2013 Registration document and annual financial report - page 197

Registration Document 2013
Financial Statemements
Consolidated Financial Statements And Notes
An impairment test is performed whenever there is objective
evidence indicating that an investment’s recoverable amount may
be less than its carrying amount. Possible indications of impairment
include a fall in the share price if the investee is listed, evidence of
serious financial difficulties, observable data indicating a measurable
decline in estimated cash flows, or information about significant
changes with an adverse effect on the investee.Whenever there is
an indication that an investment may be impaired, an impairment
test is performed by comparing the investment’s recoverable amount
to its carrying amount. Recoverable amount is estimated using the
methods described in Note 1.E.6.
E.6. Recoverable value of assets
In accordance with IAS 36 “Impairment of Assets”, the carrying
amounts of property, plant and equipment, intangible assets and
goodwill are reviewed and tested for impairment when there is
any indication that they may be impaired and at least once a year
for the following:
assets with an indefinite useful life such as goodwill, brands and
lease premiums;
intangible assets not yet available for use.
Criteria used for impairment tests
For impairment testing purposes, the criteria considered as indicators
of a possible impairment in value are the same for all businesses:
15% drop in revenue, based on a comparable consolidation
scope; or
30% drop in EBITDA, based on a comparable consolidation
Cash-generating unit
Impairment tests are performed individually for each asset except
when an asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets. In this
case, it is included in a cash-generating unit (CGU) and impairment
tests are performed at the level of the cash-generating unit.
In the hotel business, each hotel is treated as a separate CGU
comprising the hotel property and equipment. Impairment tests are
therefore performed separately for each individual hotel.
Goodwill is tested for impairment at the level of the cash-generating
unit (CGU) to which it belongs. CGUs correspond to specific countries
or regions; they include not only goodwill but also all the related
property, plant and equipment and intangible assets.
Other assets, and in particular intangible assets, are tested individually.
Methods used to determine recoverable value
Impairment tests consist of comparing the carrying amount of the
asset or the CGU with its recoverable value.The recoverable value
of an asset or a CGU is the higher of its fair value less costs to sell
and its value in use.
For property, plant and equipment and goodwill, the recoverable
value of all the assets or the CGUs is determined by two methods,
the EBITDA multiples method (fair value approach) and the after-tax
discounted cash flows method (value in use approach).
For intangible assets except goodwill, the recoverable value of an
intangible asset is determined according to the discounted cash
flow method only, due to the absence of an active market and
comparable transactions.
Description of the methods
1. Valuation by the EBITDA multiples method
For hotels, the EBITDA multiples method is considered to be the
best method of calculating the assets’ fair value less costs to sell,
representing the best estimate of the price at which the assets
could be sold on the market on the valuation date.
For impairment tests performed by hotel, the multiples method
consists of calculating each hotel’s average EBITDA for the last
two years and applying a multiple based on the hotel’s location
and category. The multiples applied by the Group correspond to
the average prices observed on the market for transactions and
are as follows:
Upscale and Midscale Hotels
7.5 < x < 10.5
Economy Hotels
6.5 < x < 8
For impairment tests performed by country or region, recoverable
amount is determined by applying to the country/region’s average
EBITDA for the last two years a multiple based on its geographic
location and a country/region coefficient.
If the recoverable amount is less than the carrying amount, the
asset’s recoverable amount will be recalculated according the
discounted cash flows method.
2. Valuation by the discounted cash flows method (in particular
for goodwill)
The projection period is limited to five years. Cash flows are discounted
at a rate corresponding to the year-end weighted average cost of
capital. Separation calculations are performed based on each country/
region’s specific characteristics. The projected long-term rate of
revenue growth reflects each country/region’s economic outlook.
Impairment loss measurement
If the recoverable amount is less than the carrying amount, an
impairment loss is recognized in an amount corresponding to
the lower of the losses calculated by the EBITDA multiples and
discounted cash flows methods. Impairment losses are recognized in
the income statement under “Impairment losses” (see Note 1.S.6).
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