16. Impairment Tests for Goodwill

Goodwill is allocated to the Company’s group of cash-generating units (CGUs) according to the country of presence. The recoverable amount is determined by the value in use, calculated using the discounted cash flow method applying a discount factor derived from the average cost of capital relevant for the CGUs. If the value in use is lower than the carrying value, then the fair value less cost of disposal is also considered, which is determined by a multiple on the average sales of the last three years. By applying a multiple on the average sales of the last three years the Group uses a well-balanced approach for both mature and emerging markets. For mature markets it eliminates the impact of incidentals that could have occurred in one of the years. For emerging markets a one-year sales figure would be too volatile as it would not reflect the real growth. The sales multiple is based on recent market transactions and peers of GrandVision, taking into account risk factors of the CGU for which the fair value less cost of disposal is calculated. The recoverable amount is the higher of the value in use and the fair value less costs of disposal.

Key assumptions used to determine the recoverable amount in 2014:

Revenue growth rate (average)

EBITA percentage (average)

Discount rate
(pre tax)

Sales multiple (when used)

G4

2.7% – 4.6%

12.7% – 20.8%

9.59% – 11.64%

Other Europe

3.6% – 5.6%

12.9% – 14.5%

8.54% – 19.35%

1

Latin America & Asia

13.7% – 17.4%

7.8% – 8.4%

12.03% – 24.88%

0.6 – 1.37

Key assumptions used to determine the recoverable amount in 2013:

Revenue growth rate (average)

EBITA percentage (average)

Discount rate
(pre tax)

Sales multiple (when used)

G4

2.1% – 6.9%

11.5% – 19.1%

10.05% – 12.95%

Other Europe

3.0% – 4.1%

10.4% – 13.4%

9.77% – 16.68%

1

Latin America & Asia

5.9% – 8.3%

5.6% – 6.3%

11.93% – 18.31%

0.6 – 1.36

The assumptions reflect the averages of each group of the CGUs in the segments for the five-year period. The growth rate for the 1st, 2nd and 3rd year is based on the budget for these years. The growth rate for the 4th and 5th year is in line with the third year and zero percent for the subsequent years. The EBITA is assumed to remain at a constant level after the three-year period. The EBITA and growth rate are based on historical performance as well as our assessment of the development of these rates in the upcoming years. The discount rates used are pre-tax and reflect the country-specific risks relating to our industry.

For recognized impairment losses during the periods please refer to note 14.