Transcript Dias nummer 1

*
The Value of Trademarks
Brand Strategy and
Impact on Financial
Reporting Brand Valuation in a
Regulated Environment
Andreas Mackenstedt
Copenhagen, 7 June 2007
PwC
*connectedthinking
Agenda
1 IFRS financial reporting requirements
2 Brand valuation methodologies for financial
reporting
3 Financial statements impact
Valuation of Intangible Assets
impacting Financial Reporting
Mergers & Acquisitions (M&A):
impact on purchase price considerations, individual disposal of patents, brands etc.
Tax Purposes:
change of ownership, licensing in/out, transfer pricing
Financing and Securitization:
rating (Basel II), start-up financing, sale & lease back, collateralisation
Value Based Management:
intellectual asset management, management reporting, investor communication
Financial Accounting:
acquisition accounting: purchase price allocation, impairment testing
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Slide 3
Relevant standards for international financial accounting
US GAAP
Acquisition
accounting
Business
combinations
Goodwill
Postacquisition
accounting
Intangible assets
Tangible assets
Fair value measurements Paper
IFRS
SFAS 141
Business
combinations
IFRS 3
Business
combinations
SFAS 142
Goodwill and other
intangible assets
IAS 36
Impairment of assets
SFAS 142 Indefinite
lives
SFAS 144
Definite lives
SFAS 144
Impairment or disposal
of long-lived assets
SFAS 157
IAS 38
Intangible assets
IFRS 5
Assets held for sale
IAS 36
IAS 16
Property, plant &
equipment
IFRS 5
IAS 36
Discussion Paper
In principle: no capitalisation of self-generated / self-developed intangibles
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Valuation Concepts and Methods
Definition of Fair Value
Fair Value
Purchase Price
=
“Fair Value is the amount for which an
asset could be exchanged, or a liability
settled between knowledgeable, willing
parties in an arm’s length transaction.“
Investment Value
Liquidation Value (net realisable value)
including Forced Sale
Value In Use (Going Concern)
Book Value
Source: IFRS 3 Appendix A
Willing buyer & willing seller
Hypothetical buyer concept
Stand-alone valuation
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Intangible Asset Valuation
Valuation techniques for Financial Reporting - Overview
Valuation Techniques
Market Approach
Income Approach
Cost Approach
Current price on active
market
Relief from Royalty Method
Reproduction Cost Method
Most recent comparable
transactions / Multiples
Excess Earnings Method
Replacement Cost Method
Incremental Cash Flow
Method
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Market approach
Premise of value
“Prices from previous transactions provide
empirical evidence for the value of an
intangible asset”
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Market approach
Active market for brands: not existing
Comparable transactions / multiples
Price
Fair value
Represents one specific
transaction only!
Adjustments to derive
fair value necessary!
• Changes in market conditions and legislation
Key value drivers:
• Marketplace conditions
• Future economic benefits
• Participant-specific influences & motivations
• Asset-specific risk
• Deal-specific issues, e.g. financing terms, tax
issues
• Remaining useful life
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Income approach
Premise of value
“An intangible asset is worth what it can earn!”
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Income Approach - Valuation principles
1. Isolate the future cash flows an investor would expect the subject
intangible asset to generate
T
FV =
∑
t=1
Cash Flow t
(1 + Discount Rate)t
2. Discount future cash flows with an appropriate discount rate
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Income Approach - Valuation principles
Step4:
Present
value
calculation
2007
Step 3:
If applicable:
calculation of
terminal value*
Step 1:
Expected
future Cash
Flows
Asset-specific cash flows:
2008
2009
2010
2011
....
Terminal Value
Asset-specific Weighted Average
Cost of Capital (WACC)
Step 2
Determination
of asset specific
discount rate
Present
Value
* for indefinite lived intangibles only
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Relief-from-royalty method
Concept
Ownership of the asset
e.g. trademark
relieves owner
from paying royalty rate
The royalty savings are the expected cash flows
for the subject intangible asset!
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Relief-from-royalty method
Valuation steps
1.
Determine royalty rate for comparable asset
2.
Multiply with matching valuation base
3.
Subtract tax expenses
4.
Calculate present value of royalty savings
5.
Compute the tax amortisation benefit (TAB*)
* Tax amortisation benefit due to tax deductible amortisation of respective
intangible as element to finally calculate fair value
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Relief-from-royalty method
Example
Valuation of brand
Valuation date: 1 January 2007
Brand valuation
Fair value
from
2007
Brand-specific sales
Royalty Rate @
Pre-tax royalty savings
Corporate Taxes @
After-tax royalty savings
Discount rate @
Growth rate @
Residual multiple
Discount factor
Present value after-tax royalty savings
Tax amortisation benefit
Fair value
2000
Step-up factor TAB
4%
40%
80.0
32.0
48.0
10%
2%
11.918
572
114
686
1.2
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Incremental cash-flow method
Concepts
Incremental Cash-Flow Method
Cost savings
Incremental revenue
The intangible asset
allows the owner
to lower costs
The intangible asset
allows the owner
to earn incremental cash
flows, e.g. to charge a
price-premium
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Incremental cash-flow method
Valuation steps
1.
