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Swallowbird trading & investments Ltd.

Impairment Test for Goodwill Per IAS 36

March 2012

Draft for discussion purposes only

Strictly Private and Confidential

Transaction Services

Mr. Yaron Zaltsman,

CEO of Swallowbird Trading & Investments Ltd.

Dear Mr. Zaltsman,

This report (“Report”) has been prepared by Kesselman Finance

PricewaterhouseCoopers Ltd. (“PwC Israel”) in connection with the annual

impairment test of goodwill, as of December 31, 2011 (“Valuation Date”)

This Report has been prepared solely for Swallowbird Trading & Investments Ltd.

(“Swallowbird” or the “Company”) a subsidiary held 100% by A.D.O Group Ltd.

(“ADO”), in connection with the annual impairment test. of goodwill. It has been

prepared in accordance with our letter of engagement (“Engagement Letter” ) dated

February 6, 2012.

Our Report is not intended to be the basis for investment decisions and any action

you take must ultimately remain a decision for you, taking into account matters

outside the scope of our work of which you are aware.

This Report has been prepared solely for the purposes stated in the Engagement

Letter and should not be relied upon for any other purpose. It should be emphasized

that Swallowbird and ADO may not make use of this valuation, the data and/or

outcome transmitted to them by us, in whole or in part, without our advance approval,

except for attaching it to the financial statements of Swallowbird.

Notwithstanding the paragraph above, in no circumstances shall we be liable to pay

any damages to you for losses arising out of or in any way connected with the

provision of information to us by you or your failure to provide information to us or any

fraudulent act, misrepresentation or willful default on your part.

Except to the extent finally determined to have resulted from our gross negligence or

intentional misconduct, our liability to pay damages for any losses incurred by you as

a result of breach of contract, negligence or other tort committed by us, regardless of

the theory of liability asserted, is limited to no more than twice the total amount of fees

paid to us under the Engagement Letter before such losses were incurred. In addition,

we will not be liable in any event for lost profits or any consequential, indirect, punitive,

exemplary or special damages.

The information used by PwC Israel in preparing this Report has been obtained from a

variety of sources as indicated within the Report. While our work has involved analysis

of financial information and/or accounting records, it has not included an audit in

accordance with generally accepted auditing standards. Moreover, except where

otherwise stated in the Report, we have not subjected the financial information in the

Report to checking or verification procedures. Accordingly we assume no

responsibility and make no representations with respect to the accuracy or

completeness of any information provided to us, except where otherwise stated

herein, and no assurance is given.

Our conclusions are based upon the information available as at the date of the Report.

Economic conditions, market factors and changes in the performance of the business

may result in our conclusions becoming quickly outdated and may require updating

from time to time or before any major decisions are taken based on the Report. In any

event, if you intend to make any decision based on the Report more than 3 months

from the date of the Report you must request our written confirmation as to the

currency of our conclusions.

Kesselman Finance

Trade Tower, 25 Hamered Street

Tel Aviv 68125 Israel

P.O. Box 452 Tel Aviv 61003

Telephone +972-3-7954588

Facsimile +972-3-7954682

Confidential Information for the sole benefit and use of PwC's Client.

Our results depend on information by Swallowbird. However, because events and

circumstances frequently do not occur as expected, there will usually be

differences between predicted and actual results, and those differences may be

material. Accordingly, we express no opinion as to how closely the actual results

achieved will correspond to those predicted for Swallowbird and we take no

responsibility for the achievement of predicted results.

By its very nature, valuation work cannot be regarded as an exact science and

the conclusions arrived at in many cases will of necessity be subjective and

dependent on the exercise of individual judgment. There is, therefore, no

indisputable single value and we normally express our valuation opinions as

falling within expected ranges (although, at your request, we have determined a

single figure valuation estimate), which is in our opinion reasonable and

defensible, though others might wish to argue for a different value.

If you require any clarification or further information, please do not hesitate to

contact either Tzur Fenigstein +972-3-7954408 or Shalom Sofer on +972-3-

7954946.

Yours faithfully

Kesselman Finance PricewaterhouseCoopers Ltd.

