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23. Goodwill

The aggregate carrying amount of goodwill, allocated to the Group entities, and the corresponding values of the recognised impairment losses are presented in the table below:

For the purposes of impairment testing, goodwill is allocated between the cash generating units (the “CGUs“), i.e. the Group subsidiaries that represent the lowest level within the Group at which the goodwill is monitored for internal management purposes and are not larger than an operating segment of the Group.

The recoverable amount of CGU was calculated on the basis of value in use, which was determined by discounting the future cash flows to be generated as a result of the entity’s operations.

Key assumptions against which the recoverable amounts are estimated concerned the discount rate, the terminal growth rate (for the calculation of the terminal value) and cash flows.

Vladavia

Following the goodwill testing for impairment in 2012, the Group recognised complete impairment of goodwill related to Vladavia for the amount of USD 43.6 million.

Ak rossiya

The discount rate was assumed at 12.9% (31 December 2012: 9.9%). This rate was calculated based on the risk-free rate on ten-year U.S. government bonds, adjusted for country risk (for Russia) and currency risk (roubles), the risk of investing in equities, and the risk associated with small-cap shares. The industry average D/E ratio and Beta coefficient as at 31 December 2013 were taken into account in the calculation.

The cost of debt was calculated based on the effective rate on AK Rossiya’s longterm loans in roubles and the effective rate of finance lease, adjusted for currency risk, and share of financial leasing in overall AK Rossiya’s debt.

Pre-tax WACC was 16.1% (31 December 2012: 12.38%).

The growth rate for the terminal value calculation was set at the level of Russia’s GDP long-term growth rate of 3.5% (2012: 4.4%).

As a basis for cash flows forecast the Group adopted the approved AK Rossiya’s budget for 2014.

Orenburgavia

The discount rate was assumed at 13.2% (31 December 2012: 11%). This rate was calculated based on the risk-free rate on ten-year U.S. government bonds, adjusted for country risk (for Russia) and currency risk (roubles), the risk of investing in equities, and the risk associated with small-cap shares. The industry average D/E ratio and Beta coefficient as at 31 December 2013 were taken into account.

The cost of debt was calculated based on the effective rate on Orenburgavia’s long-term loans in roubles.

Pre-tax WACC was 16.5% (31 December 2012: 13.75%).

The growth rate for the terminal value calculation was set at the level of Russia’s GDP long-term growth rate of 3.5% (2012: 4.4%).

As a basis for Orenburgavia’s cash flows forecast the Group adopted the approved Orenburgavia’s budget for 2014.

Notes in Consolidated Statements:

Consolidated Statement of Financial Position