C12. Goodwill and other intangible assets

The total carrying value was distributed and changed as follows.

SEK in millions

Dec 31, 2015

Dec 31, 2014

Dec 31, 2015

Dec 31, 2014

Goodwill

Other intangible assets

Accumulated cost

63,316

78,707

38,750

45,034

Accumulated amortization

-24,235

-27,742

Accumulated impairment losses

-8,378

-7,812

-1,520

-2,408

Advances

382

Carrying value

54,938

70,895

12,995

15,266

of which work in progress

886

266

Carrying value, opening balance

70, 895

67,313

15,266

14,209

Investments

458

3,106

3,265

of which capitalized interest

17

12

Sales and disposals

-21

-14

Operations acquired

1,769

2,882

20

Reclassifications

0

-72

63

303

Adjustments related to put options and contingent consideration

-198

-185

Amortization for the year, continuing operations

-2,532

-2,170

Amortization for the year, discontinued operations

-922

-686

Impairment losses for the year, continuing operations

-1,900

-6

-45

Impairment losses for the year, discontinued operations

-1,628

-753

-293

-317

Advances

155

38

Exchange rate differences

-6,573

4,134

-1,308

664

Reclassification to assets classified as held for sale

-7,427

-3,395

Carrying value, closing balance

54,938

70,895

12,995

15,266

Former segment region Eurasia is classified as held for sale and discontinued operations as of December 31, 2015 and therefore not included in the figures for 2015. The comparative year 2014 has not been restated. For further information, see Note C34 “Discontinued operations and assets classified as held for sale.”

In 2015 and 2014, investments in telecom licenses and frequency permits amounted to SEK 307 million and SEK 1,354 million, respectively. Operations acquired in 2015 are primarly related to the acqusition of Tele2´s Norweigan mobile operations, see Note C33 “Business Combinations.”

In 2014, reclassifications of other intangible assets mainly related to rental rights in Denmark reclassfied from goodwill and software development in Estonia reclassified from property, plant and equipment.

For comments on impairment losses for the year for continuing operations, see section “Impairment testing” below.

Apart from goodwill, there are currently no intangible assets with indefinite useful lives. No general changes of useful lives were made in 2015. For amortization rates applied, see section “Useful lives” in Note C2 “Key sources of estimation uncertainty.” In the statement of comprehensive income, amortization and impairment losses are included in all expense line items by function as well as in line item Other operating expenses.

The total carrying value of goodwill was distributed by reportable segments and cash generating units with significant goodwill amounts as follows.

SEK in millions

Dec 31, 2015

Dec 31, 2014

Region Europe

53,893

57,445

of which Finland

29,082

30,262

of which Norway

16,422

16,430

of which Denmark

2,020

4,033

of which Lithuania

2,574

2,691

of which Estonia

2,351

2,418

of which other countries

1,445

1,612

Region Eurasia

12,389

Region Sweden

922

905

Other operations

122

155

Total goodwill

54,938

70,895

The total carrying value of other intangible assets was distributed by asset type as follows.

SEK in millions

Dec 31, 2015

Dec 31, 2014

Trade names

82

204

Telecom licenses and frequency permits

5,314

8,648

Customer and vendor relationships, interconnect and roaming agreements

3,142

1,590

Capitalized development expenses

2,562

2,876

Patents, etc.

2

4

Leaseholds, etc.

1,012

1,302

Work in progress, advances

881

643

Total other intangible assets

12,995

15,266

Capitalized development expenses mainly refer to IT systems, supporting the selling and marketing, and administrative functions.

Impairment testing, continuing operations

The impairment testing for continuing operations is described below. For information regarding measurement of discontinued operations, see Note C34 “Discontinued operations and assets classified as held for sale.”

Goodwill is, for impairment testing purposes, allocated to cash generating units in accordance with TeliaSonera’s business organization. In most cases, each country within the respective reportable segment constitutes a cash-generating unit (CGU). Carrying values (for impairment testing purposes defined as segment operating capital and allocated common assets from Group Technology less deferred tax on fair value adjustments and notionally adjusted for non-controlling interests in goodwill) of all cash-generating units are annually tested for impairment. For definition of segment operating capital, see Note C5 “Segment information” and Definitions. The recoverable amounts (that is, the higher of value in use and fair value less cost to sell) are normally determined on the basis of value in use, applying discounted cash flow calculations. In the recoverable amount calculations, management used assumptions that it believes are reasonable based on the best information available. The key assumptions in the value in use calculations were sales growth, EBITDA margin development, the weighted average cost of capital (WACC), CAPEX-to-sales ratio, and the terminal growth rate of free cash flow. The value in use calculations were based on forecasts approved by management, which management believes reflect past experience, forecasts in industry reports, and other externally available information. Management believes that value in use based on own business plan better reflects the value for TeliaSonera and of the long-term valuation, compared to the current equity market values that in some cases can be below the recoverable amount derived from TeliaSonera’s own long-term business plans.

The forecasted cash flows were discounted at the weighted average cost of capital (WACC) for the relevant cash-generating unit. The WACC is derived from the risk free interest rate in local currency, the country risk premium, the business risk represented by the estimated beta, the local equity market risk premium and an estimated reasonable cost of borrowing above the risk free rate. The pre-tax discount rate typically cannot be directly observed or measured. It is calculated by iteration – by first running DCF calculation using post-tax cash flows and a post-tax discount rate, and then determining what the pre-tax discount rate would need to be to cause value in use determined using pre-tax cash flows to equal the value in use determined by the post-tax DCF calculation.

The forecast periods, WACC rates and the terminal growth rates of free cash flow used to extrapolate cash flows beyond the forecast period varied by cash generating unit as presented below. In all cases management believes the terminal growth rates to not exceed the average growth rates for markets in which TeliaSonera operates.

