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Notes to the consolidated financial statements
As of December 31, 2008, 2007 and 2006
15.Intangible assets
The movements in intangible assets in 2008 were as follows:
| Goodwill | Licences | Other | Total | |
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
| Opening balance, net | 183,857 | 154,854 | 128,791 | 467,502 |
| Change in the composition of the Group (note 4) (i) | 339,982 | 252 | 162,131 | 502,365 |
| Additions (iv) | – | 107,377 | 13,998 | 121,375 |
| Amortisation charge (ii) | – | (34,158) | (32,033) | (66,191) |
| Impairment (iii) | (2,892) | – | – | (2,892) |
| Other movements | – | 5,011 | (5,819) | (808) |
| Exchange rate movements | (13,652) | (9,658) | (7,691) | (31,001) |
| Closing balance, net | 507,295 | 223,678 | 259,377 | 990,350 |
| As at December 31, 2008 |
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| Cost or valuation | 507,295 | 309,480 | 328,865 | 1,145,640 |
| Accumulated amortisation | – | (85,802) | (69,488) | (155,290) |
| Net | 507,295 | 223,678 | 259,377 | 990,350 |
- (i)The change in the composition of the Group corresponded to the acquisition of Amnet.
- (ii) The amortisation charge for licenses and other is recorded under the caption “General and administrative expenses”.
- (iii) Millicom operation in Sierra Leone (see note 6).
- (iv) Acquisitions of Licence refer for $67 million to the license for the Millicom operation in Rwanda (see note 1).
The movements in intangible assets in 2007 were as follows:
| Goodwill | Licences | Other | Total | |
| US$ '000 | US$ '000 | US$ '000 | US$ '000 | |
| Opening balance, net | 196,178 | 165,222 | 121,375 | 482,775 |
| Additions | – | 7,064 | 12,378 | 19,442 |
| Amortisation charge (i) | – | (24,918) | (24,087) | (49,005) |
| Reduction of goodwill (i) (notes 9 and 13) | (23,358) | – | – | (23,358) |
| Other movements | – | – | 7,780 | 7,780 |
| Exchange rate movements | 11,037 | 7,486 | 11,345 | 29,868 |
| Closing balance, net | 183,857 | 154,854 | 128,791 | 467,502 |
| As at December 31, 2007 |
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| Cost or valuation | 183,857 | 213,043 | 170,909 | 567,809 |
| Accumulated amortisation | – | (58,189) | (42,118) | (100,307) |
| Net | 183,857 | 154,854 | 128,791 | 467,502 |
- (i)The reduction of goodwill is recorded under the caption “Other operating expenses” and the amortisation charge for licenses and other is recorded under the caption “General and administrative expenses”.
The following table provides details of cash used for additions to intangible assets:
| 2008 | 2007(i) | 2006(i) | |
| US$ '000 | US$ '000 | US$ '000 | |
| Additions | 121,375 | 19,442 | 33,773 |
| Additions from Discontinued Operations | – | – | (21) |
| Subtotal | 121,375 | 19,442 | 33,752 |
| License installments | – | 6,374 | 6,717 |
| License acquisition costs, paid in shares in Millicom Rwanda Limited | (7,159) | – | – |
| Cash used from continuing operations for additions from intangible assets | 114,216 | 25,816 | 40,469 |
- (i)Figures for 2007 and 2006 have been adjusted, excluding Millicom operation in Sierra Leone.
Impairment test of goodwill
For the year ended December 31, 2008, management tested all goodwill for impairment. The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating unit to which the goodwill is allocated.
The recoverable amount of a cash-generating unit is determined based on discounted cash flow calculation. The cash flow projections used (EBITDA margins, income tax, working capital, capital expenditure and license renewal cost) are extracted from financial budgets approved by the management covering a period of 3 years. The planning horizon reflects industry practice in the countries where the Group operates. Cash flows beyond this period are extrapolated using a perpetual growth rate of 1.5%. Apart from Millicom’s operation in Sierra Leone (see note 6), no impairment losses were recorded on goodwill for the years ended December 31, 2008 and 2007.
The allocation of goodwill to cash generating units, net of exchange rate movements, is shown below:
| 2008 | 2007 | |
| Millicom’s operations in: | US$ '000 | US$ '000 |
| Amnet Group (see note 4) | 339,982 | – |
| Colombia (i) | 44,595 | 49,731 |
| El Salvador | 42,053 | 42,053 |
| Ghana | 14,281 | 18,780 |
| Senegal | 36,541 | 38,430 |
| Tanzania | 14,219 | 16,233 |
| Other | 15,624 | 18,630 |
| Total goodwill | 507,295 | 183,857 |
- (i)An amount of $23 million of goodwill has been reversed in Colombia as a result of deferred tax assets recognised in 2007 on pre-acquisition tax loss carry forwards (see note 13).
The recoverable amounts have been determined for the cash generating units based on the following discount rates for the years ended December 31, 2008 and 2007:
| Discount rate after tax | ||
| 2008 | 2007 | |
| Central America, including Amnet for 2008 | 9.6% - 12.8% | 11.9% - 13.1% |
| South America | 10.2% - 16.5% | 11.0% - 14.1% |
| Africa | 10.7% - 15.4% | 12.8% - 16.1% |
| Asia | 15.5% - 16.1% | 13.0% - 15.3% |
Any significant change in the assumptions used to compute the recoverable amounts could have an adverse impact on the value of the cash generating units.
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