1.3.14 Impairment of goodwill, intangible assets and property, plant and equipment

At the year-end and at each interim reporting date, in application of IAS 36, the Group assesses whether there is an indication that an asset could have been significantly impaired. An impairment test is also carried out at least once a year on cash-generating units (CGUs) or groups of CGUs including an intangible asset with an indefinite useful life, or to which goodwill has been partly or totally allocated.

Impairment tests are carried out as follows:

• the Group measures any long-term asset impairment by comparing the carrying value of these assets and goodwill, grouped into CGUs where necessary, and their recoverable amount;
• CGUs are groups of homogeneous assets that generate identifiable independent cash flows. They reflect the way activities are managed in the Group: they may be subgroups when the activity is optimised across the whole subgroup, or CGUs formed by parts of subgroups corresponding to different types of activity that are managed separately (fossil-fired generation, renewable energy production, services). Goodwill is allocated to the CGUs that benefit from synergies resulting from the acquisition;
• the recoverable value of these CGUs is the higher of fair value net of disposal costs, and value in use. When this recoverable value is lower than the carrying amount in the balance sheet, an amount equal to the difference is booked under the heading “Impairment”. The loss is allocated first to goodwill, and any surplus to the other assets of the CGU concerned;
• fair value is the asset’s potential sale price in a normal transaction between economic actors;
• value in use is calculated based on projected future cash flows:
  • over a horizon that is coherent with the asset’s useful life and/or operating life,
    • for certain intangible assets with an indefinite useful life (such as brands), beyond the horizon that can be observed or modelled, a terminal value is determined by discounting to infinity a normative cash flow,
  • excluding development projects other than those that have been decided at the valuation date,
  • and discounted at a rate that reflects the risk profile of the asset or CGU;
• the discount rates used are based on the weighted average cost of capital (WACC) for each asset or group of assets concerned, determined by geographical area and by business segment under the CAPM. WACC is calculated after taxes;
• future cash flows are calculated on the basis of the best available information at the valuation date:
  • for the first few years, the flows correspond to the Medium-Term Plan (MTP). Over the MTP horizon, energy and commodity prices are determined based on available forward prices, taking hedges into consideration,
  • beyond the MTP horizon, cash flows are estimated based on long-term assumptions prepared for each country and each energy, using a process that is updated annually. Medium and long-term electricity prices are constructed analytically by assembling blocks of assumptions, e.g. economic growth, commodity prices (oil, gas, coal) and CO2, demand for electricity, interconnections, and developments in the energy mix (rise of renewable energies, installed nuclear capacity, etc.) with fundamental models of supply-demand balance. The Group refers in particular to external analyses for each assumption object (for example, for commodities and CO2, which are primary factors in electricity prices, the Group compares its own scenarios with scenarios developed by organisations such as the AIE, IHS or Wood Mackenzie, bearing in mind that each of these analysts itself proposes a cone of scenarios corresponding to different macro-economic environments);
• income from capacity market mechanisms is also taken into consideration in valuing generation assets, starting from the MTP horizon where relevant, provided the countries concerned have introduced or announced the future introduction of a capacity revenue mechanism.
  
  

These calculations may be influenced by several variables:

• changes in discount rates;
• changes in market prices for energy and commodities and tariff regulations;
• changes in demand and the Group’s market share, and the attrition rate on customer portfolios;
• the useful life of facilities, or the duration of concession agreements where relevant;
• the growth rates used beyond the medium-term plans and where relevant the terminal values taken into consideration.
  
  

Impairment recognised on goodwill is irreversible.

1.3.15 Financial assets and liabilities

Classification and measurement of financial instruments depend on the business model and the instruments’ contractual characteristics. In application of IFRS 9, upon initial recognition, financial assets are carried at amortised cost, fair value through other comprehensive income (OCI), or fair value through profit and loss.

In the Group, financial assets comprise equity instruments (particularly non-consolidated investments), debt securities, loans and receivables at amortised cost including trade receivables, and the positive fair values of derivatives.

Financial instruments allocated to dedicated assets are presented in note 48.

Financial liabilities comprise loans and other financial liabilities, trade payables, bank credit and the negative fair value of derivatives.

Financial assets and liabilities are recorded in the balance sheet as current if they mature within one year and non-current if they mature after one year, apart from derivatives held for trading, which are all classified as current.

1.3.15.1 Valuation and classification of financial assets and liabilities

Financial instruments are stated at fair value, which corresponds to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction on the principal or most advantageous market at the measurement date.

The valuation methods for each level are generally as follows:

• level 1 (unadjusted quoted prices): prices accessible to the entity at the measurement date on active markets, for identical assets or liabilities;
• level 2 (observable data): data concerning the asset or liability, other than the market prices included in initial level 1 input, which are directly observable (such as a price) or indirectly observable (i.e. deducted from observable prices);
• level 3 (non-observable data): data that are not observable on a market, including observable data that have been significantly adjusted.
  
  

1.3.15.1.1 Financial assets carried at fair value through OCI

Financial assets carried at fair value through OCI comprise:

• certain non-consolidated investments for which the Group has elected the irrevocable option to recognise subsequent fair value changes in OCI, with no recycling to profit and loss in the event of sale. Only dividends received from these investments are recognised in the income statement, under “Other financial income”;
• debt securities (such as bonds) invested under a mixed “collect and sell” business model for which contractual cash flows consist entirely of principal and interest payments reflecting the time value of money and the credit risk associated with the instrument (the IFRS 9 “SPPI” test – Solely Payment of Principal and Interest). Changes in fair value are recorded directly in OCI with recycling and transferred to profit and loss when the securities are sold. For these debt securities, interest income is calculated at the effective interest rate and credited to the income statement under the heading “Other financial income”.
  
  

Upon initial recognition, these financial assets are recorded at fair value plus transaction costs attributable to their acquisition. They are subsequently adjusted at each reporting date to fair value based on quoted prices where possible or using the discounted future cash flow method, or by reference to external sources otherwise.