6. Goodwill and other intangible assets

The net book value of goodwill and other intangible assets as at 31 December 2014, 2013 was as follows:

  Goodwill Number capacity Trade-marks Computer software Customer list Licences Other Total
Cost                
                 
At 1 January 2013 38,274 1,295 832 40,735 16,789 11,247 7,314 116,486
Additions - - - 8,610 - 421 67 9,098
Disposals - (2) - (6,576) - (237) (520) (7,335)
Reclassification to assets held for sale of mobile business (12,940) (208) (59) (3,018) (1,741) (11,594) (1,004) (30,564)
Reclassification - - - (133) - 833 (700) -
Foreign exchange 34 - - 4 2 1 11 52
At 31 December 2013 25,368 1,085 773 39,622 15,050 671 5,168 87,737
At 1 January 2014 25,368 1,085 773 39,622 15,050 671 5,168 87,737
Additions - - 6 5,253 6 368 225 5,858
Disposals (268) (357) (72) (1,955) (100) (493) (752) (3,997)
Reclassification to assets held for sale of mobile business (216) - - (4,004) - (100) - (4,320)
Reclassification to PPE - - - 983 - - - 983
Reclassification - - - 89 11 95 (195) -
Foreign exchange 322 - - 17 9 17 7 372
At 31 December 2014 25,206 728 707 40,005 14,976 558 4,453 86,633
  Goodwill Number capacity Trade-marks Computer software Customer list Licences Other Total
Accumulated amortization and impairment losses
                 
At 1 January 2013 (1,690) (537) (525) (17,129) (2,874) (3,040) (2,362) (28,157)
Amortization expense - (24) (140) (5,212) (1,249) (1,468) (1,187) (9,280)
Disposals - 2 - 6,369 - 211 416 6,998
Impairment losses (359) - - (273) - - (1) (633)
Reversal of impairment losses - - - 338 - - - 338
Reclassification to assets held for sale of mobile business 135 183 59 2,142 641 3,970 216 7,346
Reclassification - - - (10) - (83) 93 -
Foreign exchange - - - (1) (1) - (1) (3)
At 31 December 2013 (1,914) (376) (606) (13,776) (3,483) (410) (2,826) (23,391)
At 1 January 2014 (1,914) (376) (606) (13,776) (3,483) (410) (2,826) (23,391)
Amortization expense - (3) (56) (4,735) (1,361) (333) (457) (6,945)
Disposals - 356 49 1,911 95 361 549 3,321
Impairment losses (1,307) - - (114) - (1) - (1,422)
Reversal of impairment losses - - - 86 - - - 86
Reclassification to assets held for sale of mobile business 6 - - 114 - 26 - 146
Reclassification - - (17) (28) (3) 69 (21) -
Foreign exchange - - - (2) (1) (4) (1) (8)
At 31 December 2014 (3,215) (23) (630) (16,544) (4,753) (292) (2,756) (28,213)
                 
Net book value                
At 31 December 2013 23,454 709 167 25,846 11,567 261 2,342 64,346
At 31 December 2014 21,991 705 77 23,461 10,223 266 1,697 58,420

Interest amounting to 161 and 105 was capitalized in intangible assets for the years ended 31 December 2014 and 2013 respectively.

Intangible assets with indefinite useful lives and goodwill

The owned number capacity with a carrying amount of 705 (2013: 709) is intangible assets with indefinite useful lives and is not amortized. These assets have no legal restrictions on the term of their use and the Group can derive economic benefits from their use indefinitely. These assets are tested for impairment annually or more frequently if there is an indication that the intangible assets may be impaired.

During 2014 the Group concluded contracts under the investment programme subject of which was research and development. Main area of research and development were software, hardware, clouds models, which may be used as a standard solution on promotion of the services provided by the Group to government and private customers.

The aggregate amount of research and development expenditure recognized as an expense is 0 (2013:0).

The Group, on an annual basis, performs testing for impairment of goodwill and intangible assets with indefinite lives.

At each reporting date the Group performs impairment testing of goodwill allocated to CGUs that were acquired upon business combinations.

Carrying amount of goodwill and intangible assets with indefinite useful lives are represented in the table below:

CGU 31 December 2014 31 December 2013
                                                                                           Goodwill before impairment loss Intangible assets with indefinite useful lives before impairment loss Goodwill before impairment loss Intangible assets with indefinite useful lives before impairment loss
MRF Moskva* 12,681 228 12,681 228
MRF Severo-Zapad* 4,214 12 4,230 12
MRF Volga 1,930 - 2,146 -
Macomnet 1,210 50 1,210 50
MRF Dalniy Vostok 1,008 - 1,057 -
MRF Ural 637 - 637 -
Globus Telecom 636 359 636 359
GNC Alfa 946 - 631 -
RTComm.RU 606 - 606 -
Severen telecom 432 - 432 -
MRF Sibir 182 - 262 -
MRF Center 10 - 10 -
Other 714 57 830 57
Total 25,206 706 25,368 706

Key assumptions used by management in impairment testing are as follows (disclosed only for material CGUs*):

  • discount rates are estimated in real terms as the weighted average cost of capital on pre tax basis is 19,75%;
  • OIBDA margin is based on historical actual results and are 47.14% for MRF Moskva and 47,16% for MRF Severo-Zapad;
  • Cash flow projections cover the period of five years, cash flows beyond five-year period are extrapolated using growth rate of 2%.

Future cash flows were adjusted using consistent assumptions about price increases attributable to general inflation.

2014 impairment testing

As a result of impairment testing of goodwill the Group recognized an impairment loss of 1,300 related to: Globus Telecom of 277, GNC Alfa of 459 and Macomnet of 564.

2013 impairment testing

As a result of impairment testing goodwill in respect of Globus Telecom was impaired by 359.

Impairment loss was recognized in the line Depreciation, amortisation and impairment losses in the statement of comprehensive income.

Discount rate and operating income before amortization and depreciation (OIBDA) margin are the key assumptions to which calculations of value in use of CGUs with goodwill and indefinite useful life intangible assets allocated to are the most sensitive. Management approach to gross margin projection is based on historical actual results and growth rate forecasts which correlates to industry growth rate.

The table below demonstrates the sensitivity analysis for impairment and the effect of a reasonably possible change in key assumptions as at 31 December 2014:

CGU Increase in discount rate Impairment loss Increase in discount rate
which resulted in equality
of recoverable and carrying amount
Decrease of OIBDA margin Impairment loss Decrease in  OIBDA margin
which resulted in equality
of recoverable and carrying amount
Severen telecom n/a n/a n/a 5% (168)   2.65%
RTComm.RU 1% (20) 0.9% 5% (1,179)   0.71%
Other 0.50%-1.50% (93) 2.9% 5% (990)   3.67%

Impairment testing of other intangible assets

At each reporting date the Group performs impairment testing of intangible assets not yet available for use and intangible assets with indefinite useful lives.

2014 impairment testing

As at 31 December 2014 no impairment loss in respect of other intangible assets were recognised.

2013 impairment testing

As at 31 December 2013 no impairment loss in respect of other intangible assets were recognised.

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