Note 4 - Main changes in the scope of consolidation
4.1 2019
The main changes in the scope of consolidation in 2019 were as follows:
Lagardère Publishing
- Acquisition by Hachette Livre in February 2019 of Gigamic, a French board game publisher.
- Acquisition by Octopus Publishing in May 2019 of Short Books, a reputed health and nutrition book publisher.
Lagardère Travel Retail
- Acquisition by Lagardère Travel Retail SAS on 19 September 2019 of the International Duty Free (IDF) group, Belgium’s leading Travel Retail operator also present in Luxembourg and Kenya. IDF was consolidated in the Group’s financial statements as from October 2019.
- Acquisition in June 2019 of Autogrill Czech in the Czech Republic. Autogrill Czech specialises in Foodservice operations in stations and shopping centres.
Lagardère Sports (discontinued operation)
- Disposal in March 2019 of the 60% interest in SIIS Développement, a network of sports facilities.
- On 14 December 2019, the Lagardère group received an offer from H.I.G. Capital for a 75% stake in Lagardère Sports. The planned disposal values Lagardère Sports at approximately €110 million. In accordance with IFRS 5, the corresponding disposal group was classified as held for sale in the balance sheet at 31 December 2019 and as a discontinued operation in the 2019 income statement (see note 4.3).
Assets sold and disposals pending completion at Lagardère Active
- Disposal on 31 January 2019 of the Boursier.com website and its financial markets information and publishing activities, previously held by Lagardère Active subsidiary Newsweb, to the Les Échos-Le Parisien group
- Disposal on 7 February 2019 of the 20% interest held by LARI in Jacaranda FM Proprietary Limited, owner of Jacaranda FM, South Africa’s number 1 private radio station, to the Kagiso Media group. Mediamark, the Group’s associated advertising sales brokerage partner, was sold on 28 February 2019
- Disposal on 14 February 2019 of the following magazine publishing assets in France to Czech Media Invest: Elle and its various extensions, Version Femina, Art & Décoration, Télé 7 Jours and its various extensions, France Dimanche, Ici Paris and Public.
- Disposal on 28 February 2019 of BilletReduc.com to the Fnac-Darty group.
- Disposal on 28 February 2019 of Plurimedia to Media Press Group.
- Disposal on 17 July 2019 of Mezzo to the Les Échos-Le Parisien and Canal+ groups
- Disposal on 2 September 2019 of the television business (excluding Mezzo) to the M6 group. The business includes Gulli and its international extensions, Canal J, TiJi, Elle Girl TV, MCM, MCM Top, RFM TV, and the related advertising sales brokerages.
- Disposal on 1 October 2019 of Disney Hachette Presse.
- Disposal on 31 December 2019 of Carson Prod to Franck Saurat Productions.
4.2 BUSINESS COMBINATIONS
The impact of the business combinations carried out in 2019 on the consolidated financial statements was as follows:
| (in millions of euros) | Provisional purchase price allocation for 2019 business combinations |
Final purchase price allocation for 2018 business combinations |
Total |
|---|---|---|---|
| Purchase price (A) | 280 | (3) | 277 |
| Allocation to identifiable assets and liabilities | |||
| Non-current assets | 237 | 18 | 255 |
| Inventories, trade receivables and other assets | 46 | (4) | 42 |
| Cash and cash equivalents | 5 | - | 5 |
| Trade payables and other liabilities | (39) | (1) | (40) |
| Net debt | (23) | - | (23) |
| Leases: right-of-use assets | 340 | - | 340 |
| Leases: lease liabilities | (340) | - | (340) |
| Deferred taxes, net | (42) | 9 | (33) |
| Minority interests as a proportion of the net assets acquired | - | 6 | 6 |
| Total identifiable assets and liabilities (B) | 184 | 28 | 212 |
| Goodwill (euro equivalent at the acquisition date) (A-B) | 96 | (31) | 65 |
| Translation adjustments | - | 3 | 3 |
| Provisional goodwill (euro equivalent at year-end) | 96 | (28) | 68 |
The impacts shown above result mainly from the acquisition of the International Duty Free (IDF) group in 2019 and from the finalisation of the purchase price accounting for the Hojeij Branded Foods (HBF) group acquired in 2018. The impact of these two acquisitions is described in the relevant sections below. Other impacts result from acquisitions not material to the Group taken individually. These include Gigamic and Short Books (Lagardère Publishing) and Autogrill Czech (Lagardère Travel Retail).
