9. Impairment test

Vast majority of the Group’s individual assets do not generate cash inflows independently from other assets due to the nature of the Group’s activities, therefore the Group identifies all telecom operations as a single telecom operator Cash Generating Unit (“CGU”).

As at 31 December 2020 and 2019 the Group performed impairment tests of the CGU (including goodwill). No impairment loss was recognised in the years 2020 and 2019.

The following key assumptions were used to determine the value in use of the telecom operator CGU:

• value of the market, penetration rate, market share and the level of the competition, level of prices and decisions of the regulator in terms of pricing, customer base, the level of commercial expenses required to replace products and keep up with existing competitors or new market entrants, the impact of changes in revenue on direct costs;
• the level of capital expenditures which may be affected by the roll-out of necessary new technologies or regulatory decisions concerning telecommunications licences allocation;
• the length and severity of the COVID-19 pandemic and its impact on the CGU performance;
• discount rate which is based on weighted average cost of capital and reflects current market assessment of the time value of money and the risks specific to activities of the CGU; and
• perpetuity growth rate which reflects Management’s assessment of cash flows evolution after the last year covered by the cash flow projections.

The amounts assigned to each of these parameters reflect past experience adjusted for expected changes over the timeframe of the business plan, but may also be affected by unforeseeable changes in the political, economic or legal framework.

Sensitivity of recoverable amount

The value in use of the telecom operator CGU as at 31 December 2020 exceeds its carrying value by PLN 3.0 billion. Any of the following changes in key assumptions:

• a 16% fall in projected cash flows after fifth year or
• a 0.9 p.p. decrease in growth rate to perpetuity or
• a 1.1 p.p. increase in post-tax discount rate

would bring the value in use of the telecom operator CGU to the level of its carrying value.