At 31 December 2015 goodwill amounted to € 864,469k, compared with € 804,544k the previous year. The cash-generating units (CGUs) were identified on the basis of business segment, following a geographical/operational logic, consistently with the minimum level at which goodwill is monitored for internal management purposes.
The carrying amounts of CGUs grouped by geographical area are presented below:
|HMSHost North America||463,487||421,720||41,767|
|HMSHost North America||463,487||41,720||41,767|
The difference with respect to 2014 is explained by exchange differences (€ 62,735k) and the reduction in goodwill for HMSHost North America (€ 2,810k), due to the sale of the last four Travel Retail contracts in North America to the World Duty Free group (see section 2.2.2, Disposals).
The recoverability of the goodwill allocated to each CGU is tested by estimating its value in use, defined as the present value of estimated future cash flows discounted at a rate differentiated by geographical area reflecting the specific risks of the individual CGUs at the measurement date. The discount rate was set in consideration of the capital assets pricing model, based on indicators and variables observable in the market.
Future cash flows have been estimated on the basis of the 2016 Budget and forecasts for 2017-2020 (explicit forecast period). Cash flows beyond 2020 have been projected by normalizing information from those forecasts and applying nominal growth rates (“g”), which do not exceed the long-term growth estimates of each CGU’s sector and country of operation (consistently with medium- to long-term inflation forecasts by the International Monetary Fund), and by using the perpetuity method to calculate terminal value.
Below are the main assumptions used for impairment testing. The discount rate has changed since the previous year, to reflect the different market conditions at 31 December 2015:
|Forecast nominal growth rate “g”||Discount rate 2015 post tax||Discount rate 2014 post tax|
|HMSHost North America||2.30%||5.99%||6.93%|
To estimate cash flows for the period 2016-2020, management has made several assumptions, most importantly of air and motorway traffic volumes, future sales, operating costs, investments, and changes in working capital.
The principal assumptions used to estimate cash flows are broken down below by business segment:
- HMSHost North America: for the years covered by the plan (2016-2020), average annual sales are expected to rise on the strength of traffic growth in the airport channel (based on estimates by the Federal Aviation Administration). The renewal rate of existing contracts was estimated on the basis of historical trends. The total share of operating costs is expected to decrease slightly, thanks to the positive impact of operating leverage and targeted efficiency measures.
- HMSHost International: internal estimates suggest that growth will be strong in the most highly developed regions, such as Northern Europe (UK and Scandinavia), Asia and the Middle East, where it will outpace the average growth rate in Autogrill’s markets. Increased sales in countries where margins are higher will boost profitability.
- Italy: internal estimates call for a moderate increase in motorway traffic for 2016 and subsequent years. The selective approach to future investments is reflected in the slightly lower expected renewal rate for expiring concessions with respect to the country’s historical trends. The reduced sphere of activity will likely be offset by higher sales per location as a result of updated menus. Operating costs are expected to go down as a share of revenue, thanks to targeted efficiency measures; rent, in particular, has been revised to reflect the expiration of leases and concession contracts.
- Other European countries: sales projections are based on internally developed motorway traffic and airport traffic assumptions that differ from country to country. The renewal rate of existing contracts was estimated on the basis of historical trends, while operating costs are expected to decrease as a percentage of sales thanks to the start-up of efficiency projects.
For all CGUs, growth investments are correlated with the expiration of contracts, while maintenance investments are assumed to be consistent with historical trends.
On the basis of these assumptions, the amount of goodwill attributed to each CGU was found to be fully recoverable.
The following table shows the levels at which, for the most significant assumptions used in the impairment tests and the most important CGUs, there would no longer be a gap between the CGU’s value in use and its book value.
|Discount rate net of taxes||g|
|HMSHost North America||14.4%||(17.4%)|
Additional steps included:
- a sensitivity analysis, considering specific risk factors inherent to plans in the different countries and CGUs, as well as changes in the discount rate and g rate;
- a comparison between the CGUs’ value in use for 2015 and 2014 with gap analysis.
These steps confirmed that goodwill is fully recoverable and that the assumptions used are reasonable.