(17) Goodwill

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The following table illustrates the changes in the carrying amounts of goodwill by segment:

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in TEUR

Austria

Bulgaria

Croatia

Additional Markets

Total

The 2013 comparison period was adjusted according to IAS 8 (see Note (1)).

At 1 January 2013

416,101

642,691

94,450

136,260

1,289,501

Acquisitions

292,110

0

1,139

0

293,249

Impairment

0

−59,400

0

0

−59,400

Translation adjustment

0

0

−844

0

−844

At 31 December 2013

708,211

583,291

94,744

136,260

1,522,506

Acquisitions

0

0

135

12,952

13,088

Impairment

0

−340,600

0

−5,100

−345,700

Translation adjustment

0

0

−406

−7

−413

At 31 December 2014

708,211

242,691

94,473

144,106

1,189,481

For details on the changes in reporting entities (acquisitions), see Note (2).

Accumulated impairment charges of goodwill amount to:

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in TEUR, at 31 December

2014

2013

The 2013 comparison period was adjusted according to IAS 8 (see Note (1)).

Segment Austria

1,071

1,071

Segment Belarus

568,985

568,985

Segment Bulgaria

340,600

59,400

Segment Additional Markets

5,100

0

Accumulated impairment

915,756

629,456

Due to the audit finding of OePR regarding impairment testing at 31 December 2013 (see Note (1)) the valuation method was significantly adapted for impairment testing at 31 December 2014. The planning period used for calculating the value in use is four years. The discount rate is based on peer group beta factors and peer group leverage factors and no convergence is estimated regarding country risk premiums, instead current market assessments are taken into account. Due to these changes, a standard discount rate is now used for all planning periods.

In 2014 and 2013, an impairment of goodwill of Mobiltel amounting to TEUR 340,600 and TEUR 59,400, respectively, was recognised in impairment and reversal of impairment in profit or loss as the carrying amount (including goodwill) of the cash-generating unit Bulgaria exceeded its respective value in use. For the correction of prior period amounts see “Changes in Accounting Estimates and Errors” in Note (1).

Changed medium-term macroeconomic expectations and the weak operative performance of Mobiltel in 2014 led to a change in the assessment of the development of the Bulgarian subsidiary Mobiltel. Thus management’s previous expectation of a medium-term recovery of the region is no longer sustainable. Due to a change in the weighted average cost of capital (WACC) of the Bulgarian segment as well as changed expectations of the development of the Bulgarian subsidiary Mobiltel an impairment test had to be carried out in June 2014. This resulted in a reduction of the value in use of the cash-generating unit Bulgaria and led to a corresponding impairment.

As of June 2014, WACC used to measure discounted cash flows increased by over 20% versus the last impairment test in the fourth quarter of 2013. This is the result of a rise in Telekom Austria Group's beta factor (measure of correlation between the performance of a security and the market) and an increase in the estimated Country Risk Premium for Bulgaria. On 13 June 2014, the rating agency Standard & Poor's cut its sovereign credit rating for Bulgaria from BBB to BBB–, and once more on 12 December 2014 from BBB– to BB+ due to risks related to growth, deflation and budget development.

Due to the decrease in the risk-free interest rate and the inflation spread, the WACC (before taxes) used for the calculation of the value in use for the segment Bulgaria decreased from 12.6% –9.1% in June 2014 to 10.9% in December 2014, the time of the last impairment test. This significant decrease in only six months arising from external factors is the main driver of the increase of the value in use by approximately TEUR 84,700 and shows the current volatility of WACC parameters.

Due to the change in weighted average cost of capital (WACC), an impairment of goodwill amounting to TEUR 5,100 relating to the cash-generating unit Vip operator in Macedonia was recognised in profit or loss, in line item impairment and reversal of impairment in the segment Additional Markets in the fourth quarter of 2014.

The Croatian market is significantly influenced by regulatory impacts and macroeconomic problems that were reflected in expectations for the result of the cash-generating unit Croatia. A possible adverse development of these external factors would potentially cause Vipnet’s carrying amount to exceed its value in use. At 31 December 2014, Vipnet’s value in use exceeded its carrying amount by only approximately TEUR 2,000.

For the purpose of impairment testing, goodwill is allocated to the cash-generating units that are expected to benefit from the synergies of the business combination.

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in TEUR, at 31 December

2014

2013

The 2013 comparison period was adjusted according to IAS 8 (see Note (1)).

A1 Telekom Austria – Segment Austria

708,211

708,211

 

 

 

Mobiltel – Segment Bulgaria

242,691

583,291

 

 

 

Vipnet – Segment Croatia

94,473

94,744

 

 

 

Si.mobil

136,260

136,260

Vip operator

7,846

0

Total Additional Markets

144,106

136,260

 

 

 

Total Goodwill

1,189,481

1,522,506

The following parameters were used to calculate the value in use:

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Growth rates perpetual annuity

Pre-tax interest rates*

 

2014

2013

2014

2013

*

Based on a risk-free interest rate, adjusted for market, country and industry-specific risks. As a result of changes due to OePR‘s audit findings, a standard discount rate is now used for all planning periods.

Segment Austria

0.5%

0.0%

7.5%

8.3%

Segment Bulgaria

1.5%

0.0%

10.9%

8.5%–10.7%

Segment Croatia

1.0%

0.0%

10.3%

9.3%–12.2%

Segment Belarus

1.5%

0.0%

33.1%

21.4%–37.0%

Segment Additional Markets

0.5%–1.5%

0.0%

10.5%–15.6%

5.7%–13.7%

The value in use is set forth in the following table:

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in TEUR, at 31 December

2014

2013

Segment Austria

3,978,016

4,339,900

Segment Bulgaria

775,860

1,171,841

Segment Croatia

180,843

748,300

Segment Belarus

671,640

652,219

Segment Additional Markets

785,184

1,227,601

The value in use was compared with the carrying amount of the cash-generating units (including goodwill). Impairment charges are recognised if the carrying amount of the cash-generating units exceeds the value in use.

Sensitivity analysis

The use of the following pre-tax interest rates would lead to the carrying amount equalling the value in use at 31 December 2014 and 2013:

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Pre-tax interest rates*

2014

2013

*

Based on a risk-free interest rate, adjusted for market, country and industry-specific risks.

In the segment Austria, the sensitivity analysis was only carried out for A1 Telekom Austria.

Segment Austria

10.8%

12.9%

Segment Bulgaria

11.6%

9.3%−10.2%

Segment Croatia

10.4%

21.1%–23.3%

Segment Belarus

45.2%

30.9%–42.5%

Segment Additional Markets

12.2%−25.1%

14.3%–22.2%

With respect to the substantial markets, the following table sets forth the changes in revenues, cost drivers and capital expenditure which would lead to the carrying amounts equalling the value in use at 31 December 2014 and 2013:

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2014

Revenues

Cost

Capital expenditures

In the segment Austria, the sensitivity analysis was only carried out for A1 Telekom Austria.

Segment Austria

−4.8%

6.8%

25.4%

Segment Bulgaria

−1.3%

1.9%

8.3%

Segment Croatia

0.0%

0.1%

0.4%

Segment Belarus

−7.5%

12.8%

57.8%

 

 

 

 

2013

 

 

 

Segment Austria

−5.9%

8.3%

36.8%

Segment Bulgaria

−2.5%

4.3%

16.7%

Segment Croatia

−10.8%

15.5%

89.0%

Segment Belarus

−6.1%

9.5%

44.7%

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