NEOPOST_REGISTRATION_DOCUMENT_2017

5

Financial statements

Statutory auditors' report on the financial statements

Goodwill valuation

Risk identified

Our response

Goodwill amounts to M€ 1,061 as at January 31, 2018. Goodwill is tested for impairment at least once a year or when there is an indication of impairment. Impairment tests are carried out at CGU level, CGUs generally corresponding to countries for the SME Solutions division and to product ranges for the other divisions. There are seventeen CGUs as at January 31, 2018. Impairment is recorded when the asset’s recoverable amount is lower than its recoverable amount. Unless otherwise indicated, the Group uses the value in use to measure the recoverable amount of Goodwill at each CGU level. Value in use corresponds to the current value of the future cash flows that the Group expects to obtain from identified CGUs. Future cash flows are based on revenue growth assumptions over 5 years. Industrial margins and net assets are reallocated to the country where the equipment is installed and leasing margins and net assets are reallocated to the country where the signatories of finance lease contracts are located. The terminal value is calculated by applying a perpetuity growth rate to the last cash flow. The assumptions, sensitivity analyses and results of the tests performed are disclosed in further detail in Note 4-5 to the consolidated financial statements. Valuation of goodwill is considered to be a key audit matter, due to its significant amount and the fact that its valuation is largely based on management's judgment, particularly regarding the growth rate used for cash flow projections and the discount rate applied.

We obtained an understanding of the procedure and controls put in place by Neopost S.A.'s management for determining the recoverable amount of goodwill and the calculation of the impairment tests, in particular in the determination of the cash flows used in the calculation of the recoverable value. Regarding methodology applied, we: examined the conformity of the methodology applied in • determining the CGUs with the IFRS in force; assessed the integrity of the impairment model applied and • the calculation formulas used. We also analyzed the key assumptions used in the cash flow forecasts. Our work consisted in: comparing the projected cash flows with historical data; • analyzing the consistency of projected cash flows with the • Group’s strategic initiatives; examining whether these future cash flows, amongst • others, were based on the 2018-2020strategic plan as prepared by management and presented by the Board of Directors; assessing the long-term growth rates and discount rates • applied to the impairment review for each CGU, comparing the rates utilized to third party evidence and in relation to the discount rate, our independently estimated discount rates; assessing the sensitivity analyses in relation to key • assumptions to consider the extent of change in those assumptions that either individually or collectively would be required for the goodwill to be impaired, in particular relating to forecast future cash flows, including long-term growth rates and discount rates applied. We also assessed the appropriateness of the disclosures in the consolidated financial statements.

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REGISTRATION DOCUMENT 2017 / NEOPOST