19. Goodwill

Goodwill amounts to €731 million (30/9/2019: €785 million).

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 is usually the organisational unit 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. The detailed planning period generally spans 3 years, with various scenarios being derived with regard to the effects of the Covid-19 pandemic and analysed with regard to their appropriateness for the impairment test. The increased uncertainty about future developments was taken into account by adjusting the sales and earnings planning to properly reflect the crisis. The detailed planning period can generally be extended by up to 2 further planning years for units undergoing a transformation process, but no use was made of this option in financial year 2019/20. 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 0.0% (30/9/2019: 0.6%) and a market risk premium of 7.8% (30/9/2019: 7.0%) in Germany as well as a beta factor of 0.88 (30/9/2019: 0.97). 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 4.5% to 10.7% (30/9/2019: 4.7% to 10.1%).

The mandatory annual impairment test carried out by METRO as of 30 June 2020 resulted in the following assumptions regarding the development of sales, EBIT and the EBIT margin targeted for valuation purposes until the end of the detailed planning period. In view of the limited comparability of financial year 2019/20 in many countries, financial year 2018/19 was used as a basis for comparison here. The EBIT margin hereby reflects the ratio of EBIT to net sales.

Impairment losses of €27 million were recognised in the financial year; they are mainly attributable to Classic Fine Foods. As of 30 June 2020, the mandatory annual impairment test also confirmed the recoverability of all capitalised goodwill.

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 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 Cash & Carry Germany and Pro à Pro.

In the goodwill impairment test at METRO Cash & Carry Germany, the fair value less costs to sell exceeded the carrying amount by €18 million. If the WACC were to increase to 4.8%, the fair value less costs to sell would correspond to the carrying amount.

If the WACC were to increase by 4.7% for Pro à Pro, the fair value less costs to sell would correspond to the carrying amount.