Notes to the financial statements
12. Intangible assets continued 12.1 Goodwill Allocation
Goodwill is monitored internally at a group level. It is allocated to the group’s cash generating units (“CGUs”), for impairment testing purposes. This is the highest level permissible under NZ IFRS. The CGUs within the group are: electricity, gas distribution, natural gas, LPG, Liquigas, communications and E-Co Products. Goodwill is tested at least annually for impairment against the recoverable amount of the CGU to which it has been allocated.
Key accounting judgements To assess impairment, management must estimate the future cash flows of operating segments including the CGUs that make up those segments. This entails making judgements including: — the expected rate of growth of revenues; — margins expected to be achieved; — the level of future maintenance expenditure required to support these outcomes; and — the appropriate discount rate to apply when discounting future cash flows.
Assumptions
The recoverable amounts attributed to all of the group’s CGUs are calculated on the basis of value-in-use using discounted cash flow models. Future cash flows are forecast based on actual results and business plans. For the electricity, and gas distribution CGUs, a ten-year period has been used due to the long- term nature of the group’s capital investment in these businesses and the predictable nature of their cash flows. A five-year period has been used for the natural gas, Liquigas, LPG, E-Co Products and communications CGUs. Terminal growth rates in a range of 0.0% to 2.0% (2022: 0.0% to 2.0%) and pre-tax discount rates between 7.5% to 9.9% (2022: 5.6% and 8.9%) are applied. Rates vary for the specific CGU being valued. Projected cash flows for regulated businesses are sensitive to regulatory uncertainty. Estimated future regulated network revenues and the related supportable levels of capital expenditure are based on default price-quality path determinations issued by the Commerce Commission and are in line with estimates published in the asset management plans.
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