F.1. Intangible assets
| (CZK million) | 31.12.2015 | 31.12.2014 |
|---|---|---|
| Goodwill | 1,289 | 1,780 |
of which is goodwill on Česká pojišťovna a.s. – Polish branch | – | 466 |
of which is goodwill on Penzijní společnost České pojišťovny, a.s. | 584 | 584 |
of which is goodwill on Generali SAF Pensii Private SA | 705 | 730 |
| Other intangible assets | 1,080 | 1,233 |
| Software | 1,019 | 1,153 |
| Present value of future profits from portfolios acquired | 55 | 71 |
| Intangible assets – other | 6 | 9 |
| Total | 2,369 | 3,013 |
Of which relates to the Transformed fund:
| (CZK million) | 31.12.2015 | 31.12.2014 |
|---|---|---|
| Other intangible assets | 55 | 71 |
| Present value of future profits from portfolios acquired | 55 | 71 |
| Total | 55 | 71 |
F.1.1. Goodwill
The balance of the goodwill on Penzijní Společnost České pojišťovny, a.s. represents the goodwill that arose from the acquisition of ABN AMRO Penzijní fond, a.s. in 2004. The goodwill related to Generali SAF de Pensii Private S.A. is connected with the acquisition of the company in 2008.
The goodwill related to business in Poland was derecognized as a result of the disposal in December 2015 (see Note B.1 and F.8). The goodwill was connected with the acquisition of the business in 2012.
The cash-generating units (CGU) to which goodwill has been allocated are tested for impairment annually by comparing the carrying amount of the CGU, including the goodwill, with the recoverable amount of the unit. Annual impairment review resulted in no impairment charge neither for 2015 nor 2014.
The following sections describe how the Group determines the recoverable amount of its goodwill carrying cash-generating units and provides information on certain key assumptions on which management based its determination of the recoverable amount.
Generali SAF de Pensii Private S.A.
The recoverable amount of Generali SAF de Pensii Private S.A. is calculated on the basis of its value in use. The Group employs a valuation model based on discounted post-tax cash flows. The model calculates the present value of the estimated future cash inflows and outflows, considering projections on budgets/forecasts approved by management. The cash flows are projected for 20 years in order to take into account the long-term nature of the pension fund investments.
These key assumptions have been made by management reflecting past experience and are consistent with relevant external sources of information. The key assumptions to which the calculation of value in use is most sensitive are the earnings projection, long-term growth and discount rate.
The key assumptions used for value in use calculations to test the recoverability of goodwill are as follows:
| Long-term growth rate | 2.00% |
| Discount rate | 8.53% |
The most important assumptions behind the earnings projections are the fees on contributions from pension fund members, which is equal to 2,5% of the contribution, and the asset management fee, which is equal to 0,6% of the managed assets. Management believes that both percentages will be stable during the planned period.
The discount rate applied is comprised of a risk-free interest rate and a market risk premium. Management believes that, currently, there are no reasonably possible changes in any of the key assumptions, which would lead to the recoverable amount being below the carrying amount.
Penzijní společnost České pojišťovny including the Transformed fund (PFČP)
The Dividend Discount Model has been used for the determination of the value in use of PFČP.
The Dividend Discount Model is based on the hypothesis that the value of a cash-generating unit is equal to the present value of the post-tax cash flows available for its shareholders. These cash flows are supposed to be equal to the flows derived from the distributable dividends, while maintaining an adequate capital structure as required by the laws in force and the entity’s economic nature and to maintain its expected future development.
According to this method, the value of the cash-generating unit is equal to the sum of the discounted value of future dividends plus the terminal value of the cash-generating unit itself.
- For forecasting the future cash flows of PFČP, the detailed information included in the last available Rolling Plan 2016–2018 has been considered. The main economic-financial data (i.e. net profit) has been calculated for two additional years (2019 and 2020) on the basis of the growth rate in the last year of the Rolling Plan (2018) to extend the forecast period.
- Explicit forecasting of the future cash flows to be distributed to shareholders in the planned time frame, taking into account limits requiring the maintenance of an adequate capital level.
- Calculating the cash-generating unit’s terminal value, that is the expected value of the cash-generating unit at the end of the latest year planned.
- The discount rate of the future cash flows has been defined on the basis of the return rate of risk-free investments plus annual cost of capital. The cost of capital is derived from the Embedded Value methodology of the Group.
Key assumptions used for value in use calculation are as follows:
| Long-term growth rate | 1.00% |
| Discount rate | 4.50% |
Management believes that, currently, there are no reasonably possible changes in any of the key assumptions, which would lead to the recoverable amount being below the carrying amount.