The table below shows a reconciliation between the price paid for business combinations and the amount recorded under “Purchases of investments” in the consolidated statement of cash flows:
| (in millions of euros) | 2019 | ||
|---|---|---|---|
| Price paid for business combinations in 2019 | (278) | ||
| Earn-out for prior-period acquisitions | 2 | ||
| Purchases of investments recorded under investing activities in the statement of cash flows | (276) | ||
International Duty Free (IDF)
On 19 September 2019, Lagardère Travel Retail SAS closed the acquisition of the entire share capital of International Duty Free SA, the holding company for the International Duty Free group (“IDF”) for a total cash consideration of around €228 million (including an enterprise value of €250 million). Further to this acquisition, the Group holds seven fully consolidated entities and two equity-accounted entities. IDF is Belgium’s leading Travel Retail operator also present in Luxembourg and Kenya.
The preliminary allocation of the purchase price led to the recognition of €85 million in provisional goodwill, chiefly reflecting IDF’s operational and sales expertise, and the capacity of the new group to develop in the future. This goodwill was allocated to the Belgium CGU, which was created in the wake of the acquisition.
The purchase price for IDF was allocated to the identifiable assets and liabilities based on a preliminary estimate of fair values, as shown below:
| (in millions of euros) | International Duty Free (IDF) | ||
|---|---|---|---|
| Purchase price (A) | 228 | ||
| Provisional allocation of identifiable assets and liabilities | |||
| Non-current assets(*) | 199 | ||
| Inventories, trade receivables and other assets | 36 | ||
| Cash and cash equivalents | - | ||
| Trade payables and other liabilities | (33) | ||
| Net debt | (19) | ||
| Leases: right-of-use assets | 340 | ||
| Leases: lease liabilities | (340) | ||
| Deferred taxes, net | (40) | ||
| Total identifiable assets and liabilities (B) | 143 | ||
| Goodwill (A-B) | 85 |
(*) Including €178 million in intangible assets, of which €177 million in respect of concession agreements.
Acquisition-related costs amounting to approximately €0.5 million which were not included in the purchase price were taken to profit for the year under “Amortisation of acquisition-related intangible assets and other acquisition-related expenses”.
The acquisition of IDF was initially recognised on a provisional basis at 31 December 2019. The final tax accounting for the assets acquired and liabilities assumed will be completed during 2020.
The net cash outflow in connection with the acquisition of IDF was approximately €228 million, breaking down as follows:
| (in millions of euros) | International Duty Free (IDF) | ||
|---|---|---|---|
| Purchase price | (228) | ||
| Cash and cash equivalents acquired | 0 | ||
| Net cash outflow related to the acquisition | (228) |
For three months of operations, IDF revenue and net attributable income included in the consolidated financial statements respectively total €58 million and €1 million (including amortisation charged against intangible assets for €4 million).
Had this combination taken place on 1 January 2019, consolidated revenue would have been €135 million higher (i.e., full-year revenue of €193 million in 2019 for IDF).
Hojeij Branded Foods (HBF)
| (M€) | Provisional opening balance sheet at 31 Dec. 2018 |
Opening balance sheet adjustments |
Final opening balance sheet at 31 Dec. 2019 |
|---|---|---|---|
| Purchase price (A) | 311 | (3) | 308 |
| Allocation to identifiable assets and liabilities | |||
| Non-current assets(*) | 202 | 18 | 220 |
| Inventories, trade receivables and other assets | 6 | - | 6 |
| Cash and cash equivalents | 14 | - | 14 |
| Trade payables and other liabilities | (24) | - | (24) |
| Net debt | - | - | - |
| Deferred taxes, net | (16) | 9 | (7) |
| Minority interests as a proportion of the net assets acquired(**) | (23) | 6 | (17) |
| Total identifiable assets and liabilities (B) | 159 | 33 | 192 |
| Goodwill (euro equivalent at the acquisition date) (A-B) | 152 | (36) | 116 |
| Translation adjustments | (1) | 3 | 2 |
| Provisional goodwill (euro equivalent at year-end) | 151 | (33) | 118 |
(*) Including €165 million in intangible assets, of which €120 million in respect of concession agreements (euro-equivalent amount at the acquisition date
(**) There are minority shareholders with varying percentage interests in most Hojeij Branded Foods subsidiaries.
As explained in note 4.2 to the 2018 consolidated financial statements, on 19 November 2018 HDS Retail North America LLC closed the acquisition of the entire share capital of North Haven HBF Holdings LLC, the Hojeij Branded Foods (HBF) holding company, for a total cash consideration of approximately USD 352 million (representing USD 330 million in enterprise value), or around €308 million. Further to this acquisition, the Group holds 45 fully consolidated entities and three equity-accounted entities in which, in accordance with US legislation (Airport Concessions Disadvantaged Business Enterprises [ACDBE] Program), minority partners are integrated into the capital.
