THE NATURE OF OUR BUSINESS – STABLE GROWTH - Symrise

3. DETERMINATION OF FAIR VALUE
Many of the Group’s accounting policies and note disclosure requirements
require that a fair value is determined for financial and
non-financial assets and liabilities. Fair value for measurement
and/or disclosure purposes has been determined using the methods
described below. Where applicable, further information regarding
the assumptions used to determine fair value is contained
in the notes specific to the particular asset or liability.
Derivatives
The fair value for an interest swap corresponds to the market price,
inasmuch as an active market exists. If no market price is available,
then fair value is estimated by discounting the difference between
the contractually agreed price and the current price for the
remaining term of the contract using a risk-free interest rate (based
on government bonds).
The fair value of a currency swap is based on listed market prices.
These prices are validated by discounting estimated cash flows
based on the individual contracts, using a market interest rate for
a similar instrument at the date of the validation.
Property, Plant and Equipment
The fair value for items of property, plant and equipment recognized
as a result of a business combination is based on market
values. The market value for real estate is based on the estimated
value at which the real estate could be sold on the day of measurement
under the presumption that this would represent a business
transaction between a willing buyer and a willing seller under
the terms of which both parties operate knowledgeably, prudently
and without compulsion and the transaction is preceded by adequate
marketing activities. The market values of items of plant,
equipment, fixtures and fittings are based on quoted prices for
similar items.
Intangible Assets
The fair value of recipes recognized as a result of a business combination
is based on discounted estimated royalty payments that
were avoided as a result of the recipe becoming owned. The fair
value of other intangible assets is based on the discounted cash
flows that are expected to derive from the use and eventual sale
of the asset.
Investments and Other Financial Liabilities
The fair value of investments that are traded on regulated financial
markets is determined by reference to the stock exchange quoted
market (bid) price. The fair value of investments for which no reg-
ulated market exists is derived by reference to the current market
price of comparable instruments or is calculated based on the
cash flows expected to derive from the underlying asset. The fair
value of financial liabilities determined for disclosure purposes is
calculated on the present value of future principal and interest payment
cash flows which are discounted using an interest rate valid
at the balance sheet closing date.
4. CAPITAL MANAGEMENT
It is management’s policy to maintain a strong capital base in order
to maintain investor, creditor and market confidence and to sustain
the future development of the business. The Executive Board regularly
monitors the ratio of net debt (including pension liabilities)
to EBITDA. The Executive Board also regularly monitors the level of
dividends paid to ordinary shareholders, for whom we aim to provide
a level of dividend yield that justifies confidence in future business
results.
The Executive Board strives to maintain a balance between more
favorable weighted average capital costs (WACC) by taking up additional
borrowing and the advantages and security provided by a
solid equity base. This also applies to suitable acquisition opportunities
that are made possible for the Group by virtue of solid financing.
The average interest expense on interest-bearing loans was 4.8%
and the ratio of net debt to EBITDA was 3.2.
There was no change in the Group’s approach to capital management
during the reporting period. Neither the Company itself
nor its subsidiaries are subject to externally imposed capital
requirements.
112 Annual Report 2008 Symrise AG