Fiscal 2020 Universal Registration Document

3. Consolidated financial statements

The discount rates used by segment (group of CGUs) were set based on the weighted average of the discount rates for each geographic region, taking into account the relative weighting of each segment in the Group’s revenues:


 DISCOUNT RATE

FISCAL 2020 FISCAL 2019
Continental Europe

Continental Europe

DISCOUNT RATE

7,6 %

 6,4 %
North America

North America

DISCOUNT RATE

7,2 %

 6,2 %
United Kingdom and Ireland

United Kingdom and Ireland

DISCOUNT RATE

7,3 %

 6,3 %
Latin America

Latin America

DISCOUNT RATE

10,5 %

 8,5 %
Rest of the World (excluding Latin America)

Rest of the World (excluding Latin America)

DISCOUNT RATE

8,3 %

 7,0 %
Group

Group

DISCOUNT RATE

7,2 %

 6,2 %
SENSITIVITY ANALYSIS

Sodexo has analyzed the sensitivity of goodwill impairment test results to different financial and operational scenarios.

For the Sports & Leisure segment, the adjustment of financial and operational assumptions underlying the forecast cash flows, reflected an impairment of 64 million euro during Fiscal 2020; a 10% decrease in forecast net cash flows over the time period of the business plans prepared by management and in terminal value would lead to an additional impairment charge of 50 million euro. A 200 basis points increase in the discount rate would result in an additional impairment charge of 229 million euro.

For other segments:

  • the results of the goodwill sensitivity analysis indicated no probable scenario where a change in the discount rate or long-term growth rate would result in the recoverable amount of segment assets becoming less than its carrying amount. In fact, the results of the impairment testing demonstrate that even an increase of 200 basis points in the discount rate or a reduction of 200 basis points in the long-term growth rate would not result in an impairment of the assets tested for any segment;
  • the Group also performed a sensitivity analysis on the operational assumptions used in order to determine whether a 10% decrease in forecast net cash flows over the time period of the business plans prepared by management and in terminal value would result in the recognition of an impairment charge in the Group’s consolidated financial statements as of August 31, 2020. The results of this analysis did not indicate any risk of impairment for any of the segments, except for Sports & Leisure.

NOTE 7. LEASES

ACCOUNTING PRINCIPLES AND POLICIES

The Group determines whether a contract is or contains a lease at inception of the contract. The Group classifies as a lease a contract that conveys to the Group the right to control the use of an identified asset for a given period of time.

Leases are recognized on the consolidated statement of financial position at the commencement date of the contract, except for leases covered by the exemptions allowed by IFRS 16 (short-term leases and leases of low vale assets), adopted by the Group.

Leases are reflected in the consolidated statement of financial position by recognizing an asset representing the right to use the leased asset and a related liability corresponding to the obligation to make future lease payments. In the consolidated income statement, a depreciation of the right-of-use assets is recorded in operating expenses, separately from the interest expense on lease liabilities. In the consolidated cash flow statement, cash outflows relating to interest on lease liabilities impact operating activities flows, while repayment of the lease liabilities impact financing activities flows.

Short-term leases (i.e. lease term of 12 months or less) and leases of low-value assets (such as IT equipment) are expensed directly in operating expenses on a straight-line basis over the lease term.