The Group recognized goodwill and brands with indefinite useful life in the consolidated financial statements. Their carrying amounts were allocated to the cash generating units which also represent the Group’s operating segments.
Goodwill and brands with indefinite useful life are tested for impairment annually or more frequently if possible impairment is indicated. Goodwill and brands are allocated to the below cash-generating units for the purpose of testing for impairment. The allocation was made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose and the brands were identified.
The Group tests the total carrying amount of the cash-generating units and any impairment identified is recognized in the profit or loss immediately with respect to goodwill first and is not subsequently reversed. If goodwill is fully impaired the remaining amount of the impairment loss is allocated to the brands and other assets of the cash-generating unit on a pro rata basis.
| 2016 | 2015 | |
|---|---|---|
| “Services to individual and business customers” cash-generating unit | 8,583.4 | 8,214.4 |
| Goodwill recognized on the acquisition of Metelem Holding Company Ltd. | 7,982.5 | 7,982.5 |
| Goodwill recognized on the acquisition of Litenite Ltd. | 368.8 | - |
| Goodwill recognized on the acquisition of entities comprising Ipla platform | 145.1 | 145.1 |
| Goodwill recognized on the acquisition of M.Punkt Holdings Ltd. | 52.0 | 52.0 |
| Goodwill recognized on the acquisition of Orsen Holding Limited | 16.3 | 16.3 |
| Goodwill recognized on the acquisition of Info-TV-FM Sp. z o.o. | 10.7 | 10.7 |
| Goodwill recognized on the acquisition of IT Polpager S.A. | 0.2 | - |
| Ipla brand | 7.8 | 7.8 |
| “Broadcasting and television production” cash-generating unit | 3,282.8 | 3,282.8 |
| Goodwill recognized on the acquisition of Telewizja Polsat S.A. | 2,360.2 | 2,360.2 |
| Goodwill recognized on the acquisition of Polskie Media S.A. | 34.8 | 34.8 |
| Goodwill recognized on the acquisition of Radio PIN S.A. | 4.8 | 4.8 |
| Polsat brand | 840.0 | 840.0 |
| TV4 brand | 33.7 | 33.7 |
| TV6 brand | 9.3 | 9.3 |
The recoverable amounts of all the cash generating units have been determined based on the value-in-use calculations. These calculations were based on discounted free cash flows and involved the use of estimates related to cash flow before tax projections based on actual financial business plans covering the 5-year period until 2021. Cash flow projections after 5-year forecast period are estimated using the terminal growth. Terminal growth rate does not exceed the long-term average growth rate for the country in which the Group operates.
The key financial assumptions used in the value-in-use calculations
The most sensitive key financial assumptions used in the value-in-use calculations of “Broadcasting and television production” cash-generating unit and “Services to individual and business customers” cash-generating unit were as follows:
- discount rate
- terminal growth rate used for estimating the cash flows beyond the period of financial plans.
Discount rate – the discount rate reflects the estimate made by the management of the risks specific to each cash-generating unit, taking into account the time value of money and risks specific to the asset. The discount rate was estimated on the basis of weighted average cost of capital method (WACC) and considered Group’s and its operating segments’ business environment. WACC considers both debt and equity. Cost of equity is based on the return on investment excepted by the Group’s investors while cost of debt is based on the interest bearing debt instruments. Operating segment- specific risk is considered by the estimation of beta. Beta is estimated annually and is based on the market data.
Terminal growth rate – growth rates are based on widely available published market data.
The key financial assumptions used for value-in-use calculations in 2016 and 2015 are as follows:
| Broadcasting and television production | Retail | |||
|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | |
| Terminal growth | 2% | 3% | 2% | 3% |
| Discount rate before tax | 9.9% | 9.7% | 9.4% | 8.2% |
The impairment tests for goodwill and brands allocated to “Broadcasting and television production” and “Services to individual and business customers” cash-generating units did not indicate impairment as at 31 December 2016.
Sensitivity analysis of key financial assumptions
The Group believes that the key assumptions made in testing for impairment of the “Broadcasting and television production” and “Services to individual and business customers” cash-generating units as at 31 December 2016 are reasonable and are based on our experience and market forecasts that are published by the industry experts. Management believes that any reasonably possible change in the key assumptions on which the above mentioned cash-generating units’ recoverable amounts are based would not cause the impairment charge to be recognized.