Vector AR’19 ― notes to the financial statements (continued)
12. Investments CONTINUED 12.4 Other investments
mPrest Systems (2003) Limited On 4 October 2017, Vector invested $14.0 million (US $10.0 million) into mPrest Systems (2003) Limited (“mPrest”). The investment is accounted for as a financial asset at fair value through other comprehensive income (“OCI”) on the Balance Sheet. Vector holds 8.1% (2018: 7.8%) of the issued shares in mPrest. The group has determined the fair value of the asset as $15.6 million at 30 June 2019, with the upward movement of $0.6 million recognised in OCI. For fair value measurement purposes, the financial asset is classified as level 3 on the fair value hierarchy (see Note 20 for explanations of various levels in the hierarchy). The table below provides information on how the fair value of the asset is determined. The discount rate used is a post-tax, risk-adjusted rate that reflects the risks specific to the different segments of operations in mPrest. The terminal growth rate represents an estimated long-term sustainable growth rate for the free cash flows of the business.
FAIR VALUE
2019 $M
2018 $M
VALUATION TECHNIQUE
SIGNIFICANT UNOBSERVABLE INPUT
SENSITIVITY OF FAIR VALUE TO CHANGES IN INPUT
DESCRIPTION
15.6
Offshore private equity investment
15.0 Discounted cashflow
Discount rate 10% A 1% increase in discount rate used will result in a $2.2 million decrease in the fair value. A 1% decrease in discount rate will result in a $2.9 million increase in fair value. Terminal growth rate 2% A 1% increase in the terminal growth rate used will result in a $1.6 million increase in the fair value.
A 1% decrease in the terminal growth rate used will result in a $1.2 million decrease in the fair value.
The group’s team of valuation specialists are responsible for establishing the appropriate valuation techniques and inputs into the valuation models, including an assessment of any inputs obtained from third party or market sources. The valuation team report to the chief financial officer, and any significant valuation issues are reported to the group’s audit committee.
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