Half-Year Financial Report - For the Six Months Ended June 30, 2020

Chapter 2. Consolidated interim financial statements half-year ended june 30, 2020

The amortization expense for Epsilon intangible assets stood at euro 68 million in the first half of 2020. Since the acquisition of Epsilon took place on July 1, 2019, there was no amortization expense in the first half of 2019.

Other acquisition-related intangible assets with a finite useful life were also amortized for euro 26 million.

Goodwill impairment loss

In the context of the pandemic, impairment indicators have been identified leading the Group to conduct impairment tests on goodwill.

The impairment tests were carried out on the basis of the value-in-use of the cash-generating units, which was determined based on five-year financial forecasts. Net revenue and operating margin forecasts for 2020 have been adjusted to take into account short-term reductions in activity.

Given the uncertainty and lack of visibility, these tests took the form of multiple scenarios based on different rates of recovery. The operational assumptions envisaged are trends corroborated by macroeconomic scenarios. They were carried out in order to have a sufficiently large range of values to reach a conclusion on the risk of impairment.

The key assumptions used are described below for each of the possible scenarios:

  • ▶ scenario 1: no return to pre-Covid net revenue levels at the end of the plan, but margins kept at level stated in 2019 financial forecasts;
  • ▶  scenario 2: no return to pre-Covid net revenue levels at the end of the plan, and alignment of operating margins in 2022 with pre-Covid financial objectives for 2020;
  • ▶ scenario 3: in 2022, return to pre-Covid net revenue levels and alignment of operating margins in 2022 with pre-Covid financial objectives for 2020;
  • ▶ scenario 4: no return to pre-Covid net revenue levels at the end of the plan, and lower margins. This scenario is the most pessimistic;
  • ▶ scenario 5: in 2022, return to pre-Covid net revenue levels and alignment of operating margins in 2021 with pre-Covid financial objectives for 2020.

These tests did not lead to any impairment loss being recognized as of June 30, 2020.

The other assumptions used in these tests are presented in the table below:


June 30, 2020
(in millions of euros) Carrying amount of goodwill After-tax discount rate Terminal growth rate
North America

North America

June 30, 2020

7,943

9.5%-10% 1%-2%
Europe

Europe

June 30, 2020

1,590

9%-11% 1%-2%
Asia-Pacific

Asia-Pacific

June 30, 2020

1,084

11.5% 3%
Middle East & Africa

Middle East & Africa

June 30, 2020

319

11.5% 3%
Latin America

Latin America

June 30, 2020

244

12.5%-13.5% 0%-3%
Other goodwill

Other goodwill

June 30, 2020

346

9%-10% 0%-2%
Total goodwill

Total goodwill

June 30, 2020

11,526




Impairment of right-of-use assets relating to leases

The Group has continued to implement the program to optimize premises launched in early 2018 which aims to group agencies at one or more sites in the main countries.

This program required vacated leased spaces, to best use the existing space at other sites, and consequently right-of-use assets concerning the empty spaces were subject to total or partial impairment loss, and likewise concerning the fixtures in these spaces.

Impairment losses in the first half of 2020 reached euro 231 million, of which euro 128 million for right-of-use assets and euro 42 million for fixtures. Ancillary costs such as lease expenses and any taxes on vacant properties in the amount of euro 61 million are included in vacant property provisions (see Note 14).