Sopra Steria - 2020 Universal registration document

5 2020 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements

The Group then applied these parameters to its cash flow projections. These projections factor in the impact of the coronavirus crisis, including estimates of a return to pre-crisis levels of business activity and profitability, cash-generating unit by cash-generating unit based on the activities and major contracts affected within each one. These tests did not lead to any recognition of impairment. The Group also tested 1.0-point changes in these assumptions. A 1.0-point decrease in the perpetual growth rate, a 1.0-point increase in the discount rate, or both, would not lead to any recognition of impairment. Furthermore, the Group also performed additional testing to measure sensitivity to a decrease in the operating margin for the Sopra Banking Software CGU. The Group would need to write down the assets of this CGU in the event of a 3.4-point decrease in the operating margin, all other things being equal. Finally, additional testing was also performed to measure sensitivity to key assumptions (such as the discount rate, perpetual growth IAS 36 Impairment of Assets requi res that an entity a ssess at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the entity must estimate the asset’s recoverable amount. Irrespective of whether there is any indication of impairment, an entity must also: test intangible assets with indefinite useful lives annually; p test the impairment of goodwill acquired in a business p combination. In practice, impairment testing is above all relevant to goodwill, which constitutes the majority of Sopra Steria Group’s consolidated non-current assets. Impairment testing is performed at the level of the cash-generating units (CGUs) to which assets are allocated. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The Group’s segmentation into CGUs is consistent with the operating structure of its businesses, its management and reporting system, and its segment reporting (see Note 3). Impairment testing involves comparing CGUs’ carrying amounts with their recoverable amounts. A CGU’s recoverable amount is the higher of its fair value (generally market value) less costs of disposal and its value in use. Due to the application of IFRS 16 Leases starting 1 January 2019, the carrying amount of assets includes right-of-use assets less lease liabilities.

rate, operating margin and revenue growth rate) for each cash-generating unit. The Group performed tests using the following assumptions: a 2-point increase in the discount rate; or p a 2-point decrease in the perpetual growth rate ( i.e. no perpetual p growth); or the combination of a 2-point increase in the discount rate and a p 2-point decrease in the perpetual growth rate; or a 2-point decrease in the projected operating margin; or p a 2-point decrease in the projected growth rate. p Based on these tests, the Group would be required to write down its assets for the “Sopra Banking Software” CGU alone in the event of an increase of more than 1.6 points in the discount rate combined with a simultaneous 0.5-point decrease in the perpetual growth rate, all other things being equal. For the other CGUs, the additional tests which were undertaken to measure sensitivity to key assumptions would not lead to the recognition of any impairment. The value in use of a CGU is determined using the discounted cash flow (DCF) method: cash flows for an explicit forecast period of five years, with the p first year of the period based on the budget; cash flows beyond the five-year explicit period are calculated by p applying a perpetual growth rate to the last cash flow for the foreseeable period, reflecting the anticipated rate of real long-term economic growth adjusted for long-term inflation forecasts. The Group decided to include lease payments in cash flows following the application of IFRS 16 Leases from 1 January 2019. The discount rate is based on the weighted average cost of capital. This is compared with the estimates produced by financial analysts. The final discount rate used for each CGU is derived from this comparison and falls between the weighted average cost of capital and the average of analyst estimates. Perpetual growth rates are based on an average of analyst estimates. Impairment losses are recognised to the extent of any excess of a CGU’s carrying amount over its recoverable amount. Impairment losses are first allocated against goodwill and are charged to profit or loss as part of Other operating income and expenses. The reversal of impairment losses for goodwill arising on fully consolidated investments is prohibited.



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