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Notes to the consolidated financial
statements, REC Group
REC Annual Report 2011
markets and take into account estimated risk premiums on debt
and equity, gearing and beta. REC believes this takes into
consideration the market’s assessments of the time value of money
and reflects the premium that the market would require from
uncertain future cash flows based on the distribution estimated
by REC. REC believes that theWACC is the best estimate for the
current market-determined rate for REC and that theWACC in most
instances best reflects risks specific to the asset for which the cash
flow projections have not been adjusted. For assets with special
uncertain future cash flows, the cash flows are adjusted instead of
adding additional risk adjustments to theWACC.
WACC is a post-tax concept. IAS 36 states that when the basis used
to estimate the discount rate is post-tax, that basis is adjusted to
reflect a pre-tax rate. REC’s understanding is that theWACC cannot
be adjusted to reflect a pre-tax rate by “reversing” the tax effects in
theWACC. Consequently, REC has adjusted the estimated EBIT
(earnings before financial items and tax) for an estimated tax,
referred to as NOPLAT (net operating profit less adjusted taxes).
REC believes that it then uses a consistent approach to the cash
flows and discount rate. The finance theory states that the
enterprise value (value of the cash-generating units) should be the
same pre- and post-tax. The corresponding pre-tax discount rate
can then be calculated as the rate that will return the same present
value for cash flows excluding any tax.
Future cash flows are estimated in different currencies and
discounted using discount rates appropriate for that currency.
Discount rates (%)
2011
2010
POST-TAX
PRE-TAX
POST-TAX
PRE-TAX
REC Silicon (USD)
7.8
11.7
8.7
12.9
RECWafer Mono (NOK)
8.7
9.9
9.3
11.3
RECWafer Multi Norway (NOK)
8.7
15.5
9.3
12.0
RECWafer Multi Singapore (SGD)
1)
NA
NA
9.0/8.6
9.0/9.3
REC ScanModule (EUR)
NA
NA
NA
NA
REC Modules (EUR)
1)
NA
NA
9.4/9.0
9.4/9.8
REC Solar Cells Singapore (EUR)
1)
NA
NA
9.4/9.0
9.4/9.8
REC Singapore (EUR)
1) 2)
7.7 - 9.3
9.1
NA
NA
REC ScanCell Norway (EUR)
NA
NA
8.7
10.5
1)
Cash flows generated in Singapore are tax exempt for a period.
2)
For the 2011 impairment test for Singapore it is used a discount rate per year for the land lease period up to 2038. The pre-tax rate of 9.1 percent for Singapore for
2011 is calculated as one rate for the whole period (one post-tax rate calculated the same way would be 8.5 percent).
The reductions in the discount rates in 2011 compared to 2010 were primarily due to significant reductions in risk free interest rates,
partially offset by increased estimated risk premiums.
Specification of impairments for 2011
(NOK INMILLION)
LAND AND
BUILDINGS
MACHINERY
AND
EQUIPMENT
OTHER
TANGIBLE
FIXED ASSETS
ASSETS UNDER
CONSTRUCTION
GOODWILL
OTHER
INTANGIBLES
TOTAL
REMAINING
PPE &
INTANGIBLES
DEC 31
REC Silicon
0
20
0
0
0
0
20
11 269
RECWafer Multi Norway
1 962
2 410
19
24
330
54
4 799
34
RECWafer Mono
406
595
0
0
0
7
1 008
0
REC Singapore
2 211
1 544
63
1
0
44
3 863
4 617
REC ScanCell
129
192
5
0
0
17
343
85
Other operations
-2
3
0
0
0
63
64
82
Total impairments
4 705
4 764
88
24
330
185
10 097
16 087
In general, for the 2010 impairment tests the demand for solar
modules had been higher than expected in 2010 and assets
performance had to a large extent been in line with, or better than
anticipated when performing the 2009 impairment tests. Going
into 2011, the REC Singapore operations and REC ScanCell showed
good cost and efficiency improvements, but from the second
quarter 2011 the market development turned out much more
negative than expected in the 2010 impairment tests. In addition,
REC wafer experienced some problems in its cost and quality
improvement initiatives during 2011. At year-end 2011 the market
capitalization of REC ASA was still below the carrying amount of
equity for the Group.
The estimated values in use of REC’s operating assets are sensitive
to changes in prices and other key assumptions. There is a risk that
the price projections and cost targets that are used in the
impairment tests cannot be achieved. This can result in a further
reduction of the estimated cash flows and thereby the estimated