Yinson Annual Report 2018

16. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) (f) Impairment of Floating Production Storage and Offloading vessels (“FPSOs”) The Group has undertook impairment assessment of its FPSOs based on value in use calculations. The vessels are chartered on long-term time charter contracts, hence, the value-in-use calculation uses discounted cash flow projections which takes into account the followings: (i) Charter period and rates contracted under the time charter contracts; (ii) Contract extension will be exercised and/or redeployment opportunities; (iii) Projected off-hire periods; (iv) Vessel operating expenses based on approved budget taken account an inflationary growth of 2.5%; and (v) Expected residual value estimated to be the discounted net book values of the vessels at the end of the fixed contract period. These cash flow assumptions are supported by the Group’s historical experience and past observable data and contractual rates. The cash flows are then discounted at rate ranging between 9.0% to 10.9% which reflects the specific risks relating to the cash flows generating from the long term charter contracts. Based on the impairment assessment performed, management determined that no impairment is necessary for the Group’s FPSOs for the current financial year. Impairment of Offshore Support Vessels (“OSVs”) The decline in vessel utilisation and charter rates of OSVs in the current financial year were identified as impairment indicators. Subsequently, the Group undertook an impairment review, which resulted in an impairment loss of RM32,793,000 (2017: RM11,630,000) on certain OSVs based on their forecasted value in use. The key assumptions used are as follows: (i) Utilisation rates and charter rates forecasted over the projected service lives of these OSVs. These were estimated based on past performance records, future market outlook and management’s expectation of market developments; (ii) Relevant operating costs adjusted for average inflation rate of 2.50% to 3.00% per annum over the projected service lives of the respective OSVs; (iii) Expected residual value of OSVs based on scrap values at the end of their service lives; (iv) Regional industry weighted average cost of capital (“WACC”) ranging from 6.90% to 9.70%; and (v) The projected service lives of these OSVs. The discount rates used are pre-tax and reflect specific risks relating to the CGUs. The discount rates applied to the cash flow projections are derived from the cost of capital plus a reasonable risk premium at the date of assessment of the CGUs. The Group had taken into consideration the current depressed demand for OSVs market conditions in the oil and gas industry in the cash flow projections, which include lower forecasted vessel utilisation and charter rates. Sensitivity to changes in key assumptions Changing the assumptions selected by management would significantly affect the Group’s results. The Group’s review includes the sensitivity of key assumptions to the cash flow projections. An increase by 5% in the utilisation rates and charter rates respectively will result in a reduction of impairment loss by approximately RM4,596,000 (2017: RM1,200,000) and RM5,084,000 (2017: RM3,200,000) respectively with all other inputs remain constant. A decrease by 5% in utilisation rates and charter rates respectively will result in an additional impairment loss of approximately RM7,382,000 (2017: RM18,800,000) and RM7,871,000 (2017: RM11,500,000 ) respectively with all other inputs remain constant. Corporate Overview Stewardship Governance Accountability 143 Yinson Holdings Berhad Annual Report 2018