Based in Atlanta in the United States, HBF is a leading Foodservice operator in the Travel Retail segment in North America. At 31 December 2019, the final allocation of the purchase price led to the recognition of €118 million (euro-equivalent amount at that date) in goodwill, based on an independent valuation of the assets acquired. Intangible assets consisted of €121 million corresponding to concession agreements and €45 million relating to trademarks (euro-equivalent amounts at 31 December 2019). Concession agreements are amortised on a straight-line basis over the term of the agreements. The amortisation expense in 2019 was €14 million. Goodwill chiefly reflects the value of the expected synergies between Lagardère Travel Retail’s existing businesses in North America and HBF, and the capacity of the combination to develop in the future. Goodwill was allocated to the North America CGU, which also includes goodwill and other intangible assets resulting from the 2015 Paradies acquisition.
4.3 ASSETS HELD FOR SALE, ASSOCIATED LIABILITIES AND DISCONTINUED OPERATIONS
At 31 December 2019:
- The Lagardère Active assets that were not sold (Le Journal du Dimanche and Paris Match magazine titles, the Elle brand licence, and the Europe 1, Virgin Radio and RFM radio stations, were classified within “Other Activities”. The disposal of Audiovisual Production assets is pending completion and the assets and liabilities therefore continue to be classified as held for sale in the balance sheet.
- Streamlining measures were carried out at Lagardère Sports and Entertainment in order to carve out the scope to be sold. For this purpose, entities allocated to the Live Entertainment and Lagardère Paris Racing CGU were reclassified within Other Activities. Lagardère Sports now represents a separate operating segment for which a coordinated disposal plan exists following the purchase offer received on 16 December 2019. Accordingly, and pursuant to IFRS 5, Lagardère Sports was classified as a discontinued operation at 31 December 2019. Net-of-tax earnings for this business in 2019 are therefore shown on a separate line of the consolidated income statement, and all cash flows (relating to operating, investing and financing activities) were classified within “Net cash from (used in) discontinued operations” in the consolidated statement of cash flows. In accordance with IFRS 5, data for 2018 has been restated for the purposes of comparability. The related assets and liabilities were classified within assets held for sale and associated liabilities at 31 December 2019.
4.3.1 ASSETS HELD FOR SALE AND ASSOCIATED LIABILITIES AT LAGARDÈRE ACTIVE
As part of its strategic refocusing around two priority pillars (Lagardère Publishing and Lagardère Travel Retail) announced in spring 2018, Lagardère Active has restructured to transform its business into several standalone units. As from the end of 2018, the new structure of Lagardère Active includes five business units (News, Press, TV, Audiovisual Production & Distribution, and Pure Players & B2B).
Overall goodwill was allocated to each business unit based on the percentage of discounted cash flows they represent.
The News unit, which includes Radio operations in France (Europe 1, Virgin Radio and RFM), Paris Match, Le Journal du Dimanche, advertising sales brokerage and the management of Elle brand licences, has been included within Other Activities.
The other units were sold in 2019 with the exception of Audiovisual Production, for which the Group is in exclusive talks with a potential buyer. These assets continue to be classified as assets held for sale and associated liabilities, unchanged from 31 December 2018.
4.3.2 LAGARDÈRE SPORTS (DISCONTINUED OPERATION)
On 14 December 2019, the Lagardère group received an offer from H.I.G. Capital for a 75.1% stake in Lagardère Sports. Pursuant to this transaction, all of the shares of Lagardère Sports and Entertainment SAS and Lagardère Sports Inc. would be sold, with the Group retaining a 24.9% interest in the new holding company created with the buyer.
The planned transaction values Lagardère Sports at around €110 million, not including the future value creation potential of the 24.9% stake in the holding company controlled by H.I.G., or any potential gains relating to the contract with the Confederation of African Football (CAF).
The estimated disposal price notably includes: (i) €22.5 million receivable in cash on the closing of the transaction; (ii) €64 million in the form of a vendor loan reimbursable in line with cash receipts from the Asian Football Confederation (AFC); and (iii) €35 million in the form of a vendor loan reimbursable on 31 December 2025 (or earlier, in the event of a change of control). In addition, cash deconsolidated at the anticipated closing date is estimated to be €66 million.
The planned transaction is targeted to close before the end of the first quarter of 2020 and is subject to clearance from the competition authorities.