Swallowbird trading & investments Ltd. • Impairment Test for Goodwill Per IAS 36 0

Table of Contents

1 Introduction 1

2 ADO Background 3

3 Valuation Analysis 12

Appendices

1 Impairment Test using the Cost Approach 18

2 Fair Value less Costs to Sell 20

3 Accounting Guidance 23

4 Curriculum Vitae of the Partner in Charge of the Valuation, Dr. Tzur Fenigstein, CPA (Isr.). 30

Page


Introduction

Section 1


Introduction

Basis of Valuation

• PwC Israel has been engaged to provide valuation services in

connection with the Company’s IAS 36 annual goodwill impairment

test (the “Engagement”).

• The Company consists of one cash generating unit* (“CGU”) as

deemed by Management for goodwill impairment test under IFRS.

• The estimate of value is determined on the basis of Value in Use

(“ViU”)** under IAS 36. Please refer to Appendix 3 for further

accounting guidance.

• We assume that the CGU will continue operating as a going

concern under its present management.

*Paragraph 6 of IAS 36 states that: “A cash-generating unit is the smallest identifiable group of

assets that generates cash inflows that are largely independent of the cash inflows from other

assets or groups of assets."

**ViU reflects the value of an asset, CGU or group of CGUs used internally by the company

Section 1 – Introduction


Purpose and Scope

• PwC Israel’s estimate of ViU is intended solely to assist

Management in complying with financial statement reporting

requirements set forth in IAS 36.

• IAS 36 requires the Company to perform asset and goodwill

impairment tests to identify potential impairments of assets and/or

goodwill and to measure the amount of a potential impairment loss

to be recognized in the consolidated financial statements of the

Company.

• According to IAS 36, an impairment test is performed by

comparing the carrying amount of an asset, a CGU, or a group of

CGUs with its respective recoverable amount. If the recoverable

amount exceeds the carrying amount, the asset, CGU, or group of

CGUs shall be regarded as not impaired. If the carrying amount

exceeds the recoverable amount, the entity shall recognize an

impairment loss as specified in IAS 36.104 and other relevant

sections.


ADO Background

Section 2

Source: Company Reports, Public Information, Management Information

What next for the Eurozone? PwC UK, December 2011.


ADO Background

Introduction

• ADO was incorporated in Israel on January 30, 1987 as a private

company called of “Shomrony and Saar Ltd.”. On January 20,

2008, the company changed its name to ADO Europe Ltd., and on

June 16, 2008 changed the name again to its current name.

• On June 9, 2011, ADO and Shikun & Binui Ltd. (“SB”) has agreed

to enter into a transaction included:

ADO issued to SB shares that represent 48% holdings in

ADO.

ADO owed SB an additional Euro 9.8 million that could be

mandatorily converted to shares that will represent a 7%

stake in ADO.

Furthermore, SB received three types of warrants to be

exercised to ADO shares.

Holding Structure

• ADO holding structure at the Valuation Date:

Section 2 – ADO Background



Business Overview

Brief overview of ADO

Description of the Group and its business environment

ADO is a holding company in the real estate sector, operating via its

Cyprus-resident subsidiary Swallowbird, which operates via German

companies (the “Asset Companies”). The Asset Companies operate

primarily in acquisition of residential buildings in Berlin, Germany and

leasing thereof. Furthermore, Swallowbird, via the German companies,

acts to locate business opportunities in the real estate market in

Germany for buildings and land. Other than holding real estate,

Swallowbird also controls three service companies in Germany, which

provide services to the Asset Companies as follows:

1. Q-ADO DIENSTLEISTUNGS GMBH ("QADO") - QADO provides

the Asset Companies primarily with accounting services,

assistance in obtaining financing for the Asset Companies and

business development for location, acquisition and realization of

properties.



2. Central Asset Management GmbH ("CAM" or "the

Management Company") is a property management

company. The Management Company takes possession of the

buildings, handles collection (including legal proceedings if

necessary), markets vacant apartments, commissions from

CCM City Construction Management GmbH ("CCM" or "the

Refurbishment Company") any refurbishment work required for

vacant apartments and/or for the entire building, maximizes

rent revenues by increasing rent up to the maximum allowed by

law and handles any repairs needed to the buildings while

minimizing the cost of such repairs.

3. The Refurbishment Company – CCM manages and supervises

refurbishment of the Asset Companies property portfolio. The

Management Company and the Asset Companies commission

work from the Refurbishment Company, whether for entire

buildings, for vacant apartments, for significant necessary

repairs such as system replacement, or for less significant

repairs, refurbishment of the building façade etc. The

Refurbishment


Business Overview

Company handles formal and procedural requirements with the

authorities, checking permissions and having the required plans drawn

and executed while minimizing cost. The Refurbishment Company

also participates in the property acquisition process, with regard to

checking the candidate property from an engineering and construction

perspective, as well as confirmation of the expected refurbishment

cost. The Refurbishment Company arranges for the refurbishment

work to be executed by external contractors.



