EN
PL
| Goodwill | 31 December 2016 | 31 December 2015 (restated) |
|---|---|---|
| Alior Bank | 746 | 746 |
| Lietuvos Draudimas AB | 489 1) | 359 |
| Non-life insurance mass-client segment (Link4) | 221 | 221 |
| Lietuvos Draudimas AB branch in Estonia | n/a 1) | 112 |
| AAS Balta | 40 | 39 |
| Health care companies | 82 | 50 |
| Other | 5 | 5 |
| Total goodwill | 1,583 | 1,532 |
1) Covers the company’s value from the acquisition of Lietuvos Draudimas in Estonia.
| Changes in goodwill | 1 January–31 December 2016 | 1 January–31 December 2015 (restated) |
|---|---|---|
| Gross value of goodwill – opening balance | 1,537 | 776 |
| Changes in the period: | 61 | 761 |
| acquisition of Alior Bank | - | 746 1) |
| - acquisition of other entities | 42 | 20 |
| - sale of PZU Lietuva | - | (3) |
| - foreign exchange differences | 19 | (2) |
| Gross value of goodwill – closing balance | 1,598 | 1,537 |
| Impairment losses – opening balance | (5) | (7) |
| Changes in impairment losses due to foreign exchange differences | (10) | 2 |
| - impairment losses concerning SKOK | (10) | |
| - foreign exchange differences | - | 2 |
| Impairment losses – closing balance | (15) | (5) |
| Net value of goodwill – closing balance | 1,583 | 1,532 |
1) Information about the acquisition of Alior Bank is presented in point 2.4.1.2
Impairment test
Impairment test is the comparison of carrying amounts (including goodwill) and recoverable amounts of cash-generating units (CGUs) to which goodwill has been allocated. In case of foreign companies and Polish non-insurance companies, particular entities are considered CGUs. During the final purchase price allocation, the goodwill resulting from the acquisition of Link4 was fully allocated to the mass insurance segment in non-life insurance, which – due to the integration of Link4’s business with PZU as part of realization of the two brands strategy assuming synergy resulting from mass client portfolio management and sale of additional insurance products – is the smallest CGU to which goodwill can be assigned. An impairment test regarding goodwill was prepared as at 31 December 2016. Starting in 2016, the branch in Estonia is subject to tests for impairment together with Lietuvos Draudimas AB due to the integration of activity of both entities concerning management of investments, risk, and assistance as well as the lack of internal monitoring of the branch’s capital position.
For the purposes of the test, the carrying amount of the mass insurance segment was determined on the basis of net asset allocation of PZU Group. The assets were allocated in the same proportion as the one between the hypothetical capital solvency requirement, which may be assigned to the mass insurance segment, and total capital solvency requirement.
The recoverable amount of individual CGUs was determined based on value in use, using the discounted cash flow method based on the most up-to-date, approved by PZU Group financial projections not exceeding 5 years, which have been presented in the table below. The discount rates used for the test of insurance companies and Alior Bank were determined based on the level of the cost of equity. In the case of medical companies, the weighted average cost of capital (WACC) was used. The cost of equity was determined according to the CAMP model. In addition, in justified cases, the adjustments regarding size premium were made. Risk-free rates have been determined based on the yield of 10-year government bonds offered by the country where the CGU has it registered seat; the beta ratio has been based on ratios of similar listed entities. Market premiums amounted to 5.5% (in 2015: 5.5%). In the case of insurance companies and Alior Bank, the projected cash flows include the need to maintain an adequate level of own funds. Terminal growth rates were determined taking into consideration long-term development prospects concerning the expected growth of the market in which a given entity operates. In the case of insurance entities operating in the Baltic states, an adjustment regarding the expected growth of insurance penetration rate (share of insurance premiums in GDP) amounting to 0.2–0.3 p.p. was taken into consideration. In the remaining cases, growth indicators do not exceed long-term prospects of GDP development of a given country in nominal terms.
| CGU | 31 December 2016 | 31 December 2015 | ||||
|---|---|---|---|---|---|---|
| Discount rate | Terminal growth rate | Financial projections horizon | Discount rate | Terminal growth rate | Financial projections horizon | |
| Lietuvos Draudimas AB | 5.3%1) | 3.7%1) | 5 years1) | 5.6% | 3.7% | 4 years |
| Lietuvos Draudimas AB branch in Estonia | n/a | n/a | n/a | 5.8% | 3.5% | 4 years |
| AAS Balta | 5.7% | 3.8% | 5 years | 5.8% | 3.8% | 4 years |
| Mass insurance segment 2) | 7.8% | 2.5% | 4 years | 7.5% | 2.5% | 5 years |
| Alior Bank | 9.6% | 3.5% | 4 years | 8.9% | 3.0% | 5 years |
| Health care companies | 6.6% | 2.0–3.0% | 4 years | 6.6–9.1% | 2.0–3.0% | 4-5 years |
1) Including goodwill resulting from the acquisition of Lietuvos Draudimas in Estonia.
2) Including goodwill resulting from the acquisition of Link4.
As a result of the test, there was no reason for impairment losses recognition. The table below shows the surplus of the recoverable amounts over the carrying amounts and the maximum discount rates and minimum terminal growth rate, at the level of which the carrying amount of a CGU equals its recoverable amount.
| CGU | 31 December 2016 | 31 December 2015 | ||||
|---|---|---|---|---|---|---|
| Surplus (PLN million) | Maximum discount rate | Minimum terminal growth rate | Surplus (PLN million) | Maximum discount rate | Minimum terminal growth rate | |
| Lietuvos Draudimas AB | 2,0441) | 8.6%1) | (4.0%)1) | 693 | 7.5% | (0.6%) |
| Lietuvos Draudimas AB branch in Estonia | n/a | n/a | n/a | 109 | 8.3% | (13.9%) |
| AAS Balta | 978 | 16.2% | (62.5%) | 728 | 14.4% | (23.4%) |
| Mass insurance segment | 1,895 2) | 11.3% | (42.8%) | 6,265 2) | 28.2% | n/a 3) |
| Alior Bank | 2,210 4) | 11.1% | 1.6% | 1,383 4) | 10.4% | 1.5% |
| Health care companies | 87 | 6.9–12.5% | (5.2%)–2.7% | 53 | 8.2–13.9% | (5.6%)–2.3% |
1) Including goodwill resultingfrom the acquisition of Lietuvos Draudimas in Estonia. Data as at 31 December 2015 have been transformed accordingly. The growth of the recoverable amount surplus exceeding the book value results mainly from growth in financial forecasts included in PZU Group’s financial plans, period of growth of entity’s cash flows being longer up to 5 years, and a drop in discount rate.
2) Surplus of the recoverable amount of mass insurance segment exceeding its carrying amount including goodwill allocated to this segment and resulting from Link4 acquisition. A drop in the surplus results mainly from decrease in financial forecasts included in PZU Group’s financial plans, period of growth of entity’s cash flows being longer up to 5 years, and a drop in discount rate.
3) The value of discounted cash flows in the forecast period exceeds the carrying amount assigned to the mass insurance segment, hence the value of the terminal growth rate after the forecast period has not been presented.
4) Surplus of the recoverable amount of CGU exceeding carrying amount (100% of net consolidated assets of Alior Bank, including the Core Business of Bank BPH) including goodwill allocated to CGU pertaining exclusively to Alior Bank.
