Carrefour - 2017 Registration Document

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017 Notes to the Consolidated Financial Statements 2017 REGISTRATION DOCUMENT | CARREFOUR 5. 246 Impairment of goodwill and sensitivity 6.3.1 analysis Based on the impairment tests carried out in 2017, the Group recognised a 700 million-euro impairment loss against goodwill allocated to its Italian operations. In 2016, no impairment was recognised against goodwill. Countries for which impairment was 6.3.1.1 recognised against goodwill For several years now the Group has paid particular attention to the value of its Italian operations in light of market trends observed in that country. Although the profitability of the Group’s Italian operations has gradually improved over the past few years, in line with strategic plans (used to estimate value in use for the impairment tests carried out in previous periods), certain commercial dynamics observed in 2017 led the Group to adjust its forecast in terms of margins and free cash flow (change in cash from operating activities less operational investments) as reflected in the financial trajectory defined by the Group’s Executive Management. valuation approach which took into account multiples observed for comparable companies in the retail sector in Europe, and the market value of Italian real estate assets, determined based on independent appraisals. The resulting fair value represents Executive Management’s best estimate. Adjustments in the operating and financial assumptions used as a basis for future cash flow forecasts led to a significant decrease in the value in use of the Group’s Italian operations. In this context, an in-depth analysis was carried out to determine the fair value of the Group’s Italian operations. This analysis adopted a multi-criteria Based on the above, the impairment test on the Group’s Italian assets led to the recognition of a 700 million-euro impairment loss in 2017. At December 31, 2017, in light of cumulative impairment losses from prior periods (2,200 million euros), the residual value of goodwill allocated to Italian operations is just 253 million euros. Countries for which the recoverable 6.3.1.2 amount of goodwill was close to the carrying amount In the impairment tests carried out at December 31, 2017, the recoverable amount of Poland CGUs was found to be close to – but still greater than – the carrying amount. Consequently, no impairment was recognised but sensitivity analyses were performed to determine the changes in the main financial assumptions that would lead to an impairment loss being recognised. The amounts below represent the difference between the recoverable amount and the carrying amount of the net assets allocated to Poland. The “-” sign indicates that the scenario would have led to the recognition of an impairment loss for the amount shown. Sensitivity to changes in WACC and perpetual growth rate WACC (%) (0.5)% (0.25)% 0.00% 0.25% 0.5% Perpetual growth (%) (1.00)% (2) (24) (45) (65) (83) (0.50)% 115 83 54 27 2 0.00% 191 153 117 85 55 0.50% 285 237 194 154 119 1.00% 555 475 405 343 289 A 50 bp decrease in the EBITDA margin (recurring operating income before depreciation and amortisation as a proportion of net sales) assumption used to determine the terminal value would not have changed the conclusions of the impairment test. Other countries 6.3.1.3 For the other countries where the Group conducts business, the analysis of sensitivity to a simultaneous change in the key inputs based on reasonably possible assumptions did not reveal any probable scenario according to which the recoverable amount of any of the groups of CGUs would be less than its carrying amount. In particular, although the value in use of operations in France decreased following the adjustment of the operating and financial assumptions reflected in the financial trajectory defined by the Group’s Executive Management, it remains well above the carrying amount of assets in France.