Note 10 - Impairment losses on goodwill, property, plant and equipment and intangible assets

The impairment losses recorded in 2019 reflect the impairment tests performed as described in note 3.12.
Impairment tests for goodwill and intangible assets with indefinite useful lives are performed at the level of the cash-generating units (CGUs) to which the assets belong. The Group’s CGUs represent the level at which the assets concerned are monitored for internal management purposes. A CGU may correspond to a legal entity or a group of legal entities when the businesses conducted are similar and are managed on a combined basis.
The following table sets out the amounts of goodwill and intangible assets with indefinite useful lives by CGU at 31 December:

  Number of CGUs Carrying amount
of goodwill		 Carrying amount of
intangible assets with
indefinite useful lives		 Total carrying amount
of tested assets
  2019 2018 2019 2018 2019 2018 2019 2018
Lagardère Publishing 15 14 1 013 975 41 36 1 054 1 011
Lagardère Travel Retail 11 11 414 355 103 73 517 428
Other Activities 4 6 137 144 30 33 167 177
  • Lagardère News
    (Press and Radio)
 2 5 111 118 21 24 132 142
  •  Entertainment
 2 1 26 26 9 9 35 35
Lagardère Sports(*)   1   150   3   153
Total 30 32 1 564 1 624 174 145 1 738 1 769

(*) In 2019 Lagardère Sports was reclassified as a discontinued operation in accordance with IFRS 5.

Goodwill and non-current assets with an indefinite useful life classified as held for sale are broken down by group of CGUs in note 4.3.

The following table shows the breakdown of the main CGUs by division:

  Number of CGUs Carrying amount
of goodwill		 Carrying amount
of intangible assets
with indefinite useful
lives		 Total carrying amount
of tested assets
  2019 2018 2019 2018 2019 2018 2019 2018
Lagardère Publishing 15 14 1 013 975 41 36 1 054 1 011
Editis group 4 4 232 232 2 2 234 234
Hachette UK Holding group 1 1 318 300 25 22 343 322
Hachette Book Group (United States) 1 1 313 301 - - 313 301
Hatier group 1 1 84 84 - - 84 84
Hachette Livre España – Salvat 1 1 3 3 - - 3 3
Pika Édition 1 1 14 14 - - 14 14
Les Éditions Albert René 1 1 11 11 - - 11 11
Other 5 4 38 30 14 12 52 42
Lagardère Travel Retail 11 11 414 355 103 73 517 428
North America 1 2 241 269 95 72 336 341
Belgium 1   85   -   85  
Pacific 1 1 29 29 - - 29 29
Czech Republic 1 1 34 33 - - 34 33
France 3 3 12 12 - - 12 12
Asia 1 1 8 8 - - 8 8
Other 3 3 5 4 8 1 13 5
Other Activities 4 6 137 144 30 33 167 177
Lagardère News
(Press and Radio)		 2 5 111 118 21 24 132 142
Entertainment 2 1 26 26 9 9 35 35
Lagardère Sports   1   150   3   153
Total 30 32 1 564 1 624 174 145 1 738 1 769

Allocation of goodwill to Other Activities
Following the Group’s strategic refocusing around two priority divisions (Lagardère Publishing and Lagardère Travel Retail), goodwill and intangible assets with an indefinite useful life relating to the retained businesses of the Lagardère Active and Lagardère Sports and Entertainment divisions were allocated to the new “Other Activities” CGUs.
Accordingly, at 31 December 2019 “Other Activities” include:

  • the Lagardère News CGUs resulting from Lagardère Active, covering magazine publishing (Le Journal du Dimanche, Paris Match), Elle brand licensing operations, and radio operations (Europe 1, Virgin Radio, RFM and a radio station in Germany);
  • the Entertainment CGU resulting from Lagardère Sports and Entertainment, which includes Lagardère Paris Racing as well as event production activities in venues such as Folies Bergère, Casino de Paris, Bataclan, Arkea Arena in Bordeaux and the Arena du Pays d’Aix.

