Goodwill arises from the acquisition of subsidiaries, chains and stores and represents the excess of the consideration transferred over the fair value of the Group’s share of the net identifiable assets, liabilities and contingent liabilities of the acquired subsidiary, chain or store at the date of obtaining control. Any negative goodwill resulting from acquisitions is recognized directly in the consolidated Income Statement.
For the purpose of impairment testing, goodwill is allocated to those groups of cash-generating units (CGUs) expected to benefit from the acquisition. Each of those groups of cash-generating units represents the Group’s investment in a country or group of countries, which is the lowest level at which the goodwill is monitored for management purposes.
If a cash-generating unit is divested, the carrying amount of its goodwill is recognized in the consolidated Income Statement. If the divestment concerns part of cash-generating units, the amount of goodwill written off and recognized in the consolidated Income Statement is determined based on the relative value of the part divested compared to the value of the group of cash-generating units. Goodwill directly attributable to the divested unit is written off and recognized in the consolidated Income Statement.
Goodwill is not amortized but is subject to annual impairment testing.
Impairment Test of Non-amortized Assets
Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the value-in-use and the fair value less costs of disposal.
Value-in-use is calculated using the discounted cash flow method based on the asset’s continuing use and applying a pre-tax discount rate derived from the average cost of capital. If a CGU does not pass the value-in-use test, the recoverable amount will be calculated with fair value less costs of disposal method.
Fair value less costs of disposal model is based on the CGU's highest and best use from a market participant's perspective as far as they can be reasonably ascertained, taking financial plans as approved by management as a base (level 3). These estimates include potential business expansion and reorganizations, if applicable. This model is based on a post-tax calculation, using a post-tax discount rate. Fair value less costs of disposal model can be based on the discounted cash flows method or sales multiple.
Impairments are recognized in the consolidated Income Statement. Impairment recognized in respect of cash-generating units is first allocated to goodwill and then to other assets of the cash-generating unit on a pro-rata basis based on the carrying amount of each asset in the cash-generating unit. Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. impairment of goodwill, recognized in previous interim or annual period, cannot be reversed.
Significant Accounting Estimates and Judgments
The Group performs its annual goodwill impairment test in the fourth quarter