Corporate Report for the year ended 30 June 2022
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Section B: Notes to the Group financial statements for the year ended 30 June 2022
Section B: Notes to the Group financial statements for the year ended 30 June 2022
B17 Other intangible assets (continued) Indicators of impairment At each reporting period the Group assesses whether there is an indication of impairment for each of the Group’s service concession intangible assets. Where an indicator of impairment is identified, impairment testing is performed. COVID-19 related government restrictions have adversely affected traffic volumes and consequently toll revenue in the year ended 30 June 2022. Expected COVID-19 impacts were factored into the Group's budget for the year ended 30 June 2022. While there was some deterioration in traffic performance against budget, this was not significant enough to erode the excess in recoverable amount. This is mainly due to the length of the remaining term of these service concession arrangements, with the majority of the recoverable amount generated beyond the near-term period impacted by COVID-19. Given this, management have concluded that there are no indicators of impairment for the Group's service concession intangible assets as at 30 June 2022. The key assumptions on which management have based their cash flow estimates used for the Group's impairment indicator assessments are traffic volumes, long-term CPI and the discount rate. For the A25, management have also considered the realisation of asset enhancement opportunities. As part of the impairment indicator assessments, sensitivity analysis has been performed which considers reasonably possible changes in these key assumptions for each of the Group's service concession intangible assets. Except for the A25, the Group's service concession intangible assets were not sensitive to reasonably possible changes in key assumptions. The recoverable amount for the A25 as at 30 June 2022 (based on fair value less costs of disposal) exceeds the carrying amount by 20% (30 June 2022 carrying amount: $1,224 million). As at 30 June 2022, the A25 concession intangible asset is sensitive and may be impaired if there are reasonably possible changes in the key assumption relating to the realisation of asset enhancement opportunities. There has not been a material change to long-term assumptions through to 30 June 2022. Accordingly, and given the A25’s reducing carrying amount through amortisation, management conclude there is no impairment as at 30 June 2022. KEY ESTIMATE AND JUDGEMENT For the purpose of impairment testing under AASB 136, for the Victorian operating segment, management have determined that the lowest level where there is an identifiable group of assets, that has separately identifiable cash inflows that are largely independent from other assets or group of assets, is the combined service concession intangible assets of CityLink and West Gate Tunnel (CGU). Any identified indicator of impairment would require impairment testing at this CGU level. For a majority of the Group's remaining concession intangible assets, impairment testing has been identified at the individual service concession intangible asset level. Impairment testing is undertaken by calculating the recoverable amount, based on the higher of fair value less costs of disposal and value-in-use, estimated using discounted cash flows. The calculation requires the use of assumptions regarding traffic flows, discount rates, growth rates and other factors affecting operating activities of the CGU. Management have concluded that there are no indicators of impairment for the service concession intangible assets of the CityLink and West Gate Tunnel CGU as at 30 June 2022.
Assets under construction Assets under construction as at 30 June 2022 include the construction of the West Gate Tunnel Project in Melbourne.
Construction costs relating to completed works are transferred to the service concession intangible asset upon final completion of the project. For the purposes of impairment testing, these balances are classified as contract assets and subject to the impairment requirements in AASB 9 Financial Instruments . Applying the expected credit loss model to the Group’s assets under construction resulted in a $nil loss allowance being recorded (2021: $nil). The expected credit loss model as at 30 June 2022 includes consideration of the impacts from the economic uncertainty relating to COVID-19, near-term interest rates and inflation which are limited due to the financial strength of the Group’s government counterparties. Management considers the carrying amount of assets under construction to be appropriate as at 30 June 2022. Refer to Note B2 for details on the final settlement reached during the reporting period with the State of Victoria and the D&C Subcontractor on revised terms for the delivery of the West Gate Tunnel Project.
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