As of December 2011, Swallowbird owns 102 residential and

commercial rental properties in Berlin, of which apartments account

for a total area of 182 thousand m2 and commercial space accounts

for a total area of 33 thousand m2. The Company also owns a

historical property, which does not produce significant revenues, in

Dresden, with an area of 8,600 m2..


Business Overview

Business environment and state of Company affairs

General

The global economic crisis worsened in 2009, with collapse of

international financial institutions and nationalization of insurance

companies and mortgage banks. Following these events, several

countries took various measures to stabilize financial markets and to

prevent further deterioration, including by way of injecting funds into

financial institutions and lowering interest rates. The crisis was

reflected in concerns about dissolution of the Euro Zone, including

price drops on European stock exchanges, higher yields on

government debentures due to higher credit risk associated therewith,

and a weaker Euro. The impact of the crisis on ADO’s operations was

reflected in 2009 by impairment of ADO's properties, its capacity to

realize properties and to re-finance debt. In 2010 and the first half of

2011, markets gradually recovered and the economy in the Euro Zone

returned to grow.

At the middle of 2011, a sovereign debt crisis was triggered. Since

then markets have focused increasing attention on the magnitude of

sovereign debts in other Euro Zone countries and have started to

question their ability to repay. The cost of borrowing relative to the

German benchmark Bund has rocketed for Greece, Portugal and

Ireland and is increasing for Italy and Spain as shown in the graph

below:




Business Overview

Greece, Portugal and Ireland have requested financial assistance from

the troika – the European Central Bank, the European Commission

and the International Monetary Fund – and there has been an endless

stream of European summits discussing ways to resolve the crisis.

None has so far succeeded.

At the present time, Greece and its creditors are negotiating a default

of around 50% of its sovereign debt through the restructuring of

repayments on sovereign bonds. Meanwhile investor confidence

appears to be ebbing away from the larger economies of Italy and

Spain, who are seeing their borrowing costs rise.

Interest on German government bonds remained among the lowest in

the Euro Zone and at around 1.9% for 10 years, as of the end of

2011, compared to about 5-7% in countries such as Italy and Spain

and over 12% in countries such as Greece and Portugal. The German

Government leader continues periodically to approve decisions

regarding the provision of assistance to other European countries such

as Greece, with the intention of maintaining stability in the Euro Zone

and preventing economic breakdown. This assistance may have an

impact on the future economic and political stability of Germany.




Business Overview

Macro-Economic environment in Germany

During 2009 the German economy recorded a negative growth of 5%,

which was the highest negative growth in Germany since World War II

and the weakest of the major economies. Most of the negative growth

was recorded in the first quarter (a decrease of 3.8%). The second and

third quarter Indicated the beginnings of recovery, but this stopped in

the fourth quarter, mainly due to a decrease of 14% in exports

of goods and a 20% decrease in the rate of capital investment. In spite

of this, the German economy appears to be the most stable in Europe

and despite the global crisis, it grew at a rate of 3% in 2010. Growth

continued at a rate of 2.6% during 2011, while most of the growth was

in the first half of the year (1.7%). Estimation these days is for a

moderate growth of less then 1% in 2012.

Real Estate market in Germany

The German real estate market is Europe's second largest (after

Britain) with a value of assets of over 500 Billion Euros. This market is

characterized by conservativeness, low volatility and a wide range of

transactions and market players. Prices in the market fell in 2008 and

2009 at about 2% on average, a significantly lower fall compared to

other real estate markets in Europe. In 2010 the price level rose by

about 3-4% on average. During 2011 prices continued rising and kept

the same growth rate during this period.




Business Overview

Real Estate in Berlin

Real estate trends in Berlin are similar to those in Germany as a whole

in recent years and are characterized by many external investments.

There is an influx of foreign investors for real estate projects, for which

they pay higher prices than the conventional market price (both for

future investment and for renting in a stable yield). In comparison to

other German cities, Berlin is still considered cheap in terms of

housing prices and rents.

