Danone // 2020 Universal Registration Document

DANONE UNIVERSAL REGISTRATION DOCUMENT 2020 116 4.1 Consolidated financial statements and notes to the consolidated financial statements STATUTORY AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS Goodwill, brands and investments in associates DESCRIPTION OF RISK HOW OUR AUDIT ADDRESSED THIS RISK As at 31 December 2020, goodwill amounted to 17,016 million euros, brands amounted to 5,669 million euros and investments in associates amounted to 915 million euros. In the course of 2020, the Group recognized a €320 million im- pairment charge on goodwill and brands. These assets are subject to impairment tests, at least once a year in the case of goodwill and brands with indefinite useful lives, and whenever there is an indication of impairment in the case of investments in associates. The recoverable amounts of these assets or groups of assets are generally estimated on the basis of the discounted cash flows method or market value in the case of goodwill and investments in associates, and according to the royalty relief methodology, as explained in Notes 5.1 and 10.1 of the Notes to the consolidated financial statements. The impairment tests are based on estimates and onmanagementʼs judgment concerning (i) the definition of the cash generating units (CGUs) and the allocation of assets to these CGUs (ii) the estimation of the future performance of the assets or CGUs and (iii) the determination of the discount rates, long-term growth rates, and royalties’ rates as regards to brands. In 2020, as indicated in Note 10.3, management notably : • performed the combination of the Early Life Nutrition Asia, Early Life Nutrition Rest of the World and Advanced Medical Nutrition CGUs into a single Global Specialized Nutrition CGU, following the integration of the early life nutrition and advanced medical nutrition activities, which was finalized in 2020; • projected the effect of the Covid-19 pandemic crisis on its business plans over the entire durations of the plan to reflect the uncertainty as to its magnitude and duration. In addition, as indicated in Note 5.7 to the consolidated financial statements, the Group noted an indication of impairment on the Yashili’s investments in associates as of December 31, 2020. The impairment test performed, based on estimated future cash flows of the business plan prepared by its management and covering the 2020 to 2025 and taking to account of the Covid-19 crisis on the 2020 fiscal year, did not result in an additional impairment charge. Taking into account the sensitivity of these estimates, especially in the context of uncertainty due to the Covid-19 pandemic, we therefore deemed the measurement of (i) goodwill, brands and (ii) the investments in associates to be a key audit matter. Goodwill and brands We gained an understanding of the processes set up by the ma- nagement to allocate the goodwill to CGUs or groups of CGUs, in order to identify any indications of loss in value and to determine the cash flow projections underlying the impairment tests. We examined the combination of the Early Life Nutrition Asia, Early Life Nutrition Rest of the World and Advanced Medical Nutrition CGUs into a single Global Specialized Nutrition CGU. For a sample of CGUs and brands, identified on the basis of quantitative and qualitative factors, notably intangible assets which have been impaired, we examined the methods and main assumptions, including the effects of covid-19 as assumed by management, used to determine recoverable value, including: • forecasted cash flows: the assumptions relating to the growth of the business and market shares were compared with the available market analyses. We also compared the main as- sumptions with past performance and assessed the trends between past forecasts and actual figures; • the long-term growth rates, the discount rates and the royal- ties’ rates, with the support of financial valuation experts, as part of the audit team. We also analyzed the sensitivity of the test results to the main assumptions used by management and examined the disclosures provided in the notes to the consolidated financial statements. Investments in associates We gained an understanding the approach adopted and the data used by the group (market valuation, recent performance and forecast results), including the effects of covid-19 as projected by management, to identify any indications of loss in value. For Yashili, we have performed the procedures as described hereinbefore for goodwill and brands and we have examined the main assumptions used to determine the recoverable amount, notably by comparing with external valuations. We have also exa- mined the disclosures provided in the notes to the consolidated financial statements, with respect to the sensitivity analysis.