Planned disposals
In application of IFRS 5 “Non-current assets held for sale and discontinued operations”, the assets and liabilities of controlled entities held for sale are presented separately on the balance sheet. Reclassified non-current assets are no longer depreciated
from the date on which they are reclassified.
Research and study costs
Publicis recognizes expenditures for studies and research as expenses attributable to the financial year in which they are incurred. This expenditure primarily relates to the following items: studies and tests relating to advertising campaigns, research
programs into consumer behavior and clients’ needs in various areas, and studies and modeling to optimize media buying for the Group’s clients. Development expenditures incurred for an individual project are capitalized once they are considered to
be reasonably certain of being recovered in the future. Any capitalized expense is amortized over the future period during which the project is expected to generate income.
Goodwill
When a takeover takes place in a single transaction, goodwill is equal to the fair value of the consideration paid to acquire the securities (including any earn-out payments which are recorded at fair value at the takeover date), plus the value of
non-controlling interests (these items are valued for each business combination either at fair value or at the proportionate share of the fair value of the net assets of the acquired business and minus the fair value of assets, liabilities and contingent
liabilities identified at the acquisition date.)
Goodwill recorded in the balance sheet is not amortized but is instead subject to impairment tests on at least an annual basis. Impairment tests are performed for the cash-generating unit(s) to which goodwill has been allocated by comparing the recoverable amount and the carrying amount of the cash-generating unit(s). The Group considers each agency or group of agencies to be a cash-generating unit.
The recoverable amount of a cash-generating unit is the greater of its fair value (generally its market value), net of disposal costs, and its value in use. Value in use is determined on the basis of discounted future cash flows. Calculations are based on five-year cash flow forecasts, a terminal growth rate for subsequent cash flows and the application of a discount rate to all future flows. The discount rate used reflects the time current market assessments of value of money and the specific risks to which the cash-generating unit is exposed. If the carrying amount of a cash-generating unit is higher than its recoverable amount, the assets of the cash-generating unit are written down to their recoverable amount. Impairment losses are allocated, firstly, to goodwill and are recognized through the income statement and then against other assets.
Intangible assets
Separately acquired intangible assets are recognized at acquisition cost. Intangible assets acquired in the context of a business combination are recognized at their fair value on the acquisition date, separately from goodwill, if they are identifiable, i.e. if
they meet one of the following two conditions:
Intangible assets primarily consist of trade names, client relationships, technologies, e-mail address databases and software. As from July 1, 2019, the useful life of brands, which was previously indefinite, has been re-estimated and a useful life of eight years applied (see Note 5).
They are also subject to impairment tests if there are any indicators that they may have been impaired. Client relationships with a finite useful life are amortized over such useful lives, which are generally between 10 and 15 years.
They are also subject to impairment tests if there are any indicators that they may have been impaired. Technology assets result from the Group’s engagement in digital activities. They are amortized over a three- to seven-year period.
E-mail address databases are used in direct e-mailing campaigns. These databases are amortized over two years.
The method used to identify any impairment of intangible assets is based on discounted future cash flows. The Group uses the “royalty savings” method for trade names, which takes into account the future cash flows that the trade name would generate in royalties if a third party were to pay for the use of said trade name.
For client contracts, the method involves discounting future cash flows generated by the client. Valuations are carried out by independent appraisers. The parameters used are consistent with those used to measure goodwill.
