Universal Registration Document 2023

6. Consolidated Financial Statements 2023 Year - AFR

Valuation of goodwill and intangible assets

(Notes 1.3 « Goodwill », 7 « Depreciation, amortization and impairment loss », 12 « Goodwill » and 13 « Intangible assets, net »to the consolidated financial statements)

Risk identified The business development of Publicis Groupe involves especially external growth transactions. These acquisitions have resulted in the recognition of significant goodwill and intangible assets in the consolidated balance sheet. As of December 31, 2023, net goodwill amounts to 12 422 million euros in the consolidated balance sheet and net intangible assets amount to 958 million euros. Publicis Groupe performs impairment tests on goodwill at least once a year, and on intangible assets when there is an indication of impairment loss. An impairment loss is recognized whenever the recoverable amount is below the carrying amount, the recoverable amount being the higher of value in use and fair value less transaction costs. The valuation of the recoverable amount of these assets involves the use of numerous estimates and judgments from the management, particularly the assessment of the competitive, economic and financial environment in the countries where the Group operates, the Group’s ability to generate operating cash flow as a result of strategic plans, in particular the levels of revenue and operating margin, and the determination of discount and growth rates. Impairment tests on goodwill resulted in losses of 6 million euros in 2023. We consider that the valuation of goodwill and intangible assets constitutes a key audit matter, given the sensitivity of these items to the assumptions used by management and the materiality of the amount of these in the consolidated financial statements.
Our response
  • We obtained an understanding of the procedure and key controls set up by the management to perform the impairment tests and notably for the determination of the cash flows used to calculate the recoverable amount.
  • In order to assess the reliability of the business plans data used to calculate the recoverable amount, we have:
    • compared the five‑year financial projections (2024‑2028) used for impairment testing with the previous pluriannual financial projections and with the actual results for the fiscal years concerned;
    • compared the main assumptions used in the five‑year financial projections with the explanations obtained through interviews with the independent expert engaged by Publicis Groupe SA for impairment tests’ purpose and the financial and operational managers of Publicis Groupe SA;
    • compared the main assumptions used by Publicis Groupe SA’s management on revenue, operating margin and investments with external data when available, such as market studies or analysts’ reports;
    • evaluated the consistency of future cash flow estimates with the main assumptions made in the five‑year financial projections (2024‑2028), the year 2024 being directly derived from the annual budget approved by management;
    • studied the sensitivity analyses performed by the independent expert and carried out our own sensitivity analyses on the key assumptions in order to assess the potential impacts of these assumptions on the conclusions of the impairment tests.
  • We involved our valuation experts in order to:
    • assess the methods used to determine the discount and infinite growth rates, compare these rates with market data or external sources and re‑compute these rates using our own data sources;
    • test the mathematical accuracy of the models and re‑calculate the significant amounts.
    • We also assessed the appropriateness of the information disclosed in note 7 to the consolidated financial statements, which includes the key assumptions used to determine the recoverable amounts.