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The key audit matter
How the matter was addressed in our audit
beyond the timeframe of the current Commerce Commission regulatory price paths. We considered the impairment assessment of the E-Co Products cash generating unit, including goodwill and intangible assets, to be a key audit matter due to the underperformance against expectations since the completed restructuring in early FY20, impact of the COVID-19 and the resulting impairment expense of $32m recognised in the current period (including $4 million goodwill impairment). We considered the impairment assessment of the Metering cash generating unit to be a key audit matter due to significant value of intangible assets of $40 million in the business which operates across two geographical markets.
accepted valuation approaches of NZ IAS 36 Impairment of Assets and within the energy industry; — evaluating the significant future cash flow assumptions by comparing to historical trends, budgets and where applicable, Asset Management Plans, and regulatory pricing models; — comparing the discount rates applied to the estimated future cash flows and the terminal growth rates to relevant benchmarks using our own valuation specialists; — challenging the above assumptions and judgements by performing sensitivity analysis, considering a range of likely outcomes based on various scenarios; — calculating the regulated asset base (‘RAB’) multiple implied by valuation of the Regulated Network cash generated unit and comparing this to the range of RAB multiples observed in the marketplace; and — comparing the group’s net assets as at 30 June 2020 of $2,260 million to its market capitalisation of $3,600 million at 30 June 2020 which implied total headroom of $1,340 million. We found the methodology to be consistent with industry norms, specifically: — the discount and terminal growth rates were in an acceptable industry range; — future cash flow assumptions were supported by comparison to the sources we considered above; and — the overall comparison of the group’s net assets to market capitalisation did not indicate an impairment.
THE INTERPLAY OF TODAY AND TOMORROW
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