with the principles set forth in note 2.11.
These tests are conducted every year on unamortised intangible assets and goodwill. They are only carried out for depreciable fi xed assets when events or changes to the market environment point to an impairment risk.
At the close of the 2013 fi nancial year, there was no impairment identifi ed concerning the Group’s depreciable property, plant and equipment.
MAIN ASSUMPTIONS USED
The future cash fl ows used to determine the going concern value of the assets result from discounted forecasts of the second half of the current year and of the three-year strategic plan, i.e. next year’s budget data plus the data for the following two years.
The strategic plan covering the 2014-2016 period was drawn up with economic assumptions of sales revenue, commodity prices and energy prices which Group management deemed to be realistic.
The discount rate used was the Weighted Average Cost of Capital calculated on the basis of industry parameters where applicable plus a spread refl ecting the specifi c degree of risk for the asset tested. The data used to determine these rates mainly come from an independent outside source.
Taking into account the above-mentioned parameters, the Weighted Average Cost of Capital used to perform the impairment tests (excluding any spread) is 7.5% in 2013 as compared to 8.0% in 2012 and 8.8% in 2011.
VALUATION TEST FOR UNAMORTISED
INTANGIBLE ASSETS
Brands
The brand valuation tests rely on the present value of the future royalties that would be paid by a third party wishing to use them on the basis of sales revenue forecasts for each brand in the strategic plan. The discount rate used was the Weighted Average Cost of Capital indicated above, plus a spread of 1%, i.e. a rate of 8.5%. The going concern value also includes a terminal value based on a long-term growth rate which diff ers according to the extent to which the brands valued are strategic or not.
The trademark royalty rates used in 2013 were not modifi ed from the previous fi nancial year in the absence of any signifi cant improvement or deterioration of the profi tability of the Group’s brands.
Similarly, the long-term growth rates used are unchanged from those used in the previous tests performed in 2012 and 2011 (between 1.5% and 2.5% depending on the brands). Following these tests, the Group did not recognise any impairment of brand value at the close of 2013 as compared with their book value at this date, even after taking the following sensitivity factors into account:
a 50% decline in sales growth over the plan’s term: this
change would result in a 14.1% decline in brand value (16.8% decline in 2012), which nevertheless would not fall below their book value; that would require a decline of 23.3% in sales (decline of 18.8% in 2012) over the plan’s term;
a 100 basis point decline in long-term growth over the
plan’s term: this decline would result in a 12.4% decline in brand value (compared to a 11.6% decline in 2012), which nevertheless would not fall below their book value; that would require a decline of 1,620 basis points (compared to a decline of 1,450 basis points in 2012) in the long-term growth rate (negative long-term growth between 13.0% and 14.0% depending on brands - as compared to negative long- term growth between 12.0% and 13.0% in 2012);
fi nally, a 100 basis point increase in the Weighted Average
Cost of Capital: this increase would result in a 13.9% decline in brand value (as compared to a 13.2% decline in 2012), which nevertheless would not fall below their book value; that would require an increase of 1,120 basis points (compared with an increase by 1,020 basis points in 2012) in the Weighted Average Cost of Capital (i.e. a discount rate of 19.7% compared with a discount rate of 19.2% in 2012).
Goodwill
The Group’s biggest goodwill item is the “Saft” goodwill resulting from the acquisition and takeover by the Doughty Hanson Funds of Alcatel’s battery operations in January 2004. This goodwill amounts to €107.2 million as of 31 December 2013.
The goodwill impairment test consists of comparing the net book value of each Cash Generating Unit (CGU) with its recoverable value, which is defi ned as the greater of its going concern value or its fair value minus the disposal costs. The Group selected as Cash Generating Units those business segments existing at the time the Alcatel group’s battery operations were acquired and transferred to the Doughty Hanson Funds in January 2004. No goodwill was recognised for the Cash Generating Unit comprising the SNB activity of small nickel batteries (former Rechargeable Battery Systems division), sold on 28 June 2013 and thus accounted for as discontinued operations in the 2013 consolidated fi nancial statements.
The going concern value is calculated based on the discounted future cash fl ows resulting from the strategic plan and a terminal value composed of a single growth rate for all Cash Generating Units. It is identical to the growth rate used to value the Saft brand (2.5%), and is the same as that for the previous year.
2013 CONSOLIDATED FINANCIAL STATEMENTS
6
Notes to the consolidated fi nancial statementsThe discount rate used is the same for all Cash Generating Units. It is based on the Weighted Average Cost of Capital with no mark-up spread (i.e. rate of 7.5% in 2013). It is therefore independent of the Group’s fi nancial structure and of the manner in which the Group funded the acquisition of assets belonging to the Cash Generating Unit or group of CGUs tested. Management did not recognise any loss of value in goodwill after comparing the going concern value as calculated with the net book value of the Cash Generating Units.