The residential real estate market in Berlin is still considered, as in the

past, to be a market of renters rather than purchasers. Renting an

apartment is not considered socially inferior compared to purchasing

an apartment and only about 12.3% of the residents of Berlin own their

houses. Based on figures published by the consulting firm JLL, the

number of apartments in Berlin at the end of 2009 is estimated at 1.9

million.

As of December 2010, there has been an increased demand for

residential apartments for rent, especially for small apartments in the

center of Berlin. Berlin rental prices range from 2.5 to 13 Euros per

square meter per month, depending on the location and age of the

property, with the average rate at 5.6 - 8.5 Euros per square meter per

month. The average purchase price range is broad and derived from

location, physical condition and the level of demand in that area.

The increased demand for apartments in Berlin is derived partly from

an increase in the number of households in the city, and from a drop in

unemployment level. Construction of new apartments in Berlin is

limited to small units and specific neighborhoods, and the amount of

construction permits gradually decreases each year.

In may 2011, rent price index in Berlin (Mietspiegel) was published

and showed a total growth of 7.9% in rent price since the last index

published in 2009. This growth is significantly higher than the one

registered in former years, which concluded to an average of 2% per

year.




Balance sheets

The table below displays Swallowbird’s summary consolidated

balance sheets as of December 31, 2010 and December 31, 2011:



31/12/2010 31/12/2011 31/12/2010 31/12/2011

In thausands Euro Audited UnAudited Audited UnAudited

Current Assets Current Liabilities

Cash and cash equivalents 950 6,351 Interest bearing loans from banks 6,267 89,713

Restricted bank deposits 1,198 3,927 Trade payables 1,070 1,842

Trade receiveables 204 479 Other liabilities 2,248 4,981

Other assets 331 566 9,585 96,536

2,683 11,323 Non-current Liabilities

Interest bearing loans from banks, net 63,409 68,708

Non-current Assets Amounts due to related parties 7,957 53,912

Restricted bank deposits 500 89 Amounts due to others 17,360

Property and equipment 61 116 Derivatives 1,731 3,904

Advance in respect of investment property - 11,019 Deffered tax liabilities 817 2,691

Goodwill - 13,357 91,274 129,215

Investment property 95,081 207,115

Loans granted to jointly controlled entities 11,138 - Total Equity 9,368 17,302

Other financial assets 736 -

Deferred tax assets 28 34

107,544 231,730

Total Assets 110,227 243,053 Total Liabilities and Shareholder's Equity 110,227 243,053

As of As of


Valuation Analysis

Section 3

PricewaterhouseCoopers LLP


Valuation Methodology

Recoverable Amount

According to Paragraph 18 in IAS 36, Recoverable Amount is defined

as "the higher of an asset's or cash-generating unit's fair value less

costs to sell and its value in use."

Paragraph 19 states that "it is not always necessary to determine both

an asset's fair value less costs to sell and its value in use. If either of

these amounts exceeds the asset's carrying amount, the asset is not

impaired and it is not necessary to estimate the other amount."

Paragraph 20 states that "it may be possible to determine fair value

less costs to sell, even if an asset is not traded in an active market.

However, sometimes it will not be possible to determine fair value less

costs to sell because there is no basis for making a reliable estimate of

the amount obtainable from the sale of the asset in an arm's length

transaction between knowledgeable and willing parties. In this case,

the entity may use the asset's value in use as its Recoverable

Amount."

The Company consists of one CGU as deemed by Management for

goodwill impairment test under IFRS. Therefore, for the purpose of the

goodwill impairment test , we have estimated the ViU of Swallowbird.

Section 3 – Valuation Analysis


According to Management, no operating assets exist at Swallowbird

level other than the operating assets of the Asset Companies .

Value in Use

According to Paragraph 31 in IAS 36: "Estimating the value in use of

an asset involves the following steps:

a. Estimating the future cash inflows and outflows to be derived

from continuing use of the asset and from its ultimate disposal;

and

b. Applying the appropriate discount rate to those future cash

flows."

