Tiscali 2003 Annual Report Download - page 63

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6565
Consolidation difference
Consolidation differences are recorded in the consolidated accounts when the book value of a stake in a Company is offset against
the Group’s portion of the shareholders' equity of that Company. Any significant positive balance not attributable to single entries
under the assets of consolidated companies is recorded as an adjustment to the value of consolidated shareholders' equity, or,
when the necessary requirements are met, booked under "consolidation difference" on the assets side of the balance sheet and
amortised over the period in which it is expected to produce economic benefits, taking into account the type of activity of the
Group companies to which this difference refers.
At the end of the year, Tiscali reviewed the residual useful life of the consolidation difference, which had already been subject to
extraordinary write-downs in 2001. This assessment was carried out with reference to the amounts attributable to the different
Group companies, largely corresponding to the various countries and geographical areas in which the Group operates, and led to
a change in the estimated residual life of the consolidation difference.
Specifically, the consolidation difference is now amortised from the date of acquisition of the Company or division over 12 years,
compared to five years previously (until 31 December 2002).
This change in the estimated residual useful life of the consolidation difference led to lower amortisation charges in the year
ending 31 December 2003 (by around EUR 129.8 million) than those calculated according to the period of estimated use in pre-
vious years, thereby increasing the Company’s net result and consolidated shareholders’ equity by the same amount.
The structural conditions that led to the change in the estimated residual life of the consolidation difference relate to the follo-
wing specific circumstances:
• the current market environment in which the Group operates, both generally and in relation to specific countries, and the
related business prospects. In addition, Tiscali has consolidated its business in each country in which it has a presence, and
growth indicators for the European Internet access market are positive. The most recent sector studies carried out by leading
market research companies forecast a CAGR of 8% in 2002-2007, compared to 2.4% for European GDP growth. Broadband,
particularly ADSL, has become a major opportunity for Tiscali (starting from the second half of 2003), and represents the
Group’s main growth driver. Tiscali’s market share is expected to rise from 5.3% in 2003 to 15.7% in 2007. This scenario
applies in all countries in which Tiscali operates, particularly those in which the local operation’s consolidation difference is
substantial;
• connection costs: the former incumbents have a significant presence on Tiscali’s core European markets. However, as the
year progresses, these operators are expected to lose market share as the market is gradually liberalised following the inter-
vention of national governments in favour of alternative operators. In a recommendation issued in July 2003, the European
Union called on national governments and former incumbents to open up the Internet access market;
• the results achieved by the various companies within the Group and the prospects set out in the business plan, which pro-
ject a further significant improvement in the Group’s financial situation, including free cash flow generation in the short to
medium term. All business units in the various countries in which the Tiscali Group operates have improved their performan-
ce, confirming that the business is now established;
• completion of the restructuring process and optimisation of the Group structure. As explained in the Report on opera-
tions, the rationalisation of the Group (now complete) has generated significant synergies and economies of scale, and
has had a knock-on effect both on Tiscali’s business management and market presence. It has also extended the reference
period for the local management and the Group as a whole.