The sensitivity tests described below confi rm the absence of any impairment in the Group’s goodwill:
a decline of 10% in the operating profi t of the CGUs over the
term of the strategic plan would lead to a decline in their going concern value of 11.8% (15.1% in 2012) for IBG and 9.8% (10.4% in 2012) for SBG, which nevertheless would not fall below their book value; that would require a decline in
their operating profi t of 23% (24% in 2012) for IBG and of 70% (63% in 2012) for SBG;
a decline of 100 basis point in the long-term growth over
the term of the strategic plan would lead to a decline in their going concern value of 15.3% (decline of 15.4% in 2012) for IBG and 15.0% (13.6% in 2012) for SBG, which nevertheless would not fall below their book value; that would require a long-term decline of 0.4% (decline of 0.7% in 2012) for IBG and of 13.6% (decline of 13.4% in 2012) for SBG;
an increase of 100 basis points in the Weighted Average
Cost of Capital would lead to a decline in their going concern value of 16.8% (17.0% in 2012) for IBG and 16.5% (15.1% in 2012) for SBG, which nevertheless would not fall below their book value; that would require an increase of 183 basis points (compared to an increase of 277 basis points in 2012) for IBG and 1,145 basis points (1,117 basis points in 2012) for SBG.
NOTE 11
OTHER NON-CURRENT FINANCIAL ASSETS
Other non-current fi nancial assets break down as follows:
(in € million) At 31/12/2013 At 31/12/2012 At 31/12/2011
Financial assets available for sale 0.0 0.1 0.1
Security deposits 0.5 0.2 0.3
TOTAL 0.5 0.3 0.4
NOTE 12
INVENTORIES
Inventories break down as follows:
(in € million) At 31/12/2013 At 31/12/2012 At 31/12/2011
Raw materials and bought-in goods
■ Gross value 49.2 44.7 40.5
■ Less impairment (2.8) (2.6) (3.6)
Carrying amount 46.4 42.1 36.9
Industrial work in process
■ Gross value 32.6 27.3 33.9 ■ Less impairment (1.3) (0.9) (1.2) Carrying amount 31.3 26.4 32.7 Finished goods ■ Gross value 21.0 12.6 17.1 ■ Less impairment (1.6) (0.9) (1.2) Carrying amount 19.4 11.7 15.9
TOTAL INVENTORIES, NET 97.1 80.2 85.5
2013 CONSOLIDATED FINANCIAL STATEMENTS
6
Notes to the consolidated fi nancial statements
NOTE 13
TRADE AND OTHER RECEIVABLES
Trade and other receivables comprise the following:
(in € million) At 31/12/2013 At 31/12/2012 At 31/12/2011
Trade receivables 143.1 136.7 128.7
Less impairment (2.3) (1.4) (1.8)
Net trade receivables 140.8 135.3 126.9
Receivables on long-term contracts 5.6 5.5 9.6
Taxes (other than income tax) and duties 11.3 8.7 3.7
Prepaid expenses 9.8 7.9 6.9
Advance payments to suppliers 1.4 0.6 0.6
Others 4.1 12.0 11.8
TOTAL TRADE AND OTHER RECEIVABLES 173.0 170.0 159.5
Trade receivables are all due within a year.
NOTE 14
FINANCIAL DERIVATIVES
Financial derivatives break down as follows:
(in € million)
At 31/12/2013 At 31/12/2012 At 31/12/2011
Assets Liabilities Assets Liabilities Assets Liabilities
Interest rate risk hedging derivatives - 0.2 - 1.0 - 0.3
Currency risk hedging instruments 0.9 0.2 0.6 - 3.7 0.7
Commodity price risk hedging derivatives 0.1 0.2 0.4 - 0.2 0.2
TOTAL 1.0 0.6 1.0 1.0 3.9 1.2
Saft Groupe is exposed to the risk of interest rate rises on its senior debt, which was contracted at variable rates. To protect itself against this exposure, Saft has contracted a succession of interest rate swaps, caps and collars to coincide with each refi nancing of the debt.
The balance sheet amounts set out above correspond to the interest rate risk hedging instruments described in note 3 “Market risks and fi nancial risks management policies” to the consolidated fi nancial statements.
Foreign exchange hedging instruments concern forward purchasing contracts matched by future fi nancial cash fl ows and currency swaps. These are described in note 3 to the consolidated fi nancial statements.
Derivatives contracted by Saft to protect itself against the risk of fl uctuation in raw material prices are mainly nickel price risk hedging derivatives. These instruments are described in note 3 to the consolidated fi nancial statements.
2013 CONSOLIDATED FINANCIAL STATEMENTS
6
Notes to the consolidated fi nancial statementsNOTE 15
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise the following:
(in € million) At 31/12/2013 At 31/12/2012 At 31/12/2011
Cash 98.3 110.9 264.2
Cash equivalents 3.1 3.6 3.0
TOTAL 101.4 114.5 267.2
Cash includes funds deposited in interest-bearing current accounts.
Cash equivalents held at year-end are highly liquid overnight money market funds and term deposits.