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Owner's Expectations Manual

Annex 2: Commercial valuation model disclosure statement for use in statements of corporate intent

Example for the SOECorp Group

The board's estimate of the current commercial value of the Crown's investment in the SOECorp Group is [$1.650 billion].

Key points about the manner in which that value was assessed are:

  • The valuation was calculated as at [30 June 2011].
  • The discounted cash flow (DCF) methodology was used to calculate a Net Present Value (NPV) of the entire SOECorp Group, including all subsidiaries, on an after-tax basis.
  • The DCF/NPV was based on the nominal (ie, not inflation-adjusted) future cash flows set out in the SOECorp Group's three-year business plan, with forward projections then also made about years 4 to 10, and a terminal value of [$500 million] was included in the terminal year. The growth assumption assumed in the terminal value was [X%].
  • A discount rate of [X%] was assumed.
  • The valuation was prepared [internally by the SOECorp Group's finance team, and was externally peer reviewed by XYZ Corporate Finance Ltd], prior to approval by the board.
  • The current commercial value of the Crown's investment of [$1.650 billion] (often referred to as the equity value) was calculated by taking the enterprise value of [$1.950 billion] and deducting net debt of [$300 million].
  • Other material factors that are relevant to the determination of this valuation are [………………..].

The valuation compares with a commercial value as at [30 June 2010 of $1.545 billion]. The key reasons for the [increase] in commercial value are:

  • [An increase in year 1 to year 3 cash flows of $X million owing to changed expectations for the future price of x.
  • A reduction in year 4 to year 10 cash flows of $X owing to…………………
  • A reduction in the terminal value assumed of $X million owing to…………….....
  • A change in the discount rate assumed from XX% to XX% because……………….].

These changes could be represented graphically in a waterfall (or similar type of) diagram.

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