Paragraph 33 in IAS 36 defines: "In measuring value in use an entity

shall:

a. Base cash flow projections on reasonable and supportable

assumptions that represent management’s best estimate of the

range of economic conditions that will exist over the remaining

useful life of the asset. Greater weight shall be given to external

evidence.




b. Base cash flow projections on the most recent financial

budgets/forecasts approved by management, but shall exclude

any estimated future cash inflows or outflows expected to arise

from future restructurings or from improving or enhancing the

asset’s performance. Projections based on these

budgets/forecasts shall cover a maximum period of five years,

unless a longer period can be justified.

c. Estimate cash flow projections beyond the period covered by

the most recent budgets/forecasts by extrapolating the

projections based on the budgets/forecasts using a steady or

declining growth rate for subsequent years, unless an

increasing rate can be justified. This growth rate shall not

exceed the long-term average growth rate for the products,

industries, or country or countries in which the entity operates,

or for the market in which the asset is used, unless a higher rate

can be justified."



Paragraph 39 in IAS 36 states that "Estimates of future cash flows

shall include:

a. Projections of cash inflows from the continuing use of the

asset;

b. Projections of cash outflows that are necessarily incurred to

generate the cash inflows from continuing use of the asset

(including cash outflows to prepare the asset for use) and can

be directly attributed, or allocated on a reasonable and

consistent basis, to the asset; and

c. Net cash flows, if any, to be received (or paid) for the disposal

of the asset at the end of its useful life."

Paragraph 74 in IAS 36 states that "For the purpose of determining

the recoverable amount of a cash-generating unit, any reference in

paragraphs 19-57 to ‘an asset’ is read as a reference to ‘a cash-

generating unit’."




Value in Use

• To estimate the ViU of Swallowbird, we used the value of the

investment properties as it appears on Swallowbird’s balance

sheet as of the Valuation Date, since the value of the investment

properties is based on external and internals appraisals

performed by applying a DCF method. In addition, according to

Management, the external and internal appraisals represent

Management expectations.

• We have not checked nor verified the appraisals.





Swallowbird’s Impairment Test

Conclusion

According to our opinion, based on detailed valuation analysis report

and the valuation method applied by us, Swallowbird’s carrying

amount and ViU are shown in the table below (Euro thousands):

In our assessment, as of the Valuation Date, as specified in this work

and in accordance with the provisions of IAS 36, Swallowbird ‘s ViU is

less than the carrying amount.

* Received from the Swallowbird’s management.



Value in Use Carrying amount

207,115207,115Investment Properties*

13,357Goodwill*

207,115220,472Total


Impairment Test using the Cost Approach

Appendix 1




Value in Use

According to our opinion, based on the alternative of presenting

Swallowbird’s investment properties using the Cost Approach,

Swallowbird’s carrying amount and ViU are shown in the table below

(Euro thousands):


and in accordance with the provisions of IAS 36, Swallowbird ‘s ViU is

less than the carrying amount.

* Received from the Swallowbird’s management.

Appendix 1 – Impairment Test using the Cost Approach


Value in Use Carrying amount

207,115198,594Investment Properties*

13,357Goodwill*

207,115211,951Total


Fair Value less Costs to Sell

Appendix 2





The fair value less costs to sell of Swallowbird equity was calculated

as the market cap of ADO minus the assets and liabilities at ADO

level.

The table presents the calculation of the fair value less costs to sell of

Swallowbird equity:

Appendix 2 – Fair Value less Costs to Sell


The table below presents the fair value less costs to sell and the

carrying amount of Swallowbird equity:

Fair Value Calculation

987,872,460Number of ADO shares

0.21 Share price (NIS)

207,453 ADO market cap as of 31.12.2011 (NIS thousands)

2,318 Other assets and liabilities of ADO

209,772 Total implied fair value of Swallowbird equity

4.94 Exchange rate Euro/NIS

42,464 Fair Value of Swallowbird equity (Euro thousands)

Fair Value Carrying amount

17,302Shareholders' equity

53,912Loans from related parties

42,44171,214Total





The fair value less costs to sell of Swallowbird was calculated by

adding the fair value less costs to sell of other liabilities and assets on

Swallowbird balance sheet to the fair value less costs to sell of

Swallowbird equity.

The table below presents the calculation of the carrying amount of the

CGU compared to its fair value less costs to sell (Euro thousands):


and in accordance with the provisions of IAS 36, Swallowbird ‘s fair

value less costs to sell is less than the carrying amount.

* The fair value less costs to sell of the loans was estimated by calculating the

present value of cash flows expected to be paid by the German asset Companies,

and discounting the cash flows at a market interest rate consistent with the type of

loan taken and the average duration of the loans.

