F.1. Intangible assets
| (CZK million) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Goodwill | 1,286 | 1,289 |
of which is goodwill on Penzijní společnost České pojišťovny, a.s. | 584 | 584 |
of which is goodwill on Generali SAF Pensii Private SA | 702 | 705 |
| Other intangible assets | 1,026 | 1,080 |
Software | 976 | 1,019 |
Present value of future profits from portfolios acquired | 45 | 55 |
Intangible assets – other | 5 | 6 |
| Total | 2,312 | 2,369 |
Of which relates to the Transformed fund:
| (CZK million) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Other intangible assets | 45 | 55 |
Present value of future profits from portfolios acquired | 45 | 55 |
| Total | 45 | 55 |
| (CZK million) | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Other intangible assets | 45 | 55 |
Present value of future profits from portfolios acquired | 45 | 55 |
| Total | 45 | 55 |
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 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 2016 nor 2015.
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 | 9.07% |
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 0.5% 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, market risk premium and size 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)
TThe Dividend Discount Model has been used for the determination of the value in use of PSČP.
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 PSČP, the detailed information included in the last available Rolling Plan 2017–2019 has been considered. The main economic-financial data (i.e. net profit) has been calculated for two additional years (2020 and 2021) on the basis of the growth rate in the last year of the Rolling Plan (2019) 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;
- Discount rate applied to future cash flows in years 1 to 5 is calculated on the basis of the Capital Asset Pricing Model (CAPM) formula. This model considers the return rate of risk-free investments , market risk premium and size premium;
- The discount rates used to discount future profits which arise after fifth year are derived from Group’s Embedded value methodology.
Key assumptions used for value in use calculation are as follows:
| Long-term growth rate | 1.00% |
| Discount rate | 5.51% |
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
The tables below show the development of the individual classes of other intangible assets.
| 2016 (CZK million) | Software | Present Value of Future Profits | Other intangible assets | Total |
|---|---|---|---|---|
| Acquisition cost as at beginning of reporting period | 5,888 | 153 | 69 | 6,109 |
| Accumulated amortization and impairment losses as at beginning of reporting period | (4,869) | (98) | (63) | (5,029) |
| Carrying amount as at beginning of reporting period | 1,019 | 55 | 6 | 1,080 |
| Additions | 234 | – | 2 | 236 |
| Disposals | (3) | – | – | (3) |
| Business combinations | 1 | – | – | 1 |
| Amortisation of the period | (279) | (10) | (7) | (296) |
| Other changes | 4 | – | 4 | 8 |
| Carrying amount as at end of reporting period | 976 | 45 | 5 | 1,026 |
| Accumulated amortisation and impairment losses as at end of reporting period | (5,146) | (108) | (44) | (5,298) |
| Acquisition cost as at end of reporting period | 6,122 | 153 | 49 | 6,324 |
| 2015 (CZK million) | Software | Present Value of Future Profits | Other intangible assets | Total |
|---|---|---|---|---|
| Acquisition cost as at beginning of reporting period | 5,823 | 153 | 70 | 6,046 |
| Accumulated amortization and impairment losses as at beginning of reporting period | (4,670) | (82) | (61) | (4,813) |
| Carrying amount as at beginning of reporting period | 1,153 | 71 | 9 | 1,233 |
| Additions | 240 | – | – | 240 |
| Disposals | (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 as at end of reporting period | (4,869) | (98) | (63) | (5,029) |
| Acquisition cost as at end of reporting period | 5,888 | 153 | 69 | 6,109 |
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. Disposal of business related to the Polish branch of Česká pojišťovna is reported in line “Portfolio transfer” (see Note F.8).
Of which relates to the Transformed fund:
| 2016 (CZK million) | Present Value of Future Profits | Total |
|---|---|---|
| Acquisition cost as at beginning of reporting period | 153 | 153 |
| Accumulated amortization and impairment losses as at beginningofreportingperiod | (98) | (98) |
| Carrying amount as at beginning of reporting period | 55 | 55 |
Amortisation of the period | (10) | (10) |
| Carrying amount as at end of reporting period | 45 | 45 |
| Accumulated amortisation and impairment losses as at end of reporting period | (108) | (108) |
| Acquisition cost as at end of reporting period | 153 | 153 |
| 2015 (CZK million) | Present Value of Future Profits | Total |
|---|---|---|
| Acquisition cost as at beginning of reporting period | 153 | 153 |
| Accumulated amortization and impairment losses as at beginning of reporting period | (82) | (82) |
| Carrying amount as at beginning of 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 as at end of reporting period | (98) | (98) |
| Acquisition cost as at end of reporting period | 153 | 153 |
Present value of future profits
The Group performs a valuation of the present value of future profits related to the 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 45 million).
The 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 2016.