QUADIENT - 2020 Universal Registration Document

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FINANCIAL STATEMENTS Statutory auditors’ report on the consolidated financial statements

Goodwill

Risk identified

Our response

Goodwill amounts to EUR 1,026 miilion as at January 31, 2021. They are tested for impairment at least once a year or when there is an indication of impairment. Impairment tests are carried out at CGU levels or at group of CGUs level defined by the Group, which generally correspond to the operating segments, consisting of the geographical areas in which the activities are carried out. 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 amount 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, as described in note 4-5-1 to the consolidated financial statements. 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. The discount rates are determined according to the activities and geographical areas. Where appropriate, these discount rates consider a specific risk premium. The assumptions, sensitivity analysis and the results of the tests performed are disclosed in further detail in Note 4-5 to the consolidated financial statements. 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 judgments and estimates, particularly regarding the growth rate used for cash flow projections and the discount rate applied.

We have assessed the conformity of the methodology applied in determining the CGUs or Group of CGUs with the IFRS in force as well as the allocation of goodwill to them. We 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. We have 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 projected cash flows with • the Group’s strategic initiatives (“Back to Growth”); reconciling the data used with business plans 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 as well as support costs; 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 analysis relating to key assumptions • to consider the extent of change in those assumptions that either individually or collectively would imply additional depreciation of the goodwill, in particular relating to forecast future cash flows, including long-term growth rates and discount rates applied. Finally, we assessed the appropriateness of the disclosures in Note 4-5 to the consolidated financial statements.

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UNIVERSAL REGISTRATION DOCUMENT 2020