Groups of assets classified as held for sale at 31 December 2019 include the amount of goodwill allocated in the year (see note 4.3), measured in accordance with IFRS 5.
Impairment tests
The estimated future cash flows used in the impairment tests are based on the internal budgets drawn up at the end of the year. They are determined using key assumptions and assessments that factor in the effects of the economic environment – as identified at the date of the budget – on forecast future cash flows for the coming three years.
The cash flows are discounted using a post-tax discount rate specific to each business. A perpetuity growth rate – which is also specific to each business – is used for periods subsequent to those covered in the budgets.
The discount rates used for each business were as follows in 2019, 2018 and 2017:

  Discount rate Perpetuity growth rate
  2019 2018 2017 2019 2018 2017
Lagardère Publishing(*) 7,03 % 6,53 % 6,09 % 1,50 % 1,50 % 1,50 %
Lagardère Travel Retail 5,07 % 5,01 % 4,91 % 2,50 % 2,50 % 2,50 %
Other Activities:
  • Lagardère News – Press
 7,46 % 6,42 % 6,01 % 0,00 % 0,00 % 0,00 %
  • Lagardère News – Radio
 6,64 % 5,89 % 5,82 % 1,50 % 1,50 % 1,50 %
  • Entertainment
 6,68 % 5,97 % 5,60 % 2,00 % 2,00 % 2,00 %

(*) A perpetuity growth rate of 2.00% was used for certain Digital activities at Lagardère Publishing.

The discount rates applied are calculated based on the average financial returns observed during the year for samples of companies operating in comparable business sectors. These are provided by an independent financial organisation and may vary based on share prices and the organisation’s assessment of the macro- and microeconomic outlook.
The samples used are reviewed and updated every year in order to take account of changes in the competitive environment and market participants. This can lead to an elimination of certain components of the basket whose business models are not judged to be sufficiently correlated to the Group’s, and inversely, to the addition of new components. There were no significant changes in the basket of sample companies used in 2019 compared with 2018, or in those used in 2018 compared with 2017.
Recognised impairment losses
Total impairment losses recognised by consolidated companies in 2019 amounted to €34 million, including €26 million for goodwill and €8 million for property, plant and equipment, mainly at Lagardère Travel Retail. The main impairment losses on goodwill break down as follows:

  • €22 million to write down a portion of the goodwill allocated to the Audiovisual Production CGU following its classification within assets held for sale (see note 4.3);
  • €4 million to write down LabelBox goodwill allocated to the Digital CGU (Lagardère Active) following its classification within assets held for sale. LabelBox was sold in the second half of 2019.

At 31 December 2019, a write-down of €234 million was taken against the goodwill (€145 million) and intangible assets (€89 million) allocated to the Sports CGU. This write-down was included in net profit (loss) from discontinued operations in the consolidated income statement following the classification of the Sports CGU within discontinued operations (see note 4.3).
Total impairment losses recognised in 2018 amounted to €44 million, including €41 million for goodwill and €3 million for property, plant and equipment. The main impairment losses on goodwill broke down as follows:

  • €24 million to write down a portion of the goodwill allocated to the Lagardère Active CGU in the Press business following the classification of a portion of goodwill within assets held for sale in an amount of €31 million;
  • €9 million to write down a portion of the goodwill allocated to Newsweb (Lagardère Active), including €6 million recognised in June 2018 and €3 million further to the classification of the CGU within assets held for sale;
  • €4 million to write down the goodwill allocated to Shopcade within the Press CGU, following the decision to discontinue the business.

Sensitivity of impairment tests to changes in key budget assumptions
The operating forecasts contained in the Group’s budgets are based on assumptions. Changes in these assumptions directly impact the calculation of value in use and may give rise to the recognition of impairment losses or influence the amount of any impairment recognised.
The key assumptions used for the forecasts relate to expected developments in the following main areas:

  • Publishing: market trends, market share and profit margins; overhead rates determined based on established action plans.
  • Travel Retail: passenger volumes and average spend per customer for each platform (airports, railway stations, etc.); lease payments for retail points of sale.
  • Other Activities: advertising market trends and market share for all media (radio, television, press and Internet); market trends for the magazine publishing business in France, including the impact on advertising revenue; changes brought about by the switch to digital; the cost of paper; and the brand licensing market.

