Note 10 - Impairment losses on goodwill, property, plant and equipment and intangible assets
The impairment losses recorded in 2020 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 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 | |||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |
| Lagardère Publishing | 15 | 15 | 973 | 1,013 | 43 | 41 | 1,016 | 1,054 |
| Lagardère Travel Retail | 12 | 12 | 357 | 414 | 85 | 103 | 442 | 517 |
| Other Activities: | 4 | 4 | 131 | 137 | 30 | 30 | 161 | 167 |
| - Lagardère News(Press and Radio) | 2 | 2 | 111 | 111 | 21 | 21 | 132 | 132 |
| - Entertainment | 2 | 2 | 20 | 26 | 9 | 9 | 29 | 35 |
| Total | 31 | 31 | 1,461 | 1,564 | 158 | 174 | 1,619 | 1,738 |
The following table shows the breakdown of the main CGUs and groups of 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 | |||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |
| Lagardère Publishing | 15 | 15 | 973 | 1,013 | 43 | 41 | 1,016 | 1,054 |
| Anaya, Larousse and other | 4 | 4 | 220 | 232 | 2 | 2 | 222 | 234 |
| Hachette UK Holding Group | 1 | 1 | 305 | 318 | 24 | 25 | 329 | 343 |
| Hachette Book Group (United States) | 1 | 1 | 287 | 313 | - | - | 287 | 313 |
| 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 | 5 | 49 | 38 | 17 | 14 | 66 | 52 |
| Lagardère Travel Retail | 12 | 12 | 357 | 414 | 85 | 103 | 442 | 517 |
| North America | 1 | 1 | 220 | 241 | 77 | 95 | 297 | 336 |
| Belgium | 1 | 1 | 49 | 85 | - | - | 49 | 85 |
| Pacific | 1 | 1 | 30 | 29 | - | - | 30 | 29 |
| Czech Republic | 1 | 1 | 33 | 34 | - | - | 33 | 34 |
| France | 1 | 1 | 12 | 12 | - | - | 12 | 12 |
| Asia | 1 | 1 | 8 | 8 | - | - | 8 | 8 |
| Other | 6 | 6 | 5 | 5 | 8 | 8 | 13 | 13 |
| Other Activities | 4 | 4 | 131 | 137 | 30 | 30 | 161 | 167 |
| Lagardère News (Press and Radio) | 2 | 2 | 111 | 111 | 21 | 21 | 132 | 132 |
| Entertainment | 2 | 2 | 20 | 26 | 9 | 9 | 29 | 35 |
| Total | 31 | 31 | 1,461 | 1,564 | 158 | 174 | 1,619 | 1,738 |
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.
In 2020, the full budget preparation process takes account of a longer forecast period for Travel Retail business plans (up to 2030) and, depending on the region, also includes assumptions that the Group’s trading will be back at 2019 levels between 2022 and 2025. In the context of the crisis and given the prevailing uncertainties, these forecasts reflect the Group’s best estimates at the reporting date and are corroborated by trends in passenger traffic published by external bodies such as the IATA.
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 beyond those covered in the budgets. These discount rates were recalculated for the impairment tests in the final quarter of 2020 using the same methodology and sample of comparable companies as at end-2019.
The discount rates used for each business were as follows in 2020, 2019 and 2018:
| (%) | Discount rate | Perpetuity growth rate | ||||
| 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | |
| Lagardère Publishing (*) | 7.40 | 7.03 | 6.53 | 1.50 | 1.50 | 1.50 |
| Lagardère Travel Retail | 8.00 | 5.07 | 5.01 | 2.50 | 2.50 | 2.50 |
| Other Activities: | ||||||
| - Lagardère News – Press | 8.52 | 7.46 | 6.42 | 0.00 | 0.00 | 0.00 |
| - Lagardère News – Radio | 8.08 | 6.64 | 5.89 | 1.50 | 1.50 | 1.50 |
| - Entertainment | 7.56 | 6.68 | 5.97 | 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 discount rate for the Travel Retail division incorporates a risk premium in order to reflect uncertainties as to the recovery of the industry.
