Investments in subsidiaries, associated companies and jv

(€ million) 31.12.2011 31.12.2010
Investments in non-consolidated subsidiaries 226.0 233.4
Investments in associated companies valued at equity 1,175.3 1,731.2
Investments in joint ventures 146.6 134.0
Investments in other associated companies 356.8 340.6
Total 1,904.8 2,439.2

The decrease in investments in associated companies valuated at equity, amounting to € 555.9 million, was attributable to the decrease of the investment in Telco, which amounted to € 539.8 million, and to the reclassification of the investment in Citylife as it entered into the consolidation line by line perimeter, as a result of the control acquisition in July 2011. The reduction of the investment in Telco was mainly due to the impairment, which amounted to € 628.5 million, net of positive result of the period and other equity movements, which contributed to bring the value of the investment to € 369.8 million, compared to € 909.6 million in 2010.

This impairment was made on the basis of the impairment test at 31 December 2011 as a result of the emergence of some impairment triggers on the Telecom Italia shares held by Telco (22.4% of ordinary shares). Considering that the only asset of Telco is the investment in Telecom Italia, the value of the stake in Telco was broadly defined as the difference between equity value of the investment in Telecom Italia at 31 December 2011 and the Telco net financial debt at the same date, as reported in the reporting package relevant to equity method valuation of the investment.

The Telecom Italia investment recoverable amount was defined according to the value in use. The methodology used to perform the impairment test was the unlevered Discounted Cash Flow method (DCF). This technique required the estimation of future cash flows and terminal value of the appropriately identified cash generating units (CGU), discounted at the valuation date. Then the value of net financial debt at the valuation date was deducted from the value as above defined.

With reference to the evaluation, 3 CGUs were identified: Domestic CGU, CGU Brazil and CGU Argentina. This was consistent with the strategic vision of the Board of Directors of Telecom Italia.

The evaluation was based on the update of the business plan disclosed by Telecom Italia during the preliminary results presentation for 2011 year end closing. More in detail, the Domestic CGU revenues reduction and the increase in Italian interest rates implied a review of the evaluation made at 30 June 2011. The assumptions used were generally consistent with external sources of information and the industrial sector parameters. The value per share of Telecom Italia was defined as the average value between a base scenario and a more conservative scenario.

The terminal value was determined using projected unlevered cash flow for the last year’s plan for each CGU.

Furthermore, a sensitivity analysis of WACC rate (with a negative stress up to +1%  compared to the base value) and nominal growth factor “g” (± 0.5%  compared to the central value) was performed, both for the base and conservative scenario. Based on this analysis, the minimum and maximum value of Telecom Italia ranged from € 1.225 to € 1.672 per share, assuming only a negative stress for WACC.

On the basis of this impairment test, the value per share of Telecom Italia in the Financial Statement of Telco amounted to € 1.50 per share, compared to € 2.18 at 31 December 2010. This decrease was indirectly reflected as an impairment of Telco stake in the Generali Group 2011 Consolidated Financial Statement for € 628.6 million.