4.3.3 MEASUREMENT
Since the carrying amount of Lagardère Sports assets and associated liabilities exceeded their estimated sale value less associated costs, a write-down of €234 million was recognised at 31 December 2019. This reflects the unilateral termination of the contract with the Confederation of African Football. This writedown was taken against goodwill allocated to the Sports CGU for €145 million and against intangible assets allocated to the Sports CGU for €89 million (see note 10). There is no residual goodwill.
The estimated sale value less associated costs of Audiovisual Production assets is less than the net carrying amount of the assets held for sale and associated liabilities. Accordingly, a write-down of €22 million was taken against goodwill allocated to the Audiovisual Production CGUs, which had a residual value of €72 million at 31 December 2019.
4.3.4 IMPACT ON THE CONSOLIDATED FINANCIAL STATEMENTS
Net-of-tax earnings for Lagardère Sports in 2019 are shown on a separate line of the consolidated income statement, and all related cash flows (relating to operating, investing and financing activities) were classified within “Net cash from (used in) discontinued operations” in the consolidated statement of cash flows. In accordance with IFRS 5, data for 2018 has been restated for the purposes of comparability. The related assets and liabilities were classified within assets held for sale and associated liabilities at 31 December 2019.
At 31 December 2019, the Audiovisual Production business continued to be classified within assets held for sale and associated liabilities.
The table below provides a breakdown by balance sheet line:
| ASSETS (in millions of euros) | Lagardère Sports (discontinued operation) |
Audiovisual Production |
Total |
|---|---|---|---|
| Intangible assets | 85 | 10 | 95 |
| o/w value prior to classification within assets held for sale | 174 | 10 | 184 |
| o/w 2019 write-down resulting from classification | (89) | - | (89) |
| Goodwill | - | 72 | 72 |
| o/w value prior to classification within assets held for sale | 145 | 94 | 239 |
| o/w 2019 write-down resulting from classification | (145) | (22) | (167) |
| Right-of-use assets | 35 | - | 35 |
| Property, plant and equipment | 9 | 5 | 14 |
| Other non-current assets | 84 | 1 | 84 |
| Deferred tax assets | 23 | 6 | 29 |
| Total non-current assets | 236 | 94 | 329 |
| Inventories | 1 | 24 | 25 |
| Trade receivables | 303 | 110 | 413 |
| Other current assets | 105 | 21 | 126 |
| Cash and cash equivalents | 95 | 6 | 101 |
| Total current assets | 504 | 161 | 665 |
| Total assets held for sale | 739 | 255 | 994 |
| EQUITY AND LIABILITIES (in millions of euros) | Lagardère Sports (discontinued operation) |
Audiovisual Production |
Total |
|---|---|---|---|
| Provisions for pensions and other post-employment benefit obligations | 34 | 2 | 36 |
| Non-current provisions for contingencies and losses | 4 | 1 | 5 |
| Non-current debt | - | 10 | 10 |
| Non-current lease liabilities | 29 | - | 29 |
| Other non-current liabilities | 140 | - | 140 |
| Deferred tax liabilities | 8 | 3 | 11 |
| Total non-current liabilities | 215 | 16 | 231 |
| Current provisions for contingencies and losses | 8 | 6 | 14 |
| Current debt | 1 | 12 | 13 |
| Current lease liabilities | 11 | - | 11 |
| Trade payables | 108 | 63 | 171 |
| Other current liabilities | 288 | 66 | 354 |
| Total current liabilities | 416 | 147 | 563 |
| Total liabilities associated with assets held for sale | 631 | 163 | 793 |
| 2019 revenue | 470 | 218 | 688 |
| 2019 recurring operating profit | 64 | 15 | 79 |
Magazine Publishing titles in France, digital businesses (including Boursier.com, Plurimedia and BilletReduc), international radio operations and TV channels were sold in 2019 (see note 9). Total gains and losses recognised in equity in respect of groups of assets held for sale at 31 December 2019 represented a net loss of €23 million, including €5 million in translation losses at Lagardère Sports to be subsequently reclassified to profit or loss, €17 million in actuarial losses on provisions for pensions and other post-employment benefit obligations, essentially at Lagardère Sports, and a negative €1 million impact resulting from the fair value hedging reserve.
