Annual report 2008, 1.19 MB - Telenor

NOTES TO THE FINANCIAL STATEMENTS
Telenor Group
PAGE 26
values; signifi cant underperformance relative to historical or projected
future operating results; signifi cant changes in the use of our
assets or the strategy for our overall business, including assets that
are decided to be phased out or replaced and assets that are damaged
or taken out of use, signifi cant negative industry or economic
trends; signifi cant regulatory decisions and signifi cant cost overruns
in the development of assets.
Estimating recoverable amounts of assets and companies must in
part be based on management’s evaluations, including determining
appropriate cash generating units, determining the discounting factors,
estimates of future performance, revenue generating capacity
of the assets and assumptions of the future market conditions. Political
risk premium is included in the discounting factors. A signifi cant
part of Telenor’s operation are in emerging markets. The political
and economical situation in these countries may change rapidly and
the global fi nancial turmoil and recession has a signifi cant impact
on these countries. Country related risk needs to be refl ected in
Telenor’s estimates of future cash fl ows and discount rates for the
purpose of evaluation impairments.
The risk premium has increased signifi cantly for some countries
during 2008. Changes in circumstances and in management’s evaluations
and assumptions may give rise to impairment losses in the
relevant periods, refer to note 18.
There are signifi cant variations between different markets with
respect to mobile penetration, ARPU and similar parameters, resulting
in differences in EBITDA margins. Generally, we see decreasing
EBITDA margins as the markets become more and more mature.
The future developments of EBITDA margins are important in Telenor’s
impairment assessment, and the long term estimates of
EBITDA margins are highly uncertain. In particular, this is the case for
emerging markets that are still not in a mature phase.
Associated companies, see note 21
If fi nancial statements for associated companies are not available
as of the Group’s balance sheet date, Telenor’s share of profi ts from
the associated company is estimated based on the latest available
quarterly fi nancial statements. The estimate for the latest quarter
is based on available information from different external sources.
For listed associated companies, the information includes estimates
from fi nancial analysts. Subsequently Board approved fi nancial
statements from the associated company may differ from the estimated
fi gures, and the estimates are adjusted when the information
is available.
ANNUAL REPORT 2008
From 29 December 2006, Kyivstar is reported as an associated company
(see above). As further described in note 34, Kyivstar has not
been able to issue board and shareholder approved fi nancial statements
due to Storm’s (the other shareholder in Kyivstar) continued
failure to attend shareholder meetings in Kyivstar up to 16 December
2008. Kyivstar management is providing Telenor with monthly,
quarterly and annual fi nancial information. Telenor is actively
involved in the operations of Kyivstar, and internal controls over
fi nancial reporting are implemented, evaluated and tested within
Kyivstar with oversight by Telenor. There is a possibility that when
the independent auditors have completed the audit of Kyivstar’s
fi nancial statements, discrepancies may emerge between the unaudited
fi nancial information for 2006, 2007 and 2008 that has been
provided by Kyivstar and the fi nal audited fi nancial statements.
Subsequent to the release of the fourth quarter report Telenor has
identifi ed some errors in the fi nancial statement for Kyivstar. The
adjustments made to Telenor’s fi nancial statement for the year
2008 compared to the quarterly report, amounts to NOK 252 million
on the line profi t from associated companies. Ernst & Young is
as described in the process of completing an audit of the statutory
fi nancial statements for the years 2006, 2007 and 2008 and as a
result additional adjustments may be identifi ed.
Legal proceedings, claims and regulatory discussions, see
also note 34
Telenor is subject to various legal proceedings and claims including
regulatory discussions, the outcomes of which are subject to signifi -
cant uncertainty. Management evaluates, among other factors, the
degree of probability of an unfavourable outcome and the ability to
make a reasonable estimate of the amount of loss. Unanticipated
events or changes in these factors may require us to increase or
decrease the amount to be accrued for any matter or accrue for
a matter that has not been previously accrued because it was not
considered probable or a reasonable estimate could not be made.
Through the operations in many emerging markets, Telenor is
involved in legal proceedings, including regulatory discussions.
The legal systems in these countries are, to varying degrees, less
predictable than the Norwegian legal system. Accordingly, management’s
judgments relating to legal proceeding and regulatory issues
in these countries will involve a relatively higher level of uncertainty.