Plastic Omnium - 2020 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS 2020 Consolidated financial statements at December 31, 2020 PLASTIC OMNIUM UNIVERSAL REGISTRATION DOCUMENT 2020 207 Asset impairment tests 2.1.2 Indicators of impairment were identified during the fiscal year in connection with the global Covid-19 pandemic: decreases in revenue across all Group entities in connection with site ● closings and a reduction in global production estimated by IHS at around -16.8% for the full year compared to 2019 (please refer to the introductory note on the “Covid-19 crisis and the impact on the presentation of the financial statements”); performance for 2020 and the following years significantly lower than ● forecasted before the crisis. In this context and in application of IAS 36 “Impairment of assets”, impairment tests were carried out to verify that intangible and tangible assets, including assets in progress, are recognized at a value not exceeding their recoverable value. Thus, the following assets were tested for impairment in June 2020: goodwill for “Modules” and “Industries” activities and their components ● “Intelligent Exterior Systems” and “Clean Energy Systems”; customer contracts; ● project assets; ● non-current assets of certain industrial sites and entities; the sites or ● entities for which the 2019 enterprise value reduced by 40% remains higher than the capital employed were not tested, unless specific risks had been identified, because the Group considered that the probability of the recoverable amount being lower than the net carrying amount was very low. The tests performed as of June 30, 2020 resulted in the recognition of €261.7 million in impairment losses against €250.2 million as of December 31, 2020. The update of the impairment tests at the end of the fiscal year does not materially affect the impairment losses recognized as of June 30, 2020. Indeed, the impact is a €11.5 million net reversal of impairment losses, including €8.6 million with respect to HBPO customer contracts. The breakdown of the impairment from June to December is as follows: In millions of euros 2020 June, 30 Change over the 2 nd semester December, 31 Industrial assets 176.6 (6.0) 170.6 Project assets 53.1 3.1 56.2 Customer contracts 32.0 (8.6) 23.4 TOTAL 261.7 (11.5) 250.2 These impairments are mainly due to the significant volume reductions due to the Covid-19 crisis and the assumption that the worldwide automotive market will remain below pre-crisis forecasts for the foreseeable future and will therefore not lead to a satisfactory load factor for the plants. These tests were updated at the end of the year on the basis of forecast data from the Group’s medium-term plans finalized in November 2020, established for the period 2021-2025, revised if necessary to take into account the latest developments. The assumptions made are based on IHS estimates and on volume forecasts received from vehicle manufacturers, discounted where applicable based on the history and knowledge of each program. On this basis, the recovery in global automobile production is, over several years, both moderate and marked by strong geographic disparities, and is reflected in: a return to pre-crisis turnover no later than 2023 for the Industry ● activity and from 2021 for HBPO; a total annual savings plan of €240 million up to 2022 which will allow ● the Group to return to 2019’s operating profit level as of 2021. The WACC was maintained at 9%, with adjustments where necessary, to take into account country-specific characteristics (India). The growth rate, used to calculate the terminal value, was set at 1.5%. This rate was adjusted in the US (2%) and in India (3%). In accordance with the Group’s accounting principles, these impairments are recognized in “Other operating expenses” (see Note 4.6). Sensitivity on Goodwill tests Sensitivity tests on the discount rate, long-term growth, and Operating Margin rate assumptions used in determining the terminal value were performed. The conclusion of this test is that neither a 0.5% increase in the discount rate, a decrease in the long-term growth rate nor a 1 point decrease in the CGU margin rate would not call into question the conclusion of the tests. Likewise, a one-year delay in the hypothesis of a return to a pre-crisis level of production would not call into question the conclusion of the tests. Sensitivity on intangible and tangible asset tests Sensitivity analyzes were carried out on the tests which led to the most significant impairments in the United States and in Germany. These impairments represent more than 60% of the total impairment of industrial assets and projects. In this context, the Operating Margin was retained as a key assumption since it reflects the impact of the following two effects: the change in revenue, in particular the impact of a drop in sales that ● would not be offset by a reduction in costs and/or; a difference in the expected profitability of plants. ● A 10% change in the operating margin used over the term of the plan (2021-2025) and in the determination of the terminal value would have the following consequences: a €15 million change in the impairments recognized on assets in the ● United States; a €10 million change in impairments recognized on assets in Germany. ●