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:

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 fair values less sales costs. The previous year’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 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 0.3% (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 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 4.3% 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, EBITDA 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 3^rd 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.

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 free cash flow. 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.