Recoverable amount of CGU including goodwill and intangible assets with indefinite useful lives

Grupa Azoty POLICE

For the purpose of impairment testing, goodwill and intangible assets with indefinite useful lives are allocated to the group of CGUs including CGU Fertilizers and CGU Pigments in Grupa Azoty POLICE. The corporate assets in the Supporting Departments and Administration were allocated to the segments on an indirect basis. The most reasonable way of allocating corporate assets for the Supporting Departments was the cost basis whereas for Administration was the revenue basis.

The total carrying amount of intangible assets with indefinite useful lives and goodwill allocated to the group of CGUs in Grupa Azoty POLICE on 31 December 2015 was PLN 90 357 thousand (31 December 2014: 90 357 thousand).

The recoverable amount was based on value in use, determined at the group of CGUs level, i.e. Fertilizers and Pigments to which goodwill and intangible assets with indefinite useful lives were allocated. Value in use in 2015 was determined in a similar manner as in 2014.

The estimated future cash flows were prepared using the detailed financial forecasts for years 2016-2020. The forecast was limited to the estimate of the results on sales, excluding other income and expenses, finance income and costs and income tax. The forecast was prepared in real terms, i.e. excluding the impact of inflation. The currency exchange rates as of the reporting date were used in the forecast, i.e. for 3.9011 USD and for 4.2615 EUR (2014: for 3.5072 USD and 4.2623 for EUR).

Residual value was determined by extrapolating the free cash flows forecast beyond the 5 year detailed forecast and assuming an adequate growth rate.

The discount rate used was a nominal, pre-tax measure reflecting the weighted average cost of capital (WACC) amounting to 7.59% (2014: 7.72%)

The value in use of the CGUs as at the test date, i.e. 31 December 2015 amounted to:

The estimated recoverable amount exceeds the assets carrying amount.

Grupa Azoty PUŁAWY

The intangible assets with indefinite useful lives were allocated to the CGU Fertilizers-Agro in Grupa Azoty PUŁAWY for the purpose of impairment testing. The total carrying amount of intangible assets with indefinite useful lives as at 31 December 2015 amounted to PLN 138 100 thousand (31 December 2014: PLN 138 100 thousand). The recoverable amount was based on value in use.

The future cash flows were estimated based on the 5-year financial forecast of Grupa Azoty PUŁAWY.

The following significant assumptions were made:

• the business will continue for an indefinite period in the future,
• EBITDA margin will amount to 15.5% in 2016 and will range from 11.7 to 15% in the following years (in 2014 it was estimated in the range from 13 to 18%),
• the total volume of sales of fertilizers will be comparable to the volume realised in the past,
• the corporate assets of Grupa Azoty PUŁAWY were allocated to the CGUs on an indirect basis. The cost ratios were determined to by the most rational allocation ratios for corporate assets,
• the growth rate in terminal period will amount to 1.6% (in 2014: 2.5%).

The discount rate used was a nominal, post-tax measure reflecting the weighted average cost of capital (WACC) amounting to 7.85% (2014: 8.09%)

The value in use of the CGU Fertilizers-Agro as at 31 December 2015 and 31 December 2014 exceeded the carrying amount of the tested assets.