Appendix 2 – Fair Value less Costs to Sell


Fair Value Carrying amount

42,44171,214Shareholders' equity

168,454171,839Other liabilities*

(22,581)(22,581)Other assets

188,314220,472Total


Accounting Guidance

Appendix 3



Background of IAS 36

IAS 36 has to be applied to tangible and intangible assets as well

as to goodwill acquired in business combinations and derived in

accordance with IFRS 3. The objective of impairment tests is to

ascertain that the carrying amount of assets and/or goodwill in the

balance sheet does not exceed their recoverable amount. The

recoverable amount is determined by the higher of a) the value of

selling the asset and b) the value of continuing to use the asset in

the company. For cases in which the asset is recognized at a

value larger than the recoverable amount, the asset is impaired

and IAS 36 requires the entity to recognize an impairment loss

(IAS 36.1).

An impairment test in accordance with IAS 36 can be performed

on the level of individual assets, CGUs or groups of CGUs.

The carrying amount is the amount at which an asset is recognized

after deducting any accumulated depreciation (amortization) and

accumulated impairment losses thereon (IAS 36.6). Accordingly,

the carrying amount represents the book value of an asset, a CGU

or a group of CGUs as of the measurement date.

The recoverable amount is defined as the higher of an asset’s, a

CGU’s or a group of CGUs’ fair value less costs to sell (“FVlCtS”)

or value in use (“ViU”, IAS 36.18).

The table on the right illustrates the overall impairment testing

relationship.

Carrying Amount Recoverable

Amount vs.

higher of an asset’s,

CGU’s or group of

CGUs’

Fair value less costs

to sell (FVlCtS) Value in use (ViU)

1. Best evidence: arm’s

length transaction less

disposal costs

2. Otherwise: market price

less costs of disposal

3. Otherwise, best

information available to

reflect amount an entity

could obtain (IAS

36.25pp)

“[…] an asset’s value in use

reflects how the market

would price the cash flows

that management expects to

derive from that asset.” (IAS

36.BC60)

“External (market) value” “Internal value (from use for the

entity)”

Appendix 3 – Accounting Guidance




Definition of a CGU and the CGU Structure

Test level for the asset impairment test

An impairment test shall be performed on the level of individual

assets by comparing the carrying amount of the assets to the

recoverable amount of the assets.

If these assets do not generate largely independent cash flows, it

might not be possible to determine the recoverable amount of an

individual asset. In this case an entity has to identify the lowest

level of aggregation of assets that generate largely independent

cash inflows and for which an active market for the produced

output exists (“bottom-up” perspective, IAS 36.68).

This aggregation of assets is called CGU and represents the level

at which the impairment test for the assets then has to be

performed.

Test level for the goodwill impairment test

For goodwill impairment test purposes the testing level is

determined following a “top-down” perspective in line with the so-

called management approach (IAS 36.80). This implies that the

impairment test of goodwill is performed on the lowest level at

which goodwill is monitored for internal management purposes. In

connection with IAS 36.80 this implies that the goodwill shall be

tested on the level of CGUs or group of CGUs (which must not be

larger than an operating segment according to IFRS 8) depending

on company’s business model and organisational structure.

The CGU Structure

The definition of the testing levels (assets, CGU, groups of CGUs)

for the impairment test of assets and goodwill is called the CGU

structure. The identification of a CGU structure involves judgment

and shall be done consistently from period to period, unless a

change is justified or necessary because more useful information

can be provided.

The identification of the CGU structure for asset and goodwill

impairment test purposes is therefore driven by two factors:

- The definition of a CGU according to IAS 36, and

- the Company’s business model and organisational structure,

i.e. management reporting structure.

Segment

1

Segment

4Division 1Division 2 Division 3 Region 1

Entity

… … … …

Entity’s asset base

BU 3BU 2BU 1

Region 2Region 1

Region 2

Segment 2 Segment 3

Country 2Country 1

Goodwill Impairment Test - “Top-down” approach

Asset Impairment Test - “Bottom-up” approach





Timing of Impairment Test

For all assets in the scope of IAS 36 (including goodwill)

impairment tests have to be performed whenever indications of

impairment (triggering events) occur.

Additionally, goodwill impairment tests must be performed on an

annual basis irrespective of an indication for impairment (triggering

event, IAS 36.10) as according to IFRS 3 Business Combinations

(“IFRS 3”) goodwill may not be amortised regularly.