F.1.2. Other intangible assets
Tables below show the development of individual classes of other intangible assets.
| 2015 (CZK million) | Software | Present Value of Future Profits | Other intangible assets | Total |
|---|---|---|---|---|
| Balance as at 1 January – Gross amount | 5,823 | 153 | 70 | 6,046 |
| Accumulated amortisation and impairment losses | (4,670) | (82) | (61) | (4,813) |
| Carrying amount as at 1 January reporting period | 1,153 | 71 | 9 | 1,233 |
| Increases | 240 | – | – | 240 |
| Decreases | (55) | – | – | (55) |
| Disposals of subsidiaries | (2) | – | – | (2) |
| Portfolio transfer | (13) | – | – | (13) |
| Amortisation of the period | (304) | (16) | (4) | (324) |
| Other changes | – | – | 1 | 1 |
| Carrying amount as at end of reporting period | 1,019 | 55 | 6 | 1,080 |
| Accumulated amortisation and impairment losses at end of reporting period | (4,869) | (97) | (63) | (5,029) |
| Balance as at end of reporting period – Gross amount | 5,888 | 152 | 69 | 6,109 |
| 2014 (CZK million) | Software | Present Value of Future Profits | Other intangible assets | Total |
|---|---|---|---|---|
| Balance as at 1 January – Gross amount | 6,087 | 153 | 196 | 6,436 |
| Accumulated amortisation and impairment losses | (4,717) | (69) | (158) | (4,944) |
| Carrying amount as at 1 January reporting period | 1,370 | 84 | 38 | 1,492 |
| Increases | 268 | – | 10 | 278 |
| Decreases | (95) | – | (21) | (116) |
| Foreign currency translation effects | (1) | – | – | (1) |
| Amortisation of the period | (363) | (13) | (18) | (394) |
| Other changes | (26) | – | – | (26) |
| Carrying amount as at end of reporting period | 1,153 | 71 | 9 | 1,233 |
| Accumulated amortisation and impairment losses at end of reporting period | (4,670) | (82) | (61) | (4,813) |
| Balance as at end of reporting period – Gross amount | 5,823 | 153 | 70 | 6,046 |
The line Disposals of subsidiaries in 2015 is connected with derecognition of assets related to the sale of ČP INVEST investiční společnost, a.s. and ČP DIRECT, a.s. (see Note B.1.). Disposal of business related to Polish branch of Česká pojišťovna (see Note F.8) is reported on line Portfolio transfer.
Of which relates to the Transformed fund:
| 2015 (CZK million) | Software | Present Value of Future Profits | Other intangible assets | Total |
|---|---|---|---|---|
| Balance as at 1 January – Gross amount | – | 153 | – | 153 |
| Accumulated amortisation and impairment losses | – | (82) | – | (82) |
| Carrying amount as at 1 January reporting period | – | 71 | – | 71 |
| Amortisation of the period | – | (16) | – | (16) |
| Carrying amount as at end of reporting period | – | 55 | – | 55 |
| Accumulated amortisation and impairment losses at end of reporting period | – | (98) | – | (98) |
| Balance as at end of reporting period – Gross amount | – | 153 | – | 153 |
| 2014 (CZK million) | Software | Present Value of Future Profits | Other intangible assets | Total |
|---|---|---|---|---|
| Balance as at 1 January – Gross amount | – | – | – | – |
| Accumulated amortisation and impairment losses | – | – | – | – |
| Carrying amount as at 1 January reporting period | – | – | – | – |
| Transfer from Pension company – Gross amount | – | 153 | – | 153 |
| Transfer from Pension company – Accumulated amortisation | – | (69) | – | (69) |
| Amortisation of the period | – | (13) | – | (13) |
| Carrying amount as at end of reporting period | – | 71 | – | 71 |
| Accumulated amortisation and impairment losses at end of reporting period | – | (82) | – | (82) |
| Balance as at end of reporting period – Gross amount | – | 153 | – | 153 |
Present value of future profits
In 2013, Present value of future profits from portfolios acquired in the amount of CZK 84 million was reported by Pension company, therefore it is not presented as at 1 January 2014 for the Transformed fund. The Present value of future profits was transferred from Pension company to the Transformed fund in 2014.
The Group performs a valuation of present value of future profits related to ABN AMRO portfolio, within the annual embedded value calculations. This valuation confirmed the present value of the respective portfolio, which exceeds its carrying amount (CZK 55 million).
Embedded value calculation follows the MCEEV Principles. The reference rates used to derive risk-neutral economic scenarios are calibrated to CZK government bonds and both investment rates and implied volatilities are as at the end of year 2015.