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CIMIC Group Limited Annual Report 2016 |
Financial Report
Notes continued
for the 12 months to 31 December 2016
26. JOINT VENTURE ENTITIES
CONTINUED
a) Material joint ventures
continued
The key assumptions used in the value in use calculation:
Discount rate
15% (31 December 2015: 15%)
Growth rate
3% (31 December 2015: 3%) for cash flows beyond five years. This rate does not exceed the expected
long-term average growth rate for the Middle East & North Africa (“MENA”) region
Legacy project
receivables
There continues to be a delay in payment from clients in the MENA region, particularly for projects in
progress at the time the Group invested in HLG Contracting. It is assumed of the remaining unprovided
legacy project receivables, 55% will be collected within twenty-four months and 45% collected
subsequently (31 December 2015: 56% and 44% respectively)
Borrowings
Borrowings obtained to fund working capital will be progressively repaid during the forecast period
Forecast cash flow
The calculation uses five year cash flow projections based on forecasts provided by HLG Contracting’s
management, risk adjusted downward by the Group. Cash flows beyond five years are extrapolated using
the estimated growth rate
Management considers that for the recoverable amount to fall below the carrying value there would have to be unreasonable changes
to key assumptions. Management considers the likelihood of these changes occurring as unlikely.
Refer to Note 8:
Trade and other receivables
for further details relating to loans and other receivables provided to HLG Contracting.
The Group has pledged the following security against borrowings by HLG Contracting under certain facilities totalling US$239.7 million (31
December 2015: two facilities totalling US$259.8 million) equivalent to $332.9 million (31 December 2015: $356.0 million):
−
letters of credit of US$85.4 million (31 December 2015: US$68.2 million), equivalent to $118.6 million (31 December 2015: $93.4
million); and
−
guarantees of US$154.3 million (31 December 2015: US$191.6 million), equivalent to $214.3 million (31 December 2015: $262.6
million).
No amounts have been recognised in relation to these letters of credit or guarantees.
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