Intangible assets with an indefinite useful life (e.g. company brand

names) must be tested annually for impairment as well because

they are not amortised.

Intangible assets that are not yet available for use have to be

tested annually, because it is even more uncertain if they will be

able to generate future economic benefits that suffice to recover

the carrying amount. The annual impairment test is intended to

compensate that elevated uncertainty (IAS 36.11).

The annual impairment test for goodwill or other assets not subject

to regular amortization may be performed at any time during an

annual period, provided the test is performed at the same time

every year. Different assets, CGUs or groups of CGUs may be

tested for impairment at different times. However, if some or all of

the goodwill allocated to a CGU or group of CGUs has been

acquired in a business combination during the current annual

period, that unit has to be tested for impairment before the end of

the current annual period.





Determination of the Carrying Amount

As described on the previous pages the assets to be tested define

the testing level and the carrying amount. In a following step that

carrying amount is compared to the recoverable amount. The

paradigm for the impairment test in accordance with IAS 36

stipulates that the carrying amount of an asset, CGU or group of

CGUs shall be determined on a basis consistent with the way the

recoverable amount of the asset, CGU or group of CGUs is

determined (IAS 36.75).

The carrying amount of a CGU or group of CGUs comprises all

tangible (e.g. land, building and site improvements, etc.) and

intangible assets, net working capital and attributable liabilities

(IAS 36.78) related to the operating business of the CGU.

The carrying amount of a CGU or group of CGUs shall only

contain assets necessary for the operating business. Hence, non-

essential assets have to be excluded from the CGU impairment

test. Those non-essential assets are tested separately, usually

based on their individual FVlCtS. Moreover, liabilities (so-called

attributable liabilities) need to be considered in the determination

of the carrying amount, if the disposal of the interlinked assets

would require the buyer to take these liabilities into consideration

(e.g. provision for restoration costs related to land, IAS 36.78).

As mentioned above exclusion of assets or deduction of liabilities

must be consistent with the underlying assumptions for the

calculation of the corresponding recoverable amount.

Balance Sheet

Fixed

Assets

Equity

Current

Assets

Liabilities

Current

Liabilities*

Pension

Provisions

Fixed

Assets

(minus

recognised

liabilities)

NWC

Carrying Amount

Recognised

Liabilities

*Including operating liabilities





Value Concepts: Fair Value Less Costs to Sell and Value in Use


The FVlCtS reflects the value of an asset, CGU or group of CGUs

from an market participants perspective, i.e. the achievable price

for the asset, CGU or group of CGUs between willing parties within

an at arm’s length transaction. Accordingly, FVlCtS can be

determined as set out in the relevant standards (e.g. IAS 36.25-

27).

The best evidence of the FVlCtS is a price given in a binding sales

agreement in an arm’s length transaction adjusted for any costs

that would need to be incurred in disposing of the asset, CGU or

group of CGUs.

When no binding sales agreement exists, the FVlCtS should be

estimated by referring to a market price less any costs of disposal

observed in an active market. If no current bid prices are available,

the price of the most recent comparable transaction may be used.

Where neither a binding sales agreement nor an active market

exists, the FVlCtS determination should be based on the best

information available at the balance sheet date. In this case it is

generally accepted to apply a discounted cash flow (“DCF”)

approach to approximate the value knowledgeable parties would

be willing to pay in an arm’s length transaction. The DCF approach

is based on a post-corporate tax perspective.

The crucial task is to estimate (1) the appropriate free cash flow

and (2) the appropriate risk adjusted discount rate reflecting the

expectations of a market participant.

Value in Use

The ViU reflects the value of an asset, CGU or group of CGUs

used internally by the company. Thus, the determination of ViU

has to be performed by applying a DCF method.

Following IAS 36.50 the ViU has to be calculated on a pre-tax

basis (before corporate taxes). Following common practice,

however, for practical reasons post-tax cash flows are discounted

with post-tax discounted rate. In theory, discounting post-tax cash

flows at a post-tax discount rate and discounting pre-tax cash

flows at a pre-tax discount rate should lead to the same values

(IAS 36.BCZ85, RS HFA 16, Tz. 111).

In order to test an asset, CGU or group of CGUs in its current

condition, IAS 36.44 requires to eliminate the following cash flow

components for the calculation of the ViU:

- Cash flows related to future restructurings, for which a

restructuring provision in accordance with IAS 37 has not

been set up yet.

