Notes 1.3.4.1, 1.3.4.4,10 and 20.2.2. to the consolidated financial statements
As at December 31, 2021, the goodwill, intangible assets with indefinite useful live, tangible assets and investments in associates and joint ventures represent significant amounts of the Group’s equity. They are mostly related to non-regulated activities.
Notes 1.3.4.4 and 10.8 describe the methodologies adopted and applied to determine if indicators exist showing that an asset may be subject to an impairment loss. These notes also describe the methods for performing impairment tests. Note 20.2.2. also describes how the impairment tests took into consideration climate and environmental matters. The tests and the determination of recoverable amounts are carried out annually at the cash-generating unit (CGU) level for those holding intangible assets with indefinite lives or goodwill. The recoverable amount corresponds, for the majority of these CGU, to the value in use determined based on the discounted value of future cash flows.
We considered in particular the valuation of non-regulated assets in France, the United Kingdom and in Italy, to be a key audit matter, due to the sensitivity of valuations to macro-economic, industry and financial assumptions to determine recoverable amounts and the estimates and judgments that they require from management.
In particular, as indicated in note 10.8.2, in a market environment with upward trends of power price, increasing European efforts towards decarbonized power mix and persistent low interest rates, a lowering demand for energy, in connection with energy efficiency policies and development of renewable energies, tariff increases limited by laws or strained power generation plants, may significantly decrease the recoverable amount of certain goodwill, intangible and tangible assets related to non-regulated activities and may lead to significant impairment losses.
As part of our work, we analysed the existence of indicators of impairment losses (or reversal of impairment losses) at the CGU level. We have also gained an understanding of the process for formulating estimates and assumptions made by management as part of impairment testing and we have also assessed the appropriateness of the valuation model.
We have verified, for the CGU tested, that the discounted future cash flow projections correspond to those generated by the assets included in these CGU and that they were consistent with (i) the CGU budget data, and, beyond, with the Group’s long-term assumptions, (ii) past performances, (iii) market outlook and (iv) the expected operating life of the assets.
We have assessed, by conducting interviews with management, the different underlying assumptions (economic growth, price of raw material and CO2, electricity demands, production capacities and interconnections and changes in energetic mix) on which the medium and long-term price assumptions are based, by substantiating them with external studies carried out by international organisms or experts in energy.
In particular, we have verified the underlying assumptions of the long-term price scenarios were on track with European targets for decarbonization, as described in note 10.8.2.
We have verified the determination methods and the consistency of the discount rate assumptions, based on the weighted average cost of capital (WACC) by geographic area and by activity and, in particular, analyzed, with the assistance of our internal experts, the consistency of risk-free rates and the risk premiums adopted by management with the underlying market assumptions.
Finally, we have assessed if notes 1.3.4.4 and 10.8 of the consolidated financial statements provide appropriate disclosure in particular in terms of assumptions adopted to perform impairment tests and sensitivity analyses.
