19. Goodwill

Goodwill amounts to €797 million (30/9/2017: €875 million).

In the Real segment, goodwill of €2 million respectively resulted from the acquisitions of Heim & Büro Versand GmbH as well as wfp2 GmbH & Co. KG. The Real segment is an essential part of the discontinued operations of the hypermarket business.

At the closing date, the breakdown of goodwill among the major cash-generating units was as shown below:

In accordance with IFRS 3 in conjunction with IAS 36, goodwill is tested for impairment once a year. This is carried out at the level of a group of cash-generating units. Specifically, this refers to the sales line per country.

In the impairment test, the cumulative carrying amount of the group of cash-generating units is compared with the recoverable amount. The recoverable amount is defined as the fair value less costs to sell, which is calculated from discounted future cash flows and the level 3 input parameters of the fair value hierarchy.

Expected future cash flows are based on a qualified planning process under consideration of intra-group experience as well as macroeconomic data collected by third-party sources. As a rule, the detailed planning period comprises 3 years. In individual cases, it may be extended by up to 2 years for units currently in a transformation process with a planning period of 5 years. As in the previous year, the growth rates considered at the end of the detailed planning period are generally 1.0%, with the exception of the group of the cash-generating unit Real Germany, for which a growth rate of 0.5% is assumed, as in the previous year. The capitalisation rate as the weighted average cost of capital (WACC) is determined using the capital asset pricing model. In the process, an individual peer group is assumed for all groups of cash-generating units operating in the same business segment. Capitalisation interest rates are determined on the assumption of a basic interest rate of 1.25% (30/9/2017: 1.25%) and a market risk premium of 7.00% (30/9/2017: 6.50%) in Germany as well as a beta factor of 1.03 (30/9/2017: 1.06). Country-specific risk premiums based on the respective country rating are applied to the equity cost of capital and to the debt cost of capital. The capitalisation rates after taxes determined individually for each group of cash-generating units range from 5.7 to 11.4% (30/9/2017: 5.4% to 11.2%).

The mandatory annual impairment test carried out by METRO as of 30 September 2018 resulted in the following assumptions regarding the development of sales, EBIT and the EBIT margin targeted for valuation purposes during the detailed planning period, with the EBIT margin reflecting the ratio of EBIT to net sales.

As of 30 June 2018, the mandatory annual audit confirmed the impairment of all capitalised goodwill, with the exception of goodwill of €64 million allocated to Real Germany, which were completely depreciated due to the business development.

Impairment expenses were shown in the earnings from discontinued operations.

In addition to the impairment test, 3 sensitivity analyses were conducted for each group of cash-generating units. In the first sensitivity analysis, the interest rate for each group of cash-generating units was raised by 10.0%. The second sensitivity analysis was based on the assumption of a 1 percentage point lower growth rate. In the third sensitivity analysis, a lump sum discount of 10.0% was applied to the assumed perpetual EBIT. These changes did not result in significant impairment for any of the groups of cash-generating units with the exception of METRO Wholesale Germany and Classic Fine Foods.

In the goodwill impairment test at METRO Wholesale Germany, the fair value less costs to sell exceeded the carrying amount by €56 million. The corresponding amount for Classic Fine Foods was €20 million.

Assuming a 0.34 percentage point higher growth rate or a capitalisation rate of 6.05% (rather than 5.71%) or an assumed perpetual EBIT of €64.8 million (rather than €70.1 million), the fair value less costs to sell of METRO Wholesale Germany would correspond to the carrying amount. For Classic Fine Foods, a 0.49 percentage point higher capitalisation interest rate of 6.47% (rather than 5.98%) would result in a fair value less costs to sell equivalent to the carrying amount.