LOREAL_Registration_Document_2017

2017 Consolidated Financial Statements* NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Change in the scope of consolidation (1)

€ million 2015

Acquisitions/ Amortisation

Disposals/ Reversals

31.12.2014

Other movements

31.12.2015

Brands with indefinite useful life (2) Amortisable brands and product ranges

1,875.6

-

- -

28.6

127.3

2,031.5

110.7 288.0 906.5 479.5

0.4

- -

5.0

116.1 319.6

Licences and patents

14.0 62.0

-1.2

18.8 93.2 46.2 -0.1 -65.3

Software

-31.4

0.9

1,031.2

Customer relationships

-

-

13.8

539.5

Key money

64.7

6.8

-1.5 -1.2

-

70.0

Other

193.8

102.1 185.3

2.9

232.2

Gross value

3,918.8

-35.3

46.2

225.1

4,340.1 116.85

Brands with indefinite useful life

109.9

-

- -

- - - - - -

7.0 2.2

Amortisable brands and product ranges

69.3

4.8

76.3

Licences and patents

123.1 640.6 181.5

13.6

-1.2

-

135.5 739.6 241.1

Software

109.0

-31.4

0.8

20.6 20.6

Customer relationships

39.0

-

Key money

14.7 65.2

2.9 7.5

-0.4 -1.7

-

17.1 70.8

Other

-0.3

Amortisation and provisions Other intangible assets – net

1,204.2 2,714.6

176.8

-34.7

0.8

50.1

1,397.2 2.942.9

4

8.5

-0.6

45.4

175.0

This item consists mainly of changes in the scope of consolidation resulting from Niely and The Body Shop Australia. (1) At 31 December 2015, brands with an indefinite useful life consist mainly of The Body Shop (€564.9 million), Matrix (€321.9 million), Kiehl’s (€141.8 million), Magic (2) (€140.4 million), Shu Uemura (€105.9 million), NYX Professional Makeup (€103.4 million), Clarisonic (€99.8 million) and Decléor and Carita (€81.4 million).

Other movements mainly consisted of the positive change in exchange rates over the period for €155.7 million as well as the allocation of the purchase price of Coloright acquired in 2014 (shown on the Licences and patents line for €16.4 million under the technology).

Accumulated impairment losses amount to €14.0 million on Biomedic, €47.2 million on Yue-Sai and €55.7 million on Softsheen-Carson at 31 December 2015.

Impairment tests on intangible assets 7.3.

ACCOUNTING PRINCIPLES Goodwill is not amortised. It is tested for impairment at least once a year during the fourth quarter or whenever an adverse event occurs. Adverse events may result among other things from an increase in market interest rates or from a decrease in actual sales or operational profit compared to forecasts. Impairment tests consist of comparing the carrying amount of assets including goodwill with the recoverable amount of each Cash Generating Unit. A Cash Generating Unit corresponds to one or more worldwide brands. A Cash Generating Unit can contain several brands depending on organisational criteria and particularly when distribution circuits and commercial/management structures are pooled. Recoverable values are determined on the basis of discounted operating cash flow forecasts covering a period of 10 years (the period considered necessary for the strategic positioning of an acquisition) and a terminal value. The cash flows are determined in the currencies of the countries in question and are translated, in the same

way as the net carrying amounts to which they are compared, at the estimated exchange rate for the following year. The discount rate used for these calculations is based on the weighted average cost of capital (WACC), which amounts to 6.8% in 2017, to 6.8% in 2016 and 6.9% in 2015 for amounts in euro, adjusted where appropriate by a country risk premium according to the geographic zones concerned. The discount rates are post-tax rates applied to post-tax cash flows, and result in recoverable amounts identical to those obtained by applying pre-tax rates to pre-tax cash flows. The assumptions adopted in terms of sales growth and terminal values are reasonable and consistent with the available market data (generally 2.5% for Europe and 3% for the rest of the world for terminal values except in specific cases). The use of discounted cash flow forecasts is preferred in order to determine recoverable amounts, unless details of similar recent transactions are readily available. Impairment charged against goodwill cannot be reversed.

REGISTRATION DOCUMENT / L'ORÉAL 2017

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