These assumptions incorporate differentiated levels of risk that depend on the degree of visibility and the ability to anticipate the impact of changes in the economic environment on the future performance of the Group’s different businesses.
The main areas of uncertainty identified that have a bearing on the assumptions used in the budgets are described below:
Other Activities

  • Brand licensing revenue
    Brand licensing revenue, relating particularly to Elle, was included in the budget plans taking into account expected revenue trends for the next three years. For the period beyond the years covered by the budget, a change corresponding to an annual decrease of 2% in brand licensing revenue compared with the assumptions used at end-2019 would result in an €8 million impairment loss, excluding the impact of any corporate cost reduction measures that may be implemented.
    At 31 December 2019, the residual amount of goodwill and intangible assets with indefinite useful lives for all Lagardère News Press and Radio CGUs amounted to €132 million.

Sensitivity of impairment tests to changes in discount rates and perpetuity growth rates
The following tables show the potential effects on impairment losses of an increase or decrease in the discount rates and perpetuity growth rates applied in the impairment tests performed at 31 December 2019.
The tables include sensitivity to a maximum 2% increase in the discount rate, which is higher than the increases observed for 2018 and 2017.

Lagardère Publishing: (Increase) decrease in impairment losses

(in millions of euros) Change in discount rate(*)
Change in perpetuity growth rate -2% -1,5 % -1% -0,5 % 0% +0,5 % 1% +1,5 % 2%
-1% - - - - (3) (15) (25) (37) (50)
-0,5 % - - - - - (5) (17) (27) (39)
0% - - - - - (1) (7) (19) (29)
+0,5 % - - - - - - (1) (9) (21)
+1 % - - - - - - - (1) (11)

(*) The discount rate used for the 2019 impairment tests was 7.03%.

At 31 December 2019, a one-point increase in the discount rate combined with a one-point decrease in the perpetuity growth rate would lead to the recognition of an impairment loss of €25 million, including €18 million for the Anaya-Bruño group and €7 million for the “Other” CGU.
A two-point increase in the discount rate combined with a one-point decrease in the perpetuity growth rate would lead to the recognition of an impairment loss of €50 million, including €31 million for the Anaya-Bruño group, €11 million for the “Other” CGU and €8 million for Hatier.

Lagardère Travel Retail: (Increase) decrease in impairment losses

(in millions of euros) Change in discount rate(*)
Change in perpetuity growth rate -2% -1,5 % -1% -0,5 % 0% +0,5 % 1% +1,5 % 2%
-1% - - - - - (1) (8) (14) (19)
-0,5 % - - - - - - (2) (9) (15)
0% - - - - - - - (3) (11)
+0,5 % - - - - - - - - (4)
+1 % - - - - - - - - -

(*) The discount rate used for the 2019 impairment tests was 5.07%.

At 31 December 2019, a two-point increase in the discount rate combined with a one-point decrease in the perpetuity growth rate would lead to the recognition of an additional impairment loss of €19 million for the Pacific CGU.

Other Activities: (Increase) decrease in impairment losses

(in millions of euros) Change in discount rate(*)
Change in perpetuity growth rate -2% -1,5 % -1% -0,5 % 0% +0,5 % 1% +1,5 % 2%
-1% - - - - - - - - (1)
-0,5 % - - - - - - - - -
0% - - - - - - - - -
+0,5 % - - - - - - - - -
+1 % - - - - - - - - -

(*) The discount rates used for the 2019 impairment tests were 7.46% for the Press CGU and 6.64% for the Radios CGU.

At 31 December 2019, a two-point increase in the discount rate combined with a one-point decrease in the perpetuity growth rate would lead to the recognition of an additional impairment loss of €1 million for the Entertainment CGU.