Key assumptions used for value in use calculations
Cash flows were projected based on actual operating results, the Board approved budget and five-year business plan. Cash flows for a further five-year
period were extrapolated using a declining growth rate such that the long term average growth rate was determined at three per cent, which does not
exceed the long-term average growth rate for the industry and economy. Management believes that this forecast period is justified as the businesses of
Transfield Services are still in a growth phase in their life cycle. A 10-year forecast period correctly reflects the growth structure to maturity.
The assumptions below have been used for the analysis of each CGU within the business. Management determined budgeted gross margin based on past
performance and its expectations for the future. The discount rates used reflect specific risks relating to the relevant CGUs and countries in which they
operate these have been evaluated using input from independent experts.
Value in use was determined by discounting the future cash flows generated from the continuing use of the units and was based on the following key assumptions:
Cash Generating Unit Gr owth rate1 Discount rate2 Discount rate
Pre-tax Post-tax
2010 2009 2010 2009 2010 2009
% % % % % %
Australia 2.0-4.2 2.0-4.2 11.4-14.9 13.4-14.6 11.2 10.5
United States facilities management 4.0 4.2 17.5 16.1 11.9 11.6
United States other 3.6-4.0 3.6-4.0 17.0-17.2 18.1-18.8 11.7 12.3
New Zealand 3.6 3.4 14.3 15.5 11.2 11.7
Other 4.0 4.0 14.2-22.9 17.2 14.2 15.3
1 The average growth rate represents the average rate used to extrapolate cash flows beyond the one-year budget period and the five-year business plan period that were
approved by the Board and management respectively.
2 In calculating the value in use for each CGU, the Group has applied post- tax discount rates to discount the forecast future attributable post-tax cash flows. The movements in
discount rates are in line with the general economic environments in which Transfield Services operates.
Impact of possible changes in key assumptions
• If the pre-tax discount rate applied to the cash flow projections of USM is increased to 17.7 per cent, headroom decreases by $4,072,000, resulting in
headroom of $6,889,000. If revenue is decreased by 1 per cent (with no other underlying changes), an impairment of $39,255,000 would be recognised. The
decrease in revenue results in lower effective margins as direct costs are held constant. Should the pre-tax discount rate increase to 18.1 per cent, the
carrying value of the CGU would equal its recoverable amount. Management believes that the budgeted cash flows in USM will be achieved and that no
impairment is required to be recognised. Management does not consider a change in any of the other key assumptions to be reasonably possible.
• If the pre-tax discount rate applied to the cash flow projections of TIMEC is increased to 17.4 per cent, headroom decreases by $2,018,000 resulting in
headroom of $10,975,000. If revenue in TIMEC is decreased by one per cent (with no other underlying changes), an impairment of $12,974,000 would be
recognised. The decrease in revenue results in lower effective margins as direct costs are held constant. Should the pre-tax discount rate increase to 18.6 per
cent, the carrying value of the CGU would equal its recoverable amount. Management believes that the budgeted cash flows in TIMEC will be achieved and
that no impairment is required to be recognised. Management does not consider a change in any of the other key assumptions to be reasonably possible.
Note 17. Non-current assets – Prepayments and other non-current assets
2010 2009
$’000 $’000
Insurance and other prepayments 2,090 2,423
Establishment fees 2,530 2,633
Formation expenses and bid costs 1,004 -
5,624 5,056