Thus an appropriate adjustment is made to the wacc to

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Unformatted text preview: ted EBITDA margins. Capital expenditure (“Capex”) – A normalised capex to sales ratio (capital expenditure as a percentage of revenues) is assumed in the long run. Changes in traffic volumes and number of subscriptions during a growth phase will affect the future capex to sales ratio. The Broadcast DTH/cable TV operation is less capital-intensive and the capex to sales ratio is therefore not one of the key assumptions for the valuation of this business. Estimated capital expenditures do not include capital expenditures that significantly enhance current performance of assets; as such effects generally are not included in the cash flow projections. discount rates – Discount rates are based on Weighted Average Cost of Capital (WACC) derived from the Capital Asset Pricing Model (CAPM) methodology. The cost of a company’s equity and debt, weighted to reflect its capital structure of 70:30 respectively, derive its weighted average cost of capital. In economies where risk-free yields do not exist, the WACC rates used in discounting the future cash flows are based on a uS 10-year risk-free interest rate, adjusted for inflation differential and country risk premium. The discount rates also take into account the debt premium, market risk premium, gearing, corporate tax rate, and asset beta. For cash-generating units within economies that currently experience high inflation rates and expect lower future inflation, rolling discount rates are applied. Due to the highly uncertain situation for uninor after the Supreme Court ruling cancelled the existing licenses, the Group has not been able to reliably adjust future cash flow estimates, nor to capture the risk through the WACC derived from the CAPM methodology. Thus, an appropriate adjustment is made to the WACC to reflect the risks specific to uninor. /page 46/ telenor annual report 2011 notes to the financial statements / telenor group The recoverable amounts for the cash-generating units have been determined based on the following key assumptions for the years ended 31 December 2011 and 2010: Nominal growth in discount rate discount rate cash flow in terminal after tax (WACC) in % Telenor Hungary Telenor denmark Telenor sweden broadcast Telenor serbia uninor, india (see further details below) pre tax in % value in % 2011 2010 2011 2010 10.2–8.8 5.5 5.0 4.5 13.9–12.1 16.6–14.6 11.2–9.7 6.9 6.5 6.3 14.5–11.8 13.9–11.2 12.3–10.9 7.2 6.6 6.6 14.9–13.1 19.0–17.0 13.5–12.0 8.9 8.2 8.5 15.5–12.8 15.7–12.9 2011 2010 0.0 0.5 0.5 (1.5) 3.0 6.0 0.0 0.5 0.5 0.0 3.0 6.0 In the recoverable amount assessment, the Group has applied estimated cash flows after tax and corresponding discount rates after tax. The recoverable amounts would not change significantly if pre-tax cash flows and pre-tax discount rates had been applied instead. The pre tax discount rates are estimated using an iterative method. For uninor, it has been assumed that operations will continue after expected acquisition of new licenses in 2012 and significant growth in cash flows is expected during the extrapolation period. The expected annual compound growth rate in the cash flows of Uninor for year 6–9 is 10.6%. These growth rates are based on assumptions with regards to the market share and management’s best estimate for ARPu levels and number of subscribers. Beyond year 9, the cash flow is extrapolated using a constant nominal growth rate (terminal value). Capex for uninor is expected to be lower than average due to a less capital intensive business model arising from extensive use of sourcing partnerships. Impairment losses On 2 February 2012, the Supreme Court of India passed an order to revoke all 122 licenses issued to several operators during 2008, with effect from 2 June 2012. This included all licenses issued to uninor. As a consequence of the Court ruling, the goodwill in uninor amounting to NOK 1.3 billion was fully impaired in addition to impairment of licenses amounting to NOK 2.8 billion (see note 35 and 38). The impairment loss was based on value in use calculations as of 31 December 2011 assuming continuing operations in India by acquiring new licenses in 2012. The following key assumptions are applied in determining recoverable amount of uninor: Key assumptions in 2011 discount rate after tax Revenue growth 1) EbiTdA margin growth 2) Growth in cash flow from year 6–9 3) Nominal growth rate in terminal value Percentage points 16.6–14.6 19.4 14.9 10.6 6.0 Represents the compound annual growth rate during the whole 9 year period. Represents the compound annual growth rate during the period starting from 2015 onwards until the terminal year. 3) Represents the compound annual growth rate. 1) 2) After recognition of impairment losses relating to goodwill and licenses of uninor, the carrying amount of property, plant and equipment and other intangible assets amounting to NOK 4 billion is supported by the estimated recoverable amount of the cash-generating unit with assumption of continuing operations and continued use of all assets. Estimated recoverable amount is approximately at the same level as the carrying amount of the cash-generating unit, indicating that minor changes in assumptions could result in further impairment losses relating to the carrying amount of remaining assets. See note 35 and 38 for additional information. Sensitivity analyses of the cash-generating units with significant goodwill In connection with the impairment...
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This document was uploaded on 03/21/2014.

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