19. Goodwill

Goodwill amounts to €647 million (30/9/2021: €644 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 the impairment test, the cumulative carrying amount of the group of cash-generating units is compared with the recoverable amount. The recoverable amount is the higher of its value in use and its fair value less costs of disposal, whichever is higher. It is calculated from discounted future cash flows and the level 3 input parameters of the fair value hierarchy.

• The description of the fair value hierarchies is included in no. 40 – carrying amounts and fair values according to measurement categories.

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 war in Ukraine, the sanctions against Russia and its counter-sanctions, the current energy crisis as well as inflation and analysed with regard to their appropriateness for the impairment test. 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 2021/22. Following the detailed planning period, a growth rate of 1.25% is assumed (30/9/2021: 1%). The increase compared to the previous year is attributable to an increase in long-term inflation expectations. 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 1.5% (30/9/2021: 0.3%) and a market risk premium of 8.0% (30/9/2021: 7.8%) in Germany as well as a beta factor of 0.88 (30/9/2021: 0.80). 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 6.1% to 12.6% (30/9/2021: 4.3% to 10.5%).

The mandatory annual impairment testing of goodwill considered to be significant was invariably carried out by METRO as of 30 June 2022. It 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. Considering the macroeconomic situation and the largely consistent implementation of the sCore strategy, we assume significant sales and EBITDA growth for all companies in the detailed planning phase.

The EBITDA margin is the ratio of EBITDA to sales revenues.

Impairment losses on goodwill amounted to €55 million in the financial year (2020/21: €95 million) and relate to METRO Russia at €38 million and METRO Ukraine at €17 million. The impairments were already necessary on 31 March 2022 due to the expected reduced sales and earnings development as a result of the war in Ukraine and the sanctions imposed on Russia as well as the associated impact on future cash flows. In order to account for the increased risk and uncertainty for METRO Russia, the expected cash flows were determined using an expected value of probability-weighted scenarios to estimate the recoverable amount. The capitalisation rate was raised to 10.0% to cover the increased country risk factor caused by the sanctions. Goodwill was fully impaired through profit or loss. In light of the war situation and the present decline in sales and earnings, the goodwill of the cash-generating unit METRO Ukraine was also depreciated in full through profit or loss. The recoverable amounts are the fair value less costs of disposal.

As of 30 June 2022, 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.

1. 1. In the first sensitivity analysis, the interest rate was raised by 10.0%.
   2. 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 impairment for any of the groups of cash-generating units, except for Pro à Pro France.

In the impairment test of the goodwill of Pro à Pro France, the fair value less costs of disposal exceeds the carrying amount by €26 million. With a flat discount of 10.0% on the capitalisation rate, the carrying amount would exceed the fair value less costs of disposal by €2 million. With a 0.58 percentage point higher capitalisation rate of 6.87% (instead of 6.29%), the fair value less costs of disposal would equal the carrying amount. A flat discount of 10.0% on the free cash flow assumed in perpetuity would not cause any impairment. Pro à Pro France’s planning assumes a recovery of the EBITDA and the EBITDA margin from a very low base. In financial year 2021/22, it was primarily marked by high inflationary pressure on purchasing prices and bottlenecks in the availability of skilled workers. Both effects are expected to normalise over time.

The acquisition of Eijsink resulted in goodwill addition of €46 million. Disposals of goodwill arise due to changes in the consolidation group and are reported at the time of deconsolidation.

• A detailed description of the business combinations in the reporting period is provided in the notes to the business combinations.

In addition to the currency translation of the financial statements of foreign operations, the item currency translation/hyperinflation shows the effects of the first-time adoption of IAS 29 as well as the adjustment to the purchasing power ratios of the Turkish lira in the current financial year. The effects from the first-time adoption of IAS 29, which were recognised in the currency translation differences from translating the financial statements of foreign operations at the transition date of 1 October 2021, resulted in assets increasing by €6 million.