QUADIENT - 2019 Universal Registration Document

FINANCIAL STATEMENTS Statutory auditors’ report on the consolidated financial statements

Goodwill valuation

Risk identified

Our response

Goodwill amounted to 1,045 million euros as at January 31, 2020. As part of the new strategy announced in January 2019, the Group has reorganized its activities and operational segments. Consequently, the operating sectors have been modified as well as goodwill monitoring level. The value of goodwill determined by the Group is the object of a follow-up at the level of operational segments, consisting of the geographical areas where the Group’s activities are conducted. When it was necessary, the goodwill was reallocated to new geographic areas. Furthermore, the Group keeps monitoring separately the goodwill allocated to CGU or group of CGUs "Other solutions", « Additional operations » and Parcel Pending. Goodwill is tested for impairment at least once a year or when there is an indication of impairment. Impairment tests are carried out at CGUs level or at group of CGUs level defined by the Group. Impairment is recorded when the asset’s recoverable amount is lower than its carrying amount. Unless otherwise indicated, the Group uses the value in use to measure the recoverable value of Goodwill at each CGU or group of CGUs level. Value in use corresponds to the current value of the future cash flows that the Group expects to obtain from identified CGUs or group of CGUs. Future cash flows are based on revenue and operating income growth assumptions over 5 years. Industrial margins and net assets are reallocated to the country where the equipment is installed, and leasing margins and net assets are reallocated to the country where the signatories of finance lease contracts are located. Support costs (holding, human resources, IT…) were also reallocated to the CGUs or groups of CGUs on a pro rata basis according to their revenue. Beyond this five-year horizon, the terminal value is calculated by applying to the last cash flow the infinite growth rate. Cash flows are then discounted by applying a discount rate chosen according to the geographic area and after deduction of taxes. The assumptions, sensitivity analysis and the results of the tests performed are disclosed in Note 4-5 to the consolidated financial statements. These tests lead to record a depreciation of 70 million euros as at January 31, 2020. Valuation of goodwill is considered to be a key audit matter, due to its significant amount and the fact that its valuation is largely based on Management’s judgment, particularly regarding the growth rate used for cash flow projections and the discount rate applied.

We obtained an understanding of the Group’s new organization and its impact on the monitoring of goodwill. We also obtained an understanding of the procedures implemented by the Group’s Management to determine the value in use of goodwill and specifically cash flows, and to perform impairment tests. Regarding the methodology applied, we: examined the conformity of the methodology applied • in determining the CGUs with the applicable IFRS standards; examined goodwill reallocation to the CGUs and • groups of CGUs and assessed its consistency with the Group’s new strategic organization; assessed the consistency of the impairment model • applied and the calculation formulas used. We also analyzed the key assumptions used in the cash flow forecasts. Our work consisted in: comparing the projected cash flows with historical • data; analyzing the consistency of the projected cash flows • with the Group’s strategic initiatives; examining whether these future cash flows were based • on the 2020-2022 strategic plan as prepared by Management and presented to the Board of Directors; assessing the consistency of the reallocation of • margins and net assets of the leasing and industrial entities; assessing the long-term growth rates and discount • rates applied to the impairment review for each CGU or group of CGUs, comparing the rates utilized to third party evidence; assessing sensitivity analyses relating to key • assumptions to consider the extent of change in those assumptions that either individually or collectively would imply additional depreciation of of the goodwill, in particular relating to forecast future cash flows, including long-term growth rates and discount rates applied. We also assessed the appropriateness of the disclosures in the consolidated financial statements.

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UNIVERSAL REGISTRATION DOCUMENT 2019