Marcha Fitoquímica

2009 2008 $m $m A. COMPOSITION Goodwill 2,149 2,313

Net foreign exchange movements (151) (161)

Accumulated impairment charges (118) (277)

1,880 1,875

B. RECONCILIATION OF MOVEMENTS

Balance at the beginning of the financial year 1,875 2,256

Additional amounts arising from business combinations 7 33

Disposed through sale of businesses (12) (2)

Net foreign exchange movements 10 (135)

Impairment charge – (277)

Balance at the end of the financial year 1,880 1,875

C. ALLOCATION TO CASH GENERATING UNITS

Australia direct insurance operations(a) _{582 582}

Australia intermediated insurance operations(a) _{574 574}

New Zealand insurance operations(b) _{286 281}

Asia insurance operations(b) _{54 45}

United Kingdom insurance operations(b) _{384 393}

1,880 1,875

(a) In previous periods these goodwill amounts were tested on the basis of an aggregated Australia cash generating unit which included the Australia captive reinsurance operation. The goodwill has been allocated between the new Australia cash generating units based on relative values at date of separation.

(b) These cash generating units now include an allocation of the non-Australia captive reinsurance operation.

The cash generating units have changed from those identified as at 30 June 2008 following a restructuring of the operation of the IAG Group similar to the change in the segments reported in the segment reporting note.

As the IAG Group incorporates businesses into the IAG Group and/or reorganises the way businesses are managed, reporting structures may change requiring a reconsideration of the identification of the cash generating units.

The goodwill relating to certain acquisitions outside Australia is denominated in currencies other than Australian dollars and so is subject to foreign exchange rate movements.

D. IMPAIRMENT ASSESSMENT

The impairment testing of the goodwill involves the use of accounting estimates and assumptions. The recoverable amount of each cash generating unit is determined on the basis of value in use calculations. The value in use is calculated using a discounted cash flow methodology covering a five or 10 year period with an appropriate terminal value at the end of year five or 10, less net assets, for each of the key business units within a cash generating unit.

I. Assumptions used

The following describes the key assumptions on which management has based its cash flow projections to undertake impairment testing of goodwill.

a. CASH FLOW FORECASTS

b. TERMINAL VALUE

Terminal value is calculated using a perpetuity growth formula based on the cash flow forecast for year five or 10, terminal growth rate in profit or premium and, where appropriate, terminal insurance margin. Terminal growth rates and insurance margins are based on past performance and management’s expectations for future performance in each segment and country. The terminal growth rate assumptions used in the IAG Group’s impairment assessment as at 30 June 2009 range from 3% to 6%.

c. DISCOUNT RATE

Discount rates reflect a beta and equity risk premium appropriate to the Group, with risk adjustments for individual segments and countries where applicable. Discount rates used are pre tax and range from 13.4% to 14.4% (equivalent to 10.4% and 11.1% on a post tax basis).

The carrying value of identified intangible assets is deducted from the values generated from the cash flow projections to arrive at a recoverable value for goodwill which is then compared with the carrying value of goodwill.

II. Impairment testing results

At 30 June 2009, the cash flow projections derived values for each of the cash generating units that were in excess of the carrying value of goodwill.

At 30 June 2008, goodwill impairment charges of $277 million were recognised in relation to the UK cash generating unit as the cash flow projections derived values that were lower than the carrying value of goodwill.

Reasonably foreseeable changes in the key assumptions on which the recoverable amounts are based would not be expected to cause the respective recoverable amounts to fall short of the carrying amounts at reporting date except for the United Kingdom cash generating unit for which additional information is provided here. The key assumptions used in the valuation were:

the gross discount rate used to value the United Kingdom cash generating unit as at 30 June 2009 was 13.3% (10.4% net of ■

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tax). This compares with 13.6% (10.2% net of tax) used for the previous assessment as at 31 December 2008. The change in discount rate resulted from a change in the Group’s estimate of its weighted average cost of capital.

There are a number of key sensitivities within the valuation and these are noted below. They are stated in isolation although they are not wholly independent—for example, changes in interest rates leading to a change in discount rate could also lead to a change in profitability as the investment income would change:

an increase/decrease of 1% in the discount rate used would have decreased/increased the goodwill support by approximately ■

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$135 million (2008—increased/decreased the impairment charges by $136 million);

an increase/decrease of 3% in the year on year premium growth over the valuation period would have increased/decreased ■

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the goodwill support by approximately $77 million (2008—decreased/increased the impairment charges by $102 million); an increase/decrease of 1% in the terminal growth rate used would have increased/decreased the goodwill support by ■

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approximately $83 million (2008—decreased/increased the impairment charges by $72 million); and

an increase/decrease of 1% in the terminal insurance margin used would have increased/decreased the goodwill support ■

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by approximately $69 million (2008—decreased/increased the impairment charges by $60 million).

NOTE 20. TRADE AND OTHER PAYABLES

CONSOLIDATED 2009 2008 $m $m A. COMPOSITION I. Trade creditors Commissions payable 129 122

Stamp duty payable 69 65

GST payable on premium receivable 80 76

Other 222 207

500 470

Deferred payable under acquisition agreement* 25 30

II. Other payables

Other creditors and accruals 279 262

Investment creditors 2 121

Interest payable on interest bearing liabilities 12 23

818 906

* Relates to the Alba Group acquisition effected 3 July 2006. Cash flow hedge accounting is applied in relation to this payable.

B. SIGNIFICANT RISKS

Information is provided here regarding exposures as at reporting date for the significant risks faced by the IAG Group in relation to trade and other payables.

Trade and other payables are unsecured, non interest bearing and are normally settled within 30 days with the exception of the deferred payable under acquisition agreement which is expected to be settled in 2009. Amounts have not been discounted because the effect of the time value of money is not material. The carrying amount of payables is a reasonable approximation of the fair value of the liabilities because of the short term nature of the liabilities.