A breakdown by income statement line of the reclassification of Lagardère Sports as a discontinued operation in accordance with IFRS 5 is as follows:
| (in millions of euros) | 2019 | 2018 (*) |
|---|---|---|
| Revenue | 470 | 390 |
| Other income from ordinary activities | - | - |
| Total income from ordinary activities | 470 | 390 |
| Purchases and changes in inventories | - | 2 |
| External charges | (191) | (181) |
| Payroll costs | (145) | (137) |
| Depreciation and amortisation other than on acquisition-related intangible assets | (60) | (45) |
| Depreciation of right-of-use assets | (11) | (11) |
| Amortisation of acquisition-related intangible assets and other acquisition-related expenses | (7) | (3) |
| Restructuring costs | (20) | (8) |
| Impairment losses on goodwill, property, plant and equipment and intangible assets |
(234) | (3) |
| Other operating expenses | (1) | 8 |
| Other operating income | - | 2 |
| Income (loss) from equity-accounted companies | - | - |
| Profit (loss) before finance costs and tax | (199) | 14 |
| Financial income | 4 | 6 |
| Financial expenses | (5) | (8) |
| Interest expense on lease liabilities | (1) | (1) |
| Profit (loss) before tax | (201) | 11 |
| Income tax expense | (6) | (6) |
| Profit (loss) from discontinued operations | (207) | 5 |
| Profit (loss) from discontinued operations – Attributable to owners of the Parent (in millions of euros) | (206) | 5 |
| Basic earnings per share (in €) | (1,59) | 0,03 |
| Diluted earnings per share (in €) | (1,57) | 0,03 |
(*) Data restated for the full retrospective application of IFRS 16 (see note 1.1).
A breakdown by cash flow statement line of the reclassification of Lagardère Sports as a discontinued operation in accordance with IFRS 5 is as follows:
| (in millions of euros) | 2019 | 2018 (*) |
|---|---|---|
| Net cash from operating activities | 49 | 109 |
| Net cash used in investing activities | (40) | (51) |
| Net cash used in financing activities | (12) | (18) |
| Total other movements | (1) | - |
| Net cash inflows (outflows) | (4) | 40 |
| Cash and cash equivalents and intra-group cash flows at beginning of year | (95) | - |
| Net cash from (used in) discontinued operations | (99) | 40 |
(*) Data restated for the full retrospective application of IFRS 16 (see note 1.1).
The following assets and associated liabilities were held for sale at 31 December 2018:
| ASSETS (in millions of euros) |
Magazine Publishing France titles |
TV Channels | Digital | International Radio |
Audiovisual Production |
Total at 31 Dec. 2018 |
|---|---|---|---|---|---|---|
| Non-current assets | 95 | 103 | 22 | 7 | 120 | 347 |
| Current assets | 129 | 67 | 8 | 1 | 149 | 354 |
| Total assets held for sale |
224 | 170 | 30 | 8 | 269 | 701 |
| EQUITY AND LIABILITIES (in millions of euros) |
Magazine Publishing France titles |
TV Channels | Digital | International Radio |
Audiovisual Production |
Total at 31 Dec. 2018 |
|---|---|---|---|---|---|---|
| Total non-current liabilities |
28 | 7 | 1 | - | 27 | 63 |
| Total current liabilities | 157 | 49 | 14 | - | 132 | 352 |
| Total liabilities associated with assets held for sale |
185 | 56 | 15 | - | 159 | 415 |
| 2018 revenue | 239 | 99 | 22 | 1 | 215 | 576 |
| 2018 recurring operating profit |
22 | 23 | 3 | 1 | 19 | 68 |
(*) Data restated for the full retrospective application of IFRS 16 (see note 1.1).
4.4 2018
The main changes in the scope of consolidation in 2018 were as follows:
Lagardère Publishing
- Full consolidation over 12 months in 2018 of the publishing business of Jessica Kingsley Publishers, Books, which specialises in humanities and social sciences and was acquired by Hachette UK in November 2017.
- Full consolidation by Hachette UK over 12 months in 2018 of Summersdale, an illustrated book publisher acquired in November 2017.
Lagardère Travel Retail
- Acquisition on 19 November 2018 by HDS Retail North America of the Hojeij Branded Foods (HBF) group, a leading Foodservice operator on the Travel Retail market in North America. HBF was consolidated in the Group’s financial statements as from December 2018.
Lagardère Active
- Full consolidation over a nine-month period in 2018 of Skyhigh TV, the leading independent production company in the Netherlands, further to the acquisition of 52% of the share capital in March 2018.
- Disposal by the Lagardère group of its equity-accounted 42% stake in the Marie Claire group in June 2018.
- Sale in July 2018 of the 73% stake in MonDocteur, fully consolidated up to June 2018.
- Sale by Lagardère Active Radio International of radio operations in the Czech Republic, Poland, Slovakia and Romania to Czech Media Invest in July 2018. These operations were fully consolidated up to June 2018.
- Sale in October 2018 of Doctissimo, fully consolidated up to September 2018.