Bradken Limited Annual Report 2015 - page 99

BRADKEN LIMITED ANNUAL REPORT 2015 l 64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Notes to the consolidated financial statements
30 June 2015
(continued)
16 Intangible assets (continued)
Impairment Charge
Key assumptions used for value in use calculations
The calculation of value in use for the CGUs is most sensitive to the following assumptions:
(a) EBITDA/sales margins
(b) Discount rates
(c) Growth rates used to extrapolate cash flows beyond the forecast period
Impact of reasonably possible changes in key assumptions
(a) Engineered Products: $46 million
(b) Cast Metal Services: $18 million
The Company has determined the assumptions based on past performance and expectations for the future. The growth rates
used are consistent with forecasts included in industry reports.
During the period impairment of $141.4m was charged to Goodwill, $9.1m to Customer Lists and $16.7m to Licences and Other
(2014: $NIL).
The directors believe there is a reasonably possible change in assumptions for the Engineered Products and CMS CGUs that
may result in an impairment. These changes are listed below. There is no reasonably possible change in assumptions that would
result in an impairment of goodwill allocated to the other CGU’s.
EBITDA Margin
The following changes in the EBITDA margin would be required to result in impairment for CGU’s considered to be significant in
comparison with the entity’s total carrying amount of goodwill.
Engineering Products: a sustained reduction of 2.2% in the EBITDA margin used would result in impairment.
Cast Metal Services: a sustained reduction of 1.6% in the EBITDA margins used would result in impairment.
In performing the value-in-use calculations, the company has applied a post tax discount rate to discount the forecast future
attributable post tax cash flows. Discount rates represent the current market assessment of the risks specific to each CGU,
taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in
the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Group and its operating
segments and is derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity.
The cost of equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the
interest-bearing borrowings the Group is obliged to service. CGU-specific risk premiums have been incorporated into the
calculation of the discount rates.
The post tax discount rate used for the Australian based CGU’s, including Mining & Transport, Fixed Plant and CMS is 12.0%
(2014: 12.0%), which equates to a pre tax discount rate of 17.1% (2014: 17.1%).
The post tax discount rate used in the United States based Engineering Products CGU is 10.5% (2014: 11.0%), which would
equates to a pre tax discount rate of 16.2% (2014: 16.9%).
The post tax discount rate used for the Mineral Processing CGU which operates in Canada and Australia is 11.3% (2014: 11.5%),
which would translate into a pre tax discount rate of 16.7% (2014: 17.1%).
The perpetual growth rates per CGU are as follows; Mining & Transport 2.6%, Mineral Processing 2.0%, Engineered Products
1.9%, Fixed Plant 3.0% and Cast Metal Services 2.5%.
As the Mineral Processing and Mining & Transport CGUs are written down to their recoverable amount at 30 June 2015, any
future adverse changes in the key assumptions will result in further impairment.
The difference between the carrying value and recoverable amount of the Engineered Products and CMS CGU's at 30 June 2015
is as follows;
The implications of the key assumptions for the recoverable amount are discussed below:
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