SOMFY - Annual financial report 2018

07 CONSOLIDATED FINANCIAL STATEMENTS

Cash flows are evaluated based on budgets and three-year forecasts for companies which operate in a market they know and understand well. Generally, these are companies whose strategies are not expected to change greatly. On the other hand, the period is extended to five years for companies in emerging markets, for which the growth potential and maturity are further away. These cash flows have been projected over several years using specific growth rates which are consistent with the Group’s historical growth rates. The growth rate used to project cash flows to infinity is consistent with the long-term inflation rate relevant to the countries concerned. The discount rate used corresponds to the weighted average cost of capital and reflects the expected return on invested capital (equity and liabilities necessary to finance operations). It is calculated based on the financial data extracted from a sample of comparable companies, comprising listed companies operating in the same business segment as the companies to be valued. Risk is mainly taken into account at a cash flow level. In 2018, cash flow discount rates, determined from market data, were 10% for the European CGUs, 18% for the Brazilian CGUs and 16.5% for Asian CGUs. In 2017, cash flow discount rates, determined from market data, were 10% and 14% for the European CGUs, 12.5% for the Chinese CGUs and 15% for other Asian CGUs.

asset is measured at the higher of its fair value, after deduction of disposal costs, and its value-in-use. If the recoverable amount exceeds the net book value of the CGU at period end, no impairment is recognised. However, if this amount is lower than the net book value, an impairment loss equal to the difference is recognised in priority against the acquisition goodwill. This impairment loss may not be reversed. Fair value after deduction of disposal costs is the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties, after deducting disposal costs. Value-in-use is determined based on cash flows, which are estimated using plans or budgets over a maximum period of five years; the cash flows beyond that date are extrapolated by applying a constant or decreasing rate of change, and are discounted by using long-term post-tax market rates, which reflect the market’s estimates of the time value of money and the specific risks inherent to the assets. In certain cases, cash flows can be estimated over longer periods, to be justified CGU by CGU.

At 31 December 2018, as at every year-end or every time that indications of impairment exist, the Group re-examined the value of goodwill associated with Cash Generating Units.

BREAKDOWN OF THE GOODWILL OF THE MAIN CGUS AND DETAILS OF THE MAIN ASSUMPTIONS USED FOR EACH CGU AT 31 DECEMBER 2018

Gross value

Impairment

Net value Discount rate Rate of growth to infinity

€ thousands

80,619

BFT

93,562

-12,942 -7,574

10.0%

2.0%

–

O&O

7,574 1,091 1,153 4,975

–

–

1,091 1,153

Domis

– –

10.0% 10.0%

2.0% 2.0%

Axis/Somfy Activités SA

– – –

Pujol

-4,975

–

–

Neocontrol

430

-430

18.0%

3.5%

Lian Da

8,820

-8,820 -9,700

–

–

9,273 1,403 2,367

Somfy Protect by Myfox (formerly Myfox)

18,973

10.0% 16.5% 10.0% 10.0%

2.0% 2.5% 2.0% 2.0%

iHome Simu Other

1,403 2,367

– – –

318

318

TOTAL FULLY-CONSOLIDATED COMPANIES

140,666

-44,441

96,225

–

–

The revision of the Somfy Protect by Myfox business plan led to the recognition of goodwill impairment of €9.7 million at 30 June 2018. Given Somfy Protect by Myfox’s full consolidation by Somfy, residual goodwill was transferred to the Somfy CGU’s overall goodwill at 31 December 2018. In addition, the growth prospects of Neocontrol have been reviewed downward, resulting in the impairment of the entire goodwill of €0.4 million. Following a review of the value of other goodwill, no other impairment charge was recognised during the 2018 financial year.

94

SOMFY – ANNUAL FINANCIAL REPORT 2018