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4.1 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Intangible assets
DANONE
REGISTRATION DOCUMENT 2015
116
Note 9.3. Impairment review
Methodology
The carrying amounts of goodwill and brands with indefinite useful
lives are reviewed for impairment at least annually and whenever
events or circumstances indicate that they may be impaired. These
events or circumstances are linked to significant, unfavorable and
lasting changes that have an impact on the economic environment
and the assumptions or targets set at the time of acquisition.
Impairment tests are carried out on all property, plant and equip-
ment and intangible assets of the CGUs and groups of CGUs. When
the carrying amount of all the property, plant and equipment and
intangible assets of the CGUs and groups of CGUs becomes greater
than their recoverable amount, an impairment provision is recognized
and first charged against goodwill.
The recoverable amount of the CGUs or groups of CGUs to which
the tested assets belong is the higher of the fair value net of dis-
posal costs, which is generally estimated on the basis of earnings
multiples, and the value in use, which is assessed with reference
to expected future discounted cash flows of the CGU or group of
CGUs concerned.
Annual impairment testing of brands with indefinite useful lives is
based on an individual recoverable amount established using the
royalties method, with the exception of certain brands for which the
Group has a third-party valuation. In the case of the major brands,
the Group re-estimates the royalty rate of the brands concerned
in accordance with a method applied each year and based on the
brand's parameters including awareness of the brand, its profita-
bility, market shares, etc.
The cash flows used to determine value in use of the CGUs or groups
of CGUs and the recoverable amount of the brands with indefinite
useful lives are derived from the annual budgets and strategic plans
of the CGUs or groups of CGUs, which are drawn up by Management
and cover a period of three years, and are extended, where appro-
priate, on the basis of the most recent forecasts, to:
•
five years for the Fresh Dairy Products and Waters Divisions;
•
eight years for the Early Life Nutrition and Medical Nutrition
Divisions, to better reflect the expected development of the
Divisions' activity on the estimation of the value in use. The Group
uses projections over eight years to better reflect the Division's
growth over this period, since the actual growth rate of these
CGUs and groups of CGUs exceeds the long-term growth rate
that the Group applies to each of these CGUs.
Future cash flows beyond that period are extrapolated using a long-
term growth rate that is specific to each CGU or group of CGUs:
•
the operational assumptions used to calculate the terminal value
are in line with the last year of projections described above in
terms of sales and trading operating margin;
•
the long-term growth rate is determined for each CGU or group
of CGUs taking into account its average growth rate in recent
years and its geographical area (macro-economic fundamentals,
demographics, etc.).
Finally, future cash flows are discounted using the weighted ave-
rage cost of capital method, according to which the cost of debt and
the after-tax cost of equity are weighted based on their respective
proportions in the business sector concerned. It is calculated for
the Group and increased, for certain CGUs or groups of CGUs, by
a premium to take into account the risk factors affecting certain
countries.
Review of the value of intangible assets with
indefinite useful lives as of December 31, 2015
Combination in 2015 of the European CGUs of the Fresh Dairy
Products Division
As part of the cost saving and adaptation plan of its European
entities (see Note 6.3 of the Notes to the consolidated financial
statements), the Fresh Dairy Products Division reorganized its
activity with centralized, overall management at the European level,
notably operations and raw materials purchasing. As a result, the
Southern Europe, Central Europe and Northern Europe CGUs were
combined into a single Europe CGU, only after the Group ensured
that no impairment needed to be recognized at the level of the CGUs
prior to their combination.