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 costs 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 costs of disposal is calculated. For recently acquired cash-generating units and cash-generating units with large investments in store openings to generate growth, the average sales of the last three years is adjusted to reflect these developments. The recoverable amount is the higher of the value in use and the fair value less costs of disposal.

Pursuant to IAS 36 Impairment of Assets, in 2016 the goodwill relating to the French Solaris business and Spain was reallocated between G4 and Other Europe, reflecting the transfer of management responsibility for the two businesses in 2016. Refer to note 5 for more information on this transfer.

Key assumptions used to determine the recoverable amount in 2016:

Revenue growth rate (average)

EBITA percentage (average)

Discount rate (pre tax)

Sales multiple (when used)

G4

3.3% - 3.8%

11.5% - 22.2%

8.51% - 10.27%

-

Other Europe

2.1% - 8.0%

2.9% - 19.7%

8.65% - 17.62%

1

Americas & Asia

0.7% - 20.8%

2.1% - 14.8%

10.17% - 20.99%

0.6 – 1.5

Key assumptions used to determine the recoverable amount in 2015:

Revenue growth rate (average)

EBITA percentage (average)

Discount rate (pre tax)

Sales multiple (when used)

G4

2.1% - 4.8%

13.4% - 20.5%

9.43% - 11.27%

-

Other Europe

2.1% - 11.1%

2.0% - 18.6%

8.74% - 16.47%

1

Americas & Asia

6.4% - 33.8%

2.6% - 17.5%

11.8% - 34.04%

0.6 – 1.2

The assumptions reflect the averages of each group of the CGUs in the segments for the five-year period. Cash flows beyond this five-year period were extrapolated using an estimated growth rate of nil. 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 rate 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 details on sensitivity analysis for the key assumptions refer to note 4.1.

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

The Group considered and incorporated the impact on the assumptions used in its goodwill impairment tests resulting from the outcome of the UK referendum on European Union membership.