9365206756

SGSP (Australia) Assets Pty Ltd

ABN 60 126 327 624

Notes to the financial statements

For the year ended 31 December 2016 4 Critical accounting estimates and judgements

The Group makes estimates, judgements and assumptions concerning the futurę. The resulting accounting estimates will, by definition, seldom equal the related actual results. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of futurę events that are believed to be reasonable under the circumstances. Accounting estimates and assumptions where changes in those estimates and assumptions could result in a significant change in the recognised amounts of assets and liabilities are detailed below:

(i) Estimated recoverable amount ofintangible assets with an indefinite useful life and associated tangible assets For the purpose of impairment testing of the CGUs containing goodwill, goodwill is allocated to the Group's operating divisions at the lowest level within the Group at which the goodwill is monitored for internal management purposes, which is not higher than the Group¹s operating segments as reported in notę 5.

The recoverable amounts of the CGUs were based on their value-in-use or fair value less costs of disposal ("FVLCD"). FVLCD is measured using some inputs that are not based on observable market data. Therefore, they are deemed level three within the fair va(ue hierarchy as per AASB 13 Fair Vaiue Measurement. These recoverable amounts were determined to be equal to or higher than their carrying amounts, therefore no impairment of these CGUs is necessary. The carrying amounts of such assets are set out in notes 12,13 and 14.

Recoverable amounts were determined by discounting futurę cash flows of the CGUs and were based on the following key assumptions:

1.    Ali CGUs' futurę nominał cash flows are discounted to their present value using a post-tax discount ratę.

2.    Cash flow time horizons used in va!uing the CGUs were five years for Zinfra, ten years for ActewAGL, fifteen years for UED, fourteen years for Rosehill, thirteen years for Colongra and twenty years for each of the remaining CGUs. Management believes that this forecast period is justified due to the long term naturę of the CGUs' activities.

3.    For regulated CGUs, the growth assumption is primarily driven by the assumptions in the regulatory building błock models with growth being a function of the regulated asset base ("RAB") and the allowable return from the regulator in the current regulatory period and expected futurę returns in the years post the current regulatory period. Terminal values are calculated by applying a multiple to the RAB in the terminal year.

For non-regulated infrastructure CGUs, the growth assumption is largely determined by contractual parameters and the projected Australian Consumer Price !ndex.

For Zinfra, the growth is driven mainly by revenue growth across both term and construction contracts supported by identified opportunities, realistic win rates and historical trends.

For non-regulated CGUs the perpetual growth assumption used to calculate terminal values rangę between 0% to 2.0% (December 2015: 0% to 2.0%).

4.    Cash flows are discounted using a post-tax discount ratę that reflects current market assessments of the time value of money and risks specific to the CGUs. The discount rates applied in determining the recoverable amounts of the CGUs are as follows:

2016    2015

% %

■ Gas, Water and Electricity    Distribution (1)    4.88    5.41

Gas Transmission (2)    5.13-6.88    5.65-7.05

Zinfra    8.71    9.31

(1)    Gas, Water and Electricity Distribution assets include the following CGUs: JGN, JEN, Rosehill, ActewAGL and UED.

(2)    Gas Transmission assets include the following CGUs: EGP, QGP, VicHub and Colongra.

5.    Other significant assumptions madę by the Group in assessing the recoverab!e amount of CGUs, based on observable market information, past experience, regulatory analysis and management judgement include:

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1

Zinfra - Growth in term and construction contracts and efficient management of costs.