19. Goodwill

Goodwill amounts to €644 million (30/9/2020: €731 million).

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

 

30/9/2020

30/9/2021

 

 

WACC

 

WACC

 

€ million

%

€ million

%

METRO Cash & Carry France

293

4.6

293

4.6

METRO Cash & Carry Poland

54

4.9

54

4.5

METRO Cash & Carry Italy

38

6.3

38

5.6

METRO Cash & Carry Romania

38

6.7

37

6.1

METRO Cash & Carry Spain

36

5.1

36

4.9

Pro à Pro

35

4.6

35

4.3

METRO Cash & Carry Russia

32

6.3

35

5.8

METRO Cash & Carry Czech Republic

23

4.8

24

4.4

METRO Cash & Carry Germany

94

4.5

0

4.3

Others

87

 

91

 

 

731

 

644

 

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 line with the internal management system, the goodwill of the previously jointly controlled cash-generating unit METRO Cash & Carry Spain/Portugal was separated. Following impairment testing, the goodwill was reallocated to the cash-generating units in accordance with their relative less sales costs. The ’s figure was adjusted to improve comparability.

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 value in use or fair value less costs to sell, whichever is higher. It 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 2020/21. Following the detailed planning period, a growth rate of 1% is assumed, as in the previous year. The capitalisation rate as the 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 0.3% (30/9/2020: 0.0%) and a market risk premium of 7.8% (30/9/2020: 7.8%) in Germany as well as a beta factor of 0.80 (30/9/2020: 0.88). Country-specific risk premiums based on the respective country 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 4.3% to 10.5% (30/9/2020: 4.5% to 10.7%).

The mandatory annual impairment testing of goodwill considered significant carried out by METRO as of 30 June 2021 resulted in the following assumptions regarding the development of sales, and the EBITDA margin targeted for valuation purposes until the end of the detailed planning period. In view of the easing of pandemic-related restrictions, we assume significant sales and EBITDA growth for all companies in the detailed planning phase. Given the limited comparability of financial year 2019/20 and 2020/21 in many countries, the following table compares an annual average derived from the 3rd planning year with the pre-pandemic level in financial year 2018/19 to estimate developments in the detailed planning period. We expect to see further EBITDA margin recovery after the end of the detailed planning period.

 

Sales

EBITDA

EBITDA margin

Detailed planning period (years)

METRO Cash & Carry France

Slightly increasing

Moderately regressing

Slightly regressing

3

METRO Cash & Carry Poland

Stable development

Moderately regressing

Moderately regressing

3

METRO Cash & Carry Spain

Solidly rising

Moderately rising

Moderately regressing

3

Pro à Pro

Solidly rising

Stable development

Moderately regressing

3

METRO Cash & Carry Romania

Significantly rising

Stable development

Slightly regressing

3

METRO Cash & Carry Italy

Slightly increasing

Stable development

Slightly regressing

3

Impairment losses on goodwill of €95 million were recognised in the financial year; they are mainly attributable to METRO Cash & Carry Germany (2019/20: €27 million) due to expected pandemic-related uncertainties in the hospitality market. Likewise, changes in the logistics chain, an increased focus on availability of goods and further investment activities have consequences for future cash flows. As of 30 June 2021, the mandatory annual impairment test also confirmed the recoverability of all other capitalised goodwill. In addition to the impairment test, 2 sensitivity analyses were conducted for each group of cash-generating units. In the first sensitivity analysis, the interest rate was raised by 10.0%. In the second sensitivity analysis, a lump sum discount of 10.0% was applied to the assumed perpetual . These changes did not result in significant impairment for any of the groups of cash-generating units.

The acquisition of the Aviludo Group resulted in goodwill addition of €7 million. Disposals of goodwill arise due to changes in the consolidation group and are reported at the time of deconsolidation.

€ million

Goodwill

Acquisition or production costs

 

As of 1/10/2019

829

Currency translation

−34

Additions to consolidation group

0

Additions

0

Disposals

0

Transfers

0

As of 30/9/2020 and 1/10/2020

795

Currency translation

11

Additions to consolidation group

7

Additions

0

Disposals

−16

Transfers

−1

As of 30/9/2021

796

Depreciation

 

As of 1/10/2019

44

Currency translation

−7

Additions, scheduled

0

Additions, impairment

27

Disposals

0

Reversals of impairment losses

0

Transfers

0

As of 30/9/2020 and 1/10/2020

64

Currency translation

9

Additions, scheduled

0

Additions, impairment

95

Disposals

−16

Reversals of impairment losses

0

Transfers

0

As of 30/9/2021

152

Carrying amount as of 1/10/2019

785

Carrying amount as of 30/9/2020

731

Carrying amount as of 30/9/2021

644

Fair value
Recognised fair value that would be received in return for the disposal of an asset or paid for the assignment of a debt in an ordinary transaction conducted between market participants on the assessment date.
Glossary
Previous year
Period of 12 months that is usually cited as a reference for statements in the annual report and refers to the financial year preceding the reporting year.
Glossary
Weighted average cost of capital (WACC)
The WACC results from the weighted average of the cost rate for equity and borrowing, in each case based on a capital market-based derivation. The weighting is based on the equity and borrowing components of METRO measured at market prices.
Glossary
Rating
In the financial sector, rating represents the systematic, qualitative measurement of creditworthiness. Ratings are expressed in various grades of creditworthiness. Well-known agencies that perform ratings are Standard & Poor’s, Moody’s and Fitch.
Glossary
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation)
Profit or loss before financial result, income taxes, depreciation/amortisation/impairment losses/reversals of impairment losses on property, plant and equipment, intangible assets and investment properties. This key figure serves the purpose of comparing companies with accounting systems that follow different accounting rules.
Glossary
Free cash flow
Adjusted EBITDA – lease payments – cash-effective investments (excluding mergers and acquisitions) +/− changes in net working capital.
Glossary