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 2020 compared with 2019, or in those used in 2019 compared with 2018.
Recognised impairment losses
Total impairment losses recognised by consolidated companies in 2020 amounted to €151 million, including €76 million for goodwill, €61 million for intangible assets and €14 million for property, plant and equipment at Lagardère Travel Retail. The main impairment losses break down as follows:
- €61 million for intangible assets at Lagardère Travel Retail, of which €55 million for the Rome airport concession (€34 million of which had already been written down at 30 June 2020);
- €31 million for International Duty Free group goodwill in Belgium at Lagardère Travel Retail;
- €20 million for goodwill relating to Mexican operations, Brainbow and the Anaya group at Lagardère Publishing;
- €19 million for goodwill at Lagardère Studios recognised in June 2020 prior to its disposal, in order to write down the carrying amount of the disposal group to its sale price (see note 4.3);
- €14 million for property, plant and equipment at Lagardère Travel Retail, particularly in Germany, the United States, Poland and Italy;
- €6 million for Bataclan goodwill.
Total impairment losses recognised 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 broke 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).
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: trading expected to get back in line with 2019 levels between 2022 and 2025; 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-2020 would result in an €14 million impairment loss, excluding the impact of any corporate cost reduction measures that may be implemented.
At 31 December 2020, the residual amount of goodwill and intangible assets with indefinite useful lives for all Lagardère News Press and Radio CGUs amounted to €132 million.
Lagardère Travel Retail
Compared to the assumptions taken into account in the cash flow forecasts used in the impairment tests at 31 December 2020, the one-year delay to the period during which trading is expected to get back in line with 2019 levels did not give rise to any additional impairment of goodwill or intangible assets with indefinite useful lives allocated to Lagardère Travel Retail CGUs.
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 to test the value of assets at 31 December 2020.
The tables include sensitivity to a maximum 2% increase in the discount rate, which is higher than the increases observed for 2019 and 2018.
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% | - | - | - | (7) | (19) | (28) | (40) | (54) | (66) |
| -0,5 % | - | - | - | - | (9) | (20) | (30) | (43) | (56) |
| 0% | - | - | - | - | - | (11) | (22) | (32) | (45) |
| +0,5 % | - | - | - | - | - | - | (13) | (24) | (34) |
| +1 % | - | - | - | - | - | - | (3) | (15) | (26) |
(*) The discount rate used for the 2020 impairment tests was 7.40%.
At 31 December 2020, 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 additional impairment loss of €31 million for the Anaya-Bruño group, €7 million for Education Management and €3 million for Hatier.
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 €43 million for the Anaya-Bruño group, €13 million for Hatier, €9 million for Education Management and €2 million for Le Livre Scolaire.
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% | - | - | - | - | - | (2) | (11) | (19) | (26) |
| -0,5 % | - | - | - | - | - | - | (7) | (16) | (24) |
| 0% | - | - | - | - | - | - | (3) | (12) | (20) |
| +0,5 % | - | - | - | - | - | - | - | (8) | (17) |
| +1 % | - | - | - | - | - | - | - | (3) | (13) |
(*) The discount rate used for the 2020 impairment tests was 8.00%.
At 31 December 2020, 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 €26 million for the Belgium 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) | (2) | (3) | (4) | (5) | (6) |
| -0,5 % | - | - | - | - | (1) | (2) | (4) | (5) | (6) |
| 0% | - | - | - | - | - | (1) | (3) | (4) | (5) |
| +0,5 % | - | - | - | - | - | - | (1) | (3) | (4) |
| +1 % | - | - | - | - | - | - | - | (2) | (3) |
(*) The discount rates used for the 2020 impairment tests were 8.52% for the Press CGU, 8.08% for the Radio CGU and 7.56% for the Entertainment CGU.
At 31 December 2020, 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 €6 million for the Live Entertainment CGU.