate into perpetuity has been determined as the long-term compound annual EBITDA growth rate estimated by management, consistent with the assumption that a market participant would make.
Budgeted EBITDA was based on expectations of future outcomes taking into account past experience, adjusted for the anticipated revenue growth. Revenue growth was projected taking into account the average growth levels experienced over the past five years and the estimated sales volume and price growth for the next five years. The refurbishment and eventual use of the Mystique Princess has been factored into the budgeted EBITDA, with revenue generation from 2018.
Following the impairment loss recognised in the current year for South Sea Cruises, the recoverable amount is equal to the carrying amount. Therefore, any adverse movement in a key assumption would lead to further impairment. Management has identified that a reasonably possible change in two key assumptions could cause further impairment of goodwill as follows:
Impairment test for goodwill – Fiji Television Limited
Goodwill of $1.984m has been tested for impairment by reviewing the underlying net assets supporting the investment in subsidiary which holds the Group’s 61.6% investment in Fiji Television Ltd.
Management value the investment in Fiji Television Ltd at fair value less estimated costs to sell which is significantly above cost and therefore have concluded that goodwill is not impaired. Fair value for Fiji Television Limited has been determined based on quoted price of shares traded on the South pacific Stock exchange at 30 June 2015 of $2.50 (2014: $2.50) less estimated cost to sell. A decrease in Fiji Television Limited’s share price by $1.81 would result in impairment. The fair value measurement was categorised as a Level 1 fair value based on quoted prices. The carrying amount of the CGU in 2015 was determined to be lower than its recoverable amount of $15,624,000 (2014: $15,624,000).