Telstra 2015 Annual Report Download - page 142

Notes to the Financial Statements (continued)
NOTE 21. IMPAIRMENT
140 Telstra Corporation Limited and controlled entities
21.1 Cash generating units
For the purposes of undertaking our impairment testing, we
identify cash generating units (CGUs). Our CGUs are determined
according to the smallest group of assets that generate cash
inflows that are largely independent of the cash inflows from other
assets or groups of assets.
(a) Cash generating units with allocated goodwill
The carrying amount of goodwill has been allocated to the CGUs as
detailed below:
(a) These CGUs operate in overseas locations, therefore the
goodwill allocated to these CGUs will fluctuate in line with
movements in applicable foreign exchange rates during the
period.
(b) Refer to note 20 for further details on acquisitions during the
year. There are no indicators of impairment in relation to these
assets since their acquisition dates.
(c) The Telstra Enterprise & Services Group includes goodwill from
past acquisitions integrated into our business.
(b) Ubiquitous telecommunications network and Hybrid Fibre
Coaxial (HFC) cable network
In addition to the aforementioned CGUs, we have two further
significant CGUs that are reviewed for impairment. These are:
• the Telstra Entity CGU, excluding the HFC cable network
• the CGU comprising the HFC cable network.
The Telstra Entity CGU consists of our ubiquitous
telecommunications network in Australia, excluding the HFC
cable network as we consider it not to be integrated with the rest
of our telecommunications network. Assets that form part of the
ubiquitous telecommunications network, comprising the
customer access network and the core network, are considered to
be working together to generate our cash inflows. No one item of
telecommunications equipment is of any value without the other
assets to which it is connected in order to achieve delivery of our
products and services.
21.2 Impairment testing
(a) Cash generating units with allocated goodwill
Our impairment testing compares the carrying amount of an
individual asset or CGU with its recoverable amount as
determined using a value in use calculation, with the exception of
Autohome whose recoverable amount was determined using fair
value less cost of disposal as an observable market price is
available for Autohome following its listing on the New York Stock
Exchange (NYSE).
Our assumptions for determining the recoverable amount using
value in use of each asset and CGU are based on past experience
and our expectations for the future. Our cash flow projections are
based on a maximum five year management approved forecasts
unless a longer period is justified. These forecasts use
management estimates to determine income, expenses, capital
expenditure and cash flows for each asset and CGU.
(i) Value in use
We have used the following key assumptions in determining the
recoverable amount of our CGUs to which goodwill or indefinite
useful life intangible assets have been allocated:
(a) Discount rate represents the pre tax discount rate applied to
the cash flow projections. The discount rate reflects the market
determined, risk adjusted discount rate which is adjusted for
specific risks relating to the CGU and the countries in which it
operates.
(b) Terminal value growth rate represents the growth rate applied
to extrapolate our cash flows beyond the five year forecast period.
These growth rates are based on our expectation of the CGUs’ long
term performance in their respective markets.
Sensitivity analysis was undertaken to examine the effect of a
change in a variable on each CGU. The discount rate would need to
increase by 210 basis points (2014: 431 basis points) or the
terminal value growth rate would need to be 0.5 per cent (2014:
negative 3.0 per cent) before the recoverable amount of any of the
CGUs would be equal to the carrying value.
Telstra Group
Goodwill
As at 30 June
2015 2014
$m $m
CGUs
Telstra UK Group (a) 74 65
1300 Australia Group 16 16
Autohome Group (a) 130 108
O2 Networks Group 57 47
HealthConnex Group (previously DCA
Health Group) 16 16
Fred IT Group 21 21
Telstra Enterprise & Services Group (c) 122 122
Ooyala Group (a) 361 -
Videoplaza Group (a) (b) 73 -
Pacnet Group (a) (b) 619 -
Nativ Group (a) (b) 58 -
Other 105 -
1,652 395
Telstra Group
Discount rate (a)
Terminal value
growth rate (b)
As at 30 June As at 30 June
2015 2014 2015 2014
%%%%
Telstra UK Group 6.6 7.5 3.0 3.0
1300 Australia
Group 10.4 11.7 3.0 3.0
O2 Networks Group 11.1 12.4 3.0 3.0
HealthConnex
Group (previously
DCA Health Group) 10.6 11.7 3.0 3.0
Fred IT Group 10.4 11.5 3.0 3.0
Telstra Enterprise
& Services Group 13.7 14.3 3.0 3.0
Ooyala Group 11.1 n/a 3.0 n/a