- Cash flows from future improvement or enhancement

investments (not maintenance expenditure). This is not the

case for incidents already reflected on the balance sheet.

All parameters of the valuation regarding the free cash flows and

the discount rate should reflect the Company’s specific aspects.

This includes first and foremost acquirer-specific synergies, which

have to be eliminated in the calculation of FVlCtS.





Recognition and Measurement of an Impairment Loss

When allocating an impairment loss within a CGU or group of

CGUs, an entity shall not reduce the carrying amount of an asset

below the highest of:

- Its FVlCtS (if determinable),

- Its ViU (if determinable),

- Zero.

After the recognition of an impairment loss, the depreciation

(amortisation) charge for the asset has to be adjusted accordingly

to allocate the asset’s revised carrying amount on a systematic

basis over its remaining useful life.

If an impairment loss is recognised, any related deferred tax

assets or liabilities have to be reassessed in accordance with IAS

12 Income Taxes (“IAS 12”)by comparing the revised carrying

amount of the asset with its tax base.

For the goodwill impairment test the determined impairment loss

shall be allocated in the following order within the group of CGUs:

- First to goodwill,

- then, to all other assets of the unit (group of units) within the

scope of IAS 36 pro rata the assets’ carrying amount in the

CGU not reducing the assets’ carrying amount below its

individual FVlCtS, ViU or zero.

If the amount estimated for an impairment loss is higher than the

carrying amount of the CGU, a liability shall be recognised for any

remaining amount of an impairment loss for the CGU, if that is

required by IAS 37.

Under IAS 36 impairment of assets occurred in the past may be

reversed (IAS 36.110). However, a reversal of goodwill

impairments in prior periods is prohibited. At the reporting date,

management has to review whether the value of an asset

previously impaired has meanwhile recovered so that the

impairment is to be reversed.

The impairment loss recognised in previous periods may only be

reversed, if there has been a change in the estimates used to

determine the recoverable amount since the last impairment loss

has been recognised. A reversal reflects an increase in the

estimated benefits generated by an asset, either from use or sale,

since the business last recognised impairment loss.

Recognition of the reversal should be consistent with the

recognition of the former impairment loss, which will also affect the

income statement positively. When a reversal is booked, the

asset’s revised carrying amount should be depreciated or

amortised on a consistent basis over its remaining useful life.

Reversal of an impairment loss for a CGU should - comparable

with the impairment booking - be allocated to the assets of a CGU

on a pro rata basis.

The carrying amount of the individual assets should not be

increased above the lower of the:

- Recoverable amount of the asset, and

- Carrying amount that would have been determined (net

amortisation or depreciation), if no impairment loss would

have been recognised for the asset in prior periods.




Curriculum Vitae of the Partner in Charge of the

Valuation, Dr. Tzur Fenigstein, CPA (Isr.).

Appendix 4


Curriculum Vitae of the Partner in Charge of the Valuation,

Dr. Tzur Fenigstein, CPA (Isr.).

Education:

1983 – B.A. in Accounting and Economics from the Tel Aviv

University

1986 – Qualified as Certified Public Accountant.

1989 – Post-graduate degree in Business Administration (M.B.A) from

the Tel Aviv University (Cum Laude).

2010 – Doctor of Philosophy (Ph.D) from the Tel Aviv University.

Work experience:

1989 – 1990: Accountant at Somekh Chaikin, Certified Public

Accountants

1990 – 1993: Project Manager and Senior Consultant at Ya’ad

Business Development Ltd.

1993 – 1994: Transaction Manager in Private Transaction Department

of Poalim Capital Markets and Investments Ltd.

1994 – 1995: Deputy CEO of S.Z.Y.R. Holdings and Investments Ltd.,

the industrial investment arm of Cee Investments Ltd.

1995 – 2001: Member of management and manager of financing and

economic division of PwC Israel.

2001 – Partner at Kesselman & Kesselman PricewaterhouseCoopers,

Certified Public Accountants and manager of financing and economic

division of PwC Israel. His experience includes project management

and research assignments in the areas of financial and strategic

consulting, preparation of expert opinions, implementation of economic

assignments in the areas of public policy and regulation, valuation of

companies and preparation of business plans. From 2006 Tzur serves

as co-CEO of PwC Israel.

Appendix 4 – Curriculum Vitae of the Partner in Charge of the Valuation, Dr. Tzur Fenigstein, CPA (Isr.).


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