Years/Percent

2015

Sweden

Finland

Norway

Denmark

Lithuania

Latvia

Estonia

Spain

TeliaSonera International Carrier

Forecast period, years

5

5

5

5

5

5

5

5

5

Post-tax WACC rate, %

4.2

4.3

4.9

4.3

4.9

4.9

5.7

5.0

4.5

Pre-tax WACC rate, %

5.4

5.4

6.7

5.6

5.8

5.7

7.2

7.1

5.8

Terminal growth rate, %

2.0

1.8

1.9

2.0

2.1

2.0

2.7

1.9

2.0

Years/Percent

2014

 

Sweden

Finland

Norway

Denmark

Lithuania

Latvia

Estonia

Spain

TeliaSonera International Carrier

Forecast period, years

5

5

5

5

5

5

5

5

5

Post-tax WACC rate, %

4.8

4.5

5.6

4.3

5.5

5.7

5.1

5.3

5.5

Pre-tax WACC rate, %

5.7

5.6

7.6

5.5

6.2-6.4

6.6

6.4

6.7

6.8

Terminal growth rate, %

2.0

1.8

2.0

2.0

2.1

2.5

2.7

1.9

2.0

In 2015, a goodwill write-down of SEK 1,900 million was recognized in the cash-generating unit Denmark, as a result of updated earnings projections following the decision to withdraw from the proposed joint venture with Telenor, as presented below.

SEK in millions

     

Denmark

Recoverable amount

     

7,274

Impairment loss

     

-1,900

of which goodwill

     

-1,900

Sensitivity analysis

The estimated recoverable amounts for Finland and Estonia were in proximity of the carrying values as of December 31, 2015. As of December 31, 2014, the estimated recoverable amounts for Finland, Norway, Denmark, Omnitel, Latvia and Estonia were in proximity of the carrying values.

The impairment tests assumed, in addition to the post-tax WACC rates and the terminal growth rates stated above, the following sales growth, EBITDA margin and CAPEX-to-sales ranges during the next 5 years for the cash generating units (CGUs) that are sensitive to reasonable changes in assumptions.

5-year period/Percent

2015

Finland

Denmark

Estonia

Sales growth, lowest in period (%)

           

-2.7

-0.9

0.0

Sales growth, highest in period (%)

           

1.9

1.5

2.0

EBITDA margin, lowest in period (%)

           

31.3

11.7

29.4

EBITDA margin, highest in period (%)

           

33.8

14.3

29.4

CAPEX-to-sales, lowest in period (%)

           

12.2

7.1

13.1

CAPEX-to-sales, highest in period (%)

           

16.2

17.0

17.3

5-year period/Percent

2014

Finland

Norway

Denmark

Omnitel

Latvia

Estonia

Sales growth, lowest in period (%)

     

-1.4

0.0

-6.0

0.4

-0.6

-0.4

Sales growth, highest in period (%)

     

0.2

6.0

0.6

2.2

0.6

0.7

EBITDA margin, lowest in period (%)

     

29.8

30.3

13.9

23.4

34.5

29.2

EBITDA margin, highest in period (%)

     

33.4

33.7

18.0

27.9

35.9

29.5

CAPEX-to-sales, lowest in period (%)

     

12.7

9.0

9.3

11.1

21.6

18.5

CAPEX-to-sales, highest in period (%)

     

14.2

16.9

13.3

11.3

26.7

18.6

The upper part of the following table sets out how many percentage points each key assumption approximately must change, all else being equal, in order for the recoverable value to equal carrying value for the respective cash generating unit.

The lower part of the table first shows the SEK billion effect on the recoverable values of the cash generating units, should there be a one percentage-point upward shift in WACC. Finally, it sets out the absolute SEK billion change of the recoverable value that would equal carring value for the respective cash generating unit.

Denmark is not included in the table for 2015 since recoverable value equals carrying value after the impairment charges recognized in this cash generating unit.

Percentage points, SEK in billions

2015

Finland

Estonia

Sales growth each year in the 5-year period (%)

       

-2.1

-0.9

EBITDA margin each year in the 5-year period and beyond (%)

       

-2.7

-1.0

CAPEX-to-sales ratio each year in the 5-year period and beyond (%)

       

2.6

1.0

Terminal growth rate (%)

       

-0.8

-0.6

Post-tax WACC rate (%)

       

0.7

0.5

             

Effect of a one percentage-point upward shift in WACC (SEK in billions)

       

-13.9

-1.1

Change in the recoverable value to equal the carrying value (SEK in billions)

       

-10.6

-0.7

Percentage points, SEK in billions

2014

Finland

Norway

Denmark

Omnitel

Latvia

Estonia

Sales growth each year in the 5-year period (%)

-3.0

-0.3

-1.5

-0.5

-1.2

-0.5

EBITDA margin each year in the 5-year period and beyond (%)

-2.9

-0.3

-0.4

-0.3

-0.9

-0.3

CAPEX-to-sales ratio each year in the 5-year period and beyond (%)

2.9

0.3

0.3

0.3

0.9

0.3

Terminal growth rate (%)

-0.9

-0.1

-0.2

-0.2

-0.4

-0.2

Post-tax WACC rate (%)

0.8

0.1

0.1

0.1

0.4

0.1

             

Effect of a one percentage-point upward shift in WACC (SEK in billions)

-12.7

-4.3

-3.0

-0.5

-0.8

-1.3

Change in the recoverable value to equal the carrying value (SEK in billions)

-10.4

-0.4

-0.6

-0.1

-0.4

-0.3

 

© TeliaSonera 2015
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