Annual Report & Accounts 2006 - Notes to the Consolidated Financial Statements
Gaming VC Annual Report 2006 : Intangible Assets
The valuation methodology for each type of identi˘able intangible asset is detailed below.
Asset Valuation methodology
Consulting Income (cost saving)
Software licence Income (incremental value plus loss of pro˘ts)
Trade-marks Relief from royalty
Goodwill Residual balance
The valuation conclusions, for the assets acquired through business combinations, were cross-checked
relative to the overall consideration paid in the transaction over net tangible assets, to ensure that the
proportion of value attributed to (i) each identi˘able intangible asset: and (ii) to all of the identi˘ed
intangible assets combined in the total purchase price appears reasonable.
In addition, the implied weighted average return on assets was reconciled with the cost of capital derived
for the business as a whole to check for the reasonableness of values placed on intangible assets and the
discount rates/returns used.
Amortisation and impairment charge
The amortisation for the year and the accelerated amortisation on the software licence are recognised in
the following line items in the income statement. The accelerated amortisation of the Group’s software
licenses, as an exceptional item, follows a review that identi˘ed a reduced bene˘cial life of the licenses
due to both technical developments and price pressure on royalties in the market place.
In thousands of euro 2006 2005
Net operating expenses 2,889 2,802
Exceptional items 8,272 ^
Impairment tests for cash-generating units containing goodwill
An Impairment Review was carried out at the year end of the Company’s goodwill in the Casino
operation. The carrying values of the assets were compared with the recoverable amounts, these were
determined with the assistance of independent valuers. The carrying amount was determined to be
higher than its recoverable amount and an impairment loss of C33,274 thousand (2005: nil) was
recognised. The impairment loss was allocated fully to goodwill and is shown as an exceptional item in
the income statement.
In performing the Impairment Review the following information was used.
. Historical ˘nancial performance, unaudited ˘nancial results for the year ended 31 December 2006
. Market analysis of the online gaming industry speci˘cally :
. Market growth for the online industry
. Market forecasts from independent analysts and researchers
. Technology advances (including increases in internet penetration)
. Perceived threats to the industry.
. Net revenue forecasts for 2007
. Long-term rate of growth of 2% based on the industry average and taking into consideration
increased competitive pressures, due to large online gaming companies looking aggressively to
increase non-US sources of Income.
. Tax rate of 1.5% based upon the Company’s current corporation tax rate.
. Discount rate post-tax of 30% based on the discount rate implied in the Casino-Club acquisition, a
theoretically derived cost of equity based on an adjusted CAPM model and the nature of the
intangible asset being valued.