19. Goodwill

Goodwill amounts to €785 million (30/9/2018: €797 million).

The acquisition of Restu s.r.o resulted in goodwill of €1 million. The purchase price amounted to €1 million.

The goodwill allocated to METRO Cash & Carry China in the amount of €19 million was reclassified to assets held for sale.

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 undergoing a transformation process. Following the detailed planning period, a growth rate of 1% 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. In addition, the capitalisation rates are determined on the basis of an assumed basic interest rate of 0.60% (30/9/2018: 1.25%) and a market risk premium of 7.00% (30/9/2018: 7.00%) in Germany as well as a beta factor of 0.97 (30/9/2018: 1.03). Country-specific risk premiums based on the respective country rating are applied to the equity cost of capital and to the borrowing costs. The capitalisation rates after taxes determined individually for each group of cash-generating units range from 4.7% to 10.1% (30/9/2018: 5.7% to 11.4%).

The mandatory annual impairment test carried out by METRO as of 30 September 2019 resulted in the following assumptions regarding the development of sales, EBIT and the EBIT margin targeted for valuation purposes during the detailed planning period. The EBIT margin hereby reflects the ratio of EBIT to net sales.

As of 30 June 2019, the mandatory annual impairment test confirmed the recoverability of all capitalised goodwill. An impairment loss of €3 million was recognised in the course of the year.

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 was raised by 10.0%. The second sensitivity analysis was based on the assumption of a 1 percentage point lower growth rate. In the 3^rd 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 Cash & Carry Germany and Classic Fine Foods.

In the goodwill impairment test at METRO Cash & Carry Germany, the fair value less costs to sell exceeded the carrying amount by €122 million. At a growth rate of 0.2% instead of 1%, the fair value less costs to sell would correspond to the carrying amount.

In the goodwill impairment test at Classic Fine Foods, the fair value less costs to sell exceeded the carrying amount by €17 million. Assuming a 0.34 percentage point higher growth rate or a capitalisation rate of 5.31% (rather than 4.97%) or an assumed perpetual EBIT of €12.5 million (rather than €13.6 million), the fair value less costs to sell would correspond to the carrying amount.