PERNOD RICARD - Universal Registration Document 2019-2020

6. CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements

In addition to annual impairment tests applied to goodwill and brands, specific impairment tests are applied where there is an indication that the value of an intangible asset may have been impaired. The data and assumptions used for the impairment tests applied to cash generating units (CGUs) are as follows:

Method used to determine the recoverable amount

Value in use

Net carrying amount of goodwill at 30.06.2020

Net carrying amount of brands at 30.06.2020

Discount rate 2019

Discount rate 2020

Perpetual growth rate

€ million

Europe

1,818

3,789

5.73%

5.80% -1% to +2.5%

Value in use based on the discounted cash flow method

Americas

2,874

5,465

6.74%

6.83% -1% to +2.5%

Asia/Rest of World

919

1,578

7.83%

7.42% -1% to +2.5%

The amount of any additional impairment of indefinite-life intangible assets at 30 June 2020 is described below, resulting in: a 50 basis point reduction in the growth rate of the contribution after — advertising and promotional expenditure;

a 50 basis point increase in the after-tax discount rate; — a 100 basis point increase in the after-tax discount rate; or — a 50 basis point reduction in the perpetual rate growth over the — duration of the multi-year plans.

50 basis point decrease

in the growth rate of the contribution after advertising and promotional expenditure

50 basis point increase in the after-tax discount rate

100 basis point increase in the after-tax discount rate

50 basis point decrease in the perpetual growth rate

€ million

Europe

(25)

(104)

(403)

(66)

Americas

(102)

(700)

(2,031)

(226)

Asia/Rest of World

(9)

(36)

(130)

(16)

TOTAL

(135)

(841)

(2,565)

(308)

The various sensitivities presented above include an impairment requirement for the Group’s American goodwill of €368 million in the event of an increase in the after-tax discount rate of 50 basis points and €1,411 million in the event of an increase in the after-tax discount rate of 100 basis points.

The other sensitivities presented above would not result in the need for goodwill impairment.

Property, plant and equipment Note 4.2

Property, plant and equipment are recognised at acquisition cost and broken down by component. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. Useful life is reviewed on a regular basis. The average depreciable lives for the major categories of property, plant and equipment are as follows:

as from the date at which it is possible to obtain a reliable assessment of price, for example by referring to an active market. Changes in fair value are recognised in profit and loss. Land on which biological assets are planted is measured in accordance with IAS 16. In accordance with IFRS 16, applicable from 1 July 2019, right-of-use assets for leases are recognised as property, plant and equipment in the class of underlying asset to which the right of use relates, with the corresponding recognition of a lease liability. These are mainly offices occupied by the Group and recorded under Buildings. The value of right-of-use assets is determined on the basis of the amount of the lease liability, adjusted for the amount of prepaid rent, initial direct costs, benefits received from lessors and, where applicable, remediation costs. Right-of-use assets relating to leases are depreciated over the term of the lease. The accounting principles for determining the lease liability are detailed in Note 4.8 – Financial liabilities . Items of property, plant and equipment, including right-of-use assets, are written down when their recoverable amount falls below their net carrying amount.

Buildings

15 to 50 years

Machinery and equipment

5 to 15 years

Other property, plant and equipment

3 to 5 years

Vines

25 to 33 years

Depreciation of property, plant and equipment is recognised within operating profit in the income statement. In accordance with the amendments to standards IAS 41 and IAS 16, vines are, since 1 July 2016, valued at acquisition cost and depreciated over their useful life. In accordance with IAS 41, agricultural produce (harvests) continues to be recognised at fair value on the balance sheet, after deducting estimated selling costs,

184

Pernod Ricard Universal Registration Document 2019-2020