Creating a new energy future – a bold vision
11. Intangible assets continued 11.1 Goodwill
2021 $M
2020 $M
Goodwill by cash generating unit
881.0 169.2
Electricity
881.0 169.2
Gas Distribution
–
Gas Trading Natural Gas
–
10.3 40.2 40.5
10.3 40.2 40.5
LPG
Liquigas
–
Communications
–
22.9
Metering
22.9
–
E-Co Products
–
Total
1,164.1
1,164.1
Policies
Goodwill represents the excess of the consideration transferred over the fair value of Vector’s share of the net identif iable assets of an acquired subsidiary. Goodwill is carried at cost less accumulated impairment losses. 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, metering, 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. For all segments the recoverable amount of each segment to which goodwill is allocated exceeds the net assets plus goodwill allocated. Therefore, the group has determined that no impairment to goodwill has occurred during the period. As at 30 June 2020, the group recognised an impairment loss of $32.0 million in respect of goodwill and intangible assets allocated to the E-Co Products CGU. 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. 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, gas distribution and metering 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 f ive-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 1.8% (2020: 0.0% to 2.0%) and post-tax discount rates between 3.7% to 6.5% (2020: 3.9% and 8.2%) are applied. Rates vary for the specif ic 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. The New Zealand Government (“the Government”) has until 31 December 2021 to set its f irst three emissions budgets out to 2035 and release the country’s f irst emissions reduction plan detailing the policies it will use to achieve the budgets. As policies are formalised, their impact on the assumptions used in impairment models will need to be carefully assessed.
Allocation
Impairment testing
Key accounting judgements
Assumptions
Climate Change Commission advice
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