annual report 2011

IOOF | annual report 2011
Impairment testing for cash-generating units containing goodwill
For the purposes of impairment testing, goodwill is allocated to the Group’s operating divisions, or cash-generating units (CGUs),
which represent the lowest level within the Group at which the goodwill is monitored for internal management purposes.
Each CGU is not higher than the Group’s operating segments as reported in Note 7 operating segments.
The aggregate carrying amounts of goodwill allocated to each unit are as follows:
Consolidated
2011 2010
$’000 $’000
Platform management and administration 329,213 329,213
Multi manager 39,735 39,735
Perennial group 110,215 110,215
Consultum 723 723
IOOF Ltd 11,970 11,970
491,856 491,856
The recoverable amounts for the relevant CGUs have been determined based on value-in-use calculations using first year cash flow
projections from 2012 financial budgets approved by management and the Board. The manner in which the Group conducts each
impairment assessment for years 2 to 5 and into perpetuity is discussed below by each relevant CGU.
CGU Consultum Perennial group Multi manager IOOF Ltd Platform
Management &
Administration
Value in Use element
Cash inflows years 2 - 5 A C B D B
Cash outflows years 2 - 5 E E E D E
Cash flows - perpetuity
3% growth from
year 5
3% growth from
year 5
3% growth from
year 5
D
3% growth from
year 5
A
Reserve Bank of Australia forecast GDP growth rate
B Observed Australian managed funds annual compounding growth for March 2006 to March 2011
C Observed Australian equities and units in trusts annual compounding growth for March 2006 to March 2011
D Observed Australian friendly societies’ annual compounding rate of decline for March 2006 to March 2011
E
Blended rate of the underlying Australian forecast inflation levels and the applicable Reserve Bank of Australia GDP growth rate
The growth rates applied do not exceed the long-term average growth rate for businesses in which each CGU operates. The discount
rate of 17.3% used reflects the Group’s pre-tax nominal weighted average cost of capital. Management’s assessment of goodwill’s
value-in-use exceeds the value of goodwill allocated to these CGUs, therefore any reasonably possible changes to assumptions used
in management’s assessment will not result in impairment.
Management has applied post tax WACC increments of 1% for the Perennial Group and 3.5% for Consultum to reflect specific
company risk premiums. These incremental amounts are judgement based and are consistent with accepted valuation industry
practice.
In respect of the Perennial Group, goodwill has arisen from the acquisition of equity in Perennial Investment Partners Ltd and Perennial
Fixed Interest Partners Pty Ltd while further goodwill has been recorded upon the recognition of an obligation the Group has to
acquire shares from Perennial executives under shareholder agreements. These shareholder agreements involve the executives of
Perennial Fixed Interest Partners Pty Ltd, Perennial Real Estate Investments Pty Ltd and Perennial Growth Management Pty Ltd.
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