Assystem - 2018 Register document

5

BUSINESS REVIEW AND FINANCIAL STATEMENTS

STATUTORY AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

VALUATION OF GOODWILL Notes to the consolidated financial statements 1, 3.3 and 3.4

Risk

Our response

The acquisitions made by the Group led to the recognition of goodwill determined as being the difference between the fair value of the consideration transferred, plus the amount of any non-controlling equity interest in the Company acquired and the net amount of the identifiable assets acquired and liabilities assumed. Such goodwill is shown in the balance sheet for a net amount of 82.8 million of euros as of 31 December 2018 (76.7 million of euros for the Energy & Infrastructure (E&I) business and 6.1 million of euros for the Staffing business). It was allocated to the cash-generating units (CGU) of the businesses into which the companies acquired were integrated. The Group conducts impairment tests at each year-end or whenever a triggering event is identified, in order to estimate the recoverable value of the CGU (defined as the higher amount between the fair value net of any exit costs and the value in use corresponding to the discounted value of estimated future cash flows expected from the use of the CGU). An impairment loss is recognised at the level of a CGU if its recoverable value is lower than its net book value and should firstly be allocated to the goodwill of the CGU. The recoverable value of the CGU was determined using its value in use. To determine the value in use, the Group has forecast the future cash flows it expects to obtain from the CGU over a period of four years; the future cash flows generated beyond this four years period were extrapolated by taking into account a growth rate which cannot exceed the average long-term growth rate of the overall business sector. The future cash flows are discounted using the weighted average cost of capital (WACC) of the sector. Furthermore, an unfavourable change in market conditions or in the cash flows originally estimated may lead to the recognition of an additional impairment loss. The methodology used in carrying out the impairment test as well as the detailed assumptions adopted are described in Note 3.4. We have therefore considered the valuation of goodwill as a key audit matter given the high degree of estimates and judgements made by management, the sensitivity of the calculation of the recoverable values to changes in the forecasting assumptions and the weight of such caption in the Group’s consolidated financial statements.

We have assessed the compliance of the Group’s impairment test methodology with the accounting standards. We have conducted a critical assessment about the way the methodology was implemented and have notably assessed: • the level of pooling of the CGU adopted for impairment testing and the consistency of the items included in the carrying value of the CGU with the cash flows used to perform impairment tests; • the reasonableness of the projected cash flows in consideration of the economic and financial contexts in which the E&I and Staffing businesses operate; • the consistency of the forecasts used with those presented to the Audit Committee and approved by the Board of Directors as part of the budget preparation process; • the consistency of the assumptions used for determining the long term growth rate with the economic environment prevailing as at the financial statements closing date; • the reliability of the forecast estimation process by examining the root cause for the differences highlighted between forecasts and actual data in relation to past performances; • the reasonableness of the assumptions used for determining the discounting rate with the assistance of our valuation specialists; • the analyses of sensitivity of the value in use to a change in the main assumptions used. Finally, we have assessed whether the notes to the consolidated financial statements (notably the Notes 1 – Reporting entity and basis of preparation, 3.3 – Goodwill”, and 3.4 – Impairment testing) provided an appropriate information.

134

ASSYSTEM

REGISTRATION DOCUMENT 2018