Ubisoft 2016 Annual Report Download - page 116

Financial statements
5Consolidated fi nancial statements asatMarch31, 2016
proportion of services rendered to the date of the merger in relation
to services future remains to be returned.
If an entity is disposed of, related goodwill will be taken into account
when determining the loss or gain resulting from this sale.
Impairment methods
Goodwill on the statement of fi nancial position of the Group may
be associated with the acquisition of:
♦
sales and marketing subsidiaries operating in a given geographical
area;
♦ production subsidiaries;
♦ production subsidiaries that also release its developments.
These are not amortized but are subject to impairment tests at least
once a year and each time impairment indicators are identifi ed.
As the recoverable amount of this goodwill cannot be determined
individually, the Group has identifi ed for each of them the smallest
group of assets (cash generating unit – CGU) generating cash infl ows
that are independent of other group assets:
♦ for goodwill of sales and marketing subsidiaries: CGU is
the geographical area in which the sales and marketing subsidiary
operates;
♦ for goodwill of production subsidiaries: CGU corresponds
to all production activity (internal studios) and publishing
activity (parent company) assets, these two activities being
interdependent;
♦
for goodwill of production/sales and marketing
subsidiaries: the CGU corresponds to the subsidiary in
question. Some games have their own market due to their history
within the Group. Developments are, in the main, made by the
acquired entity which also provides sales and marketing. Acquired
companies generating independent cash infl ows involved the
following businesses:
•Free-to-Play,
•Mobile,
•Film.
The new CGUs are linked to the growth in mobile and free-to-play
business and the practical implementation of fi lm projects.
The recoverable value of the CGU is the higher of fair value minus
cost of sale (net fair value) and its value in use. The estimated value
is defi ned as the sum of projected cash fl ows with CGU discounted
based on a business plan at fi ve years to which the asset belongs
(including goodwill), and the terminal value determined by
projection to infi nity of normative future cash fl ows.
When the recoverable value is less than the carrying amount of
related assets of the CGU concerned (including goodwill), an
impairment loss is recognized. This is irreversible when it relates
to goodwill.
The business plans used for each CGU being tested for impairment
are based on assumptions made by management of the Group in
terms of variation of sales, level of profi tability, and in particular
foreign exchange. These are considered reasonable and consistent
with market data available at the time of preparation of the Group’s
fi nancial statements.
The discount rate applied to future cash fl ows is common to all
CGU given the interdependence within the Group, publishing,
production and distribution activities on the one hand, and
country risk comparable in the main distribution areas of the
Group (North America and Western Europe). It corresponds to
the estimate (updated annually) by the Group’s management of the
weighted average cost of capital based on available industry data,
especially with regard to the fi nancing structure (gearing) and beta
coeffi cient on the equity market risk premium. It stood at 8.14% at
March 31, 2016, (against 8.47% at March 31, 2015).
Regarding the current distribution of the Group’s activities, the
allocation of goodwill by CGU and the overall risk premium attached
to the Group included in the discount rate, the use of a single rate
for all CGUs was considered suffi cient for the impairment test.
The terminal value applied for each CGU being tested for impairment
corresponds to capitalization to infi nity of normative cash fl ows
at the weighted average cost of capital less the perpetuity growth
rate. The perpetuity growth rate used differs according to the CGU.
Brands
All brands are recognized at their fair value in accordance with
IFRS 3 on business combinations or IAS 38 on the acquisition of
intangible assets.
Depreciation, amortization and value impairment
methods
Given the Group brand development policy, most of the brands
operated by the Group have an indefi nite life. As a result, they are
not amortized but are subject to an impairment test annually and
each time impairment indicators are identifi ed.
Impairment tests consist of comparing the net carrying amount of
brands with their recoverable value estimated using the royalties
method or with market value. The royalties method consists of
discounting, at a rate of 8.14% (see description of discount rates
above), on a fi ve-year horizon, potential royalties that would come
back to the Group if it conceded rights to use the brand to a third
party, taking into account sales forecasts of games based on the
sphere of the brand itself, and taking into account a residual value
resulting from the perpetuity growth rate of the normative cash
fl ow from royalties.
However, in some cases, the projections regarding the use of a brand
may not be accurate enough in the medium and/or long-term. In
this case, the brand in question is depreciated over the useful life
expected by management.
With regard to brands with a fi xed useful life, no impairment test is
conducted in the absence of any indication of impairment.
- Registration Document 2016
114