Derive pre-tax incremental cash flows of subject intangible
2.
Subtract tax expenses
3.
Consider incremental contributory asset charges (CAC)
4.
Calculate present value of incremental cash flows
5.
Compute the tax amortisation benefit (TAB*)
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* Tax amortisation benefit due to tax deductible amortisation of respective
intangible as element to finally calculate fair value
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Incremental Cash Flow Method
Price Premium Method
Price
Brand
Premium
Price per bottle
€ 1,30
Price effect
Volume effect
Branded Product
Unbranded Product
Brand
Forecast
Volume
Branded sales
Price per bottle
€ 1,00
R (x)
C (x)
Total revenues
CP (x)
Brand
Risk
Consideration of brand
specific risks and present
value calculation
Brand specific revenues
Brand specific contribution to income
t
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Incremental Cash Flow Method
Example
Company xyz
Valuation of brand
Valuation Date: January 1, 2007
Incremental cash flows
from
2007
mill. EUR
Fair value
Price effect
0.15 x 300,000
45.000
Quantity effect
EBITDA-margin (after CAC) @
1.65 x 50,000
55%
82.500
45.375
Pre-tax incremental cash flows
Corporate taxes @
After-tax incremental cash flows
Discount Rate @
Present value after-tax incremental cash flows
Tax amortisation benefit
Fair value
Step-up Factor TAB
35%
10%
90.375
31.631
58.744
0,9
53.403
16.021
69.424
1,3
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Cost approach
Premise of value
“An investor will pay no more for an asset
than the cost to purchase or construct an
asset of equal utility!“
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Cost Approach
Cost approach methods
Reproduction cost method
Replacement cost method
“cost to construct an
exact duplicate”
“cost to construct
equivalent utility”
Using same materials,
production standards,
design ...
Using modern materials,
production standards,
design ...
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Valuation Concepts and Methods
Remaining Useful Lifetime and Nature of Analysis (IAS 38.90)
• Expected usage of the asset
• Typical product life cycle for the asset
• Technical, technological, commercial or other types of obsolescence
• Changes in the market demand for the outputs from the asset
• Expected actions by competitors
• Level of maintenance expenditure required to obtain expected future
economic benefits from the asset
• Legal factors (limitations)
• Period of control over the asset
• Dependence on the useful lifetime of other assets
. . . if no foreseeable limit: apply indefinite useful life
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Financial Statements Impacts
Brand with indefinite useful life – no amortisation
but annual impairment test
Brand
Value
Brand with
definite useful life annual amortisation
2007
2008
Which are the
key financial ratios
used for:
- investor relations
- benchmarking
- internal performance
measurement?
2009
2010
2011
2012
2013
2014
Absolute Profitability
EBIT
Net income
EPS
Relative Profitability
ROCE
ROA
ROI
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PwC’s deal continuum considers the importance of intangible
assets, esp. brands
Identifying
deals
Bid support
Investment banking
advice
Deal flow
Strategy evaluation
Evaluating
deals
No-access due
diligence
Deal strategy
validation
Value driver
identification
Target evaluation
Synergy
assessment
Pre-deal
purchase price
allocation
Intangible Asset DD
Identification
Assessment
Pre Deal
Executing
deals
Deal due diligence
Operations analysis
Deal structuring
Negotiation
Legal services
Making deals
successful
Post merger
integration
Synergy review
Operational
improvements
Purchase price
allocation (IFRS /
US GAAP)
Tax and human
resources issues
Completion accounts
SPA support
Closing
Aspects of further
Segementation
of Intangible Assets
Improvement
Valuation
Structuring
Management
First 100 days
Harvesting
deals
Sell-side due diligence
Carve-outs
Capital markets
IPO advice
Buyer identification
Investment banking
advice
Exit Strategy
Valuation
Value added
Transformation
7 June 2007
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Thanks for your attention!
© 2006 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the German firm
PricewaterhouseCoopers AG WPG and the other member firms of PricewaterhouseCoopers International Limited,
each of which is a separate and independent legal entity.
PwC
Contact
PricewaterhouseCoopers AG
Wirtschaftsprüfungsgesellschaft
Andreas Mackenstedt
Advisory Partner
Tel: +49 69 9585 5704
[email protected]
pwc
© 2006 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the German firm
PricewaterhouseCoopers AG WPG and the other member firms of PricewaterhouseCoopers International Limited,
each of which is a separate and independent legal entity.
German Survey 2005
Relevance of intangible assets*
80%
68%
70%
67%
60%
50%
43%
42%
40%
Brands
Know how
40%
30%
20%
10%
0%
Human
capital
Customer
relations
Industrial
property rights
*source: PwC survey: “Brand Valuation for German Companies, fall 2005 (German); n = 60
7 June 2007
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German Survey 2005
Proportion of brand value compared to business enterpise value*
80%
67%
70%
60%
56%
50%
40%
30%
20%
10%
0%
1999 (n = 100)
2005 (n = 60)
*source: PwC survey: “Brand Valuation for German Companies, fall 2005 (German)
7 June 2007
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Brand strategy and impact on
financial reporting
Partner Andreas Mackenstedt
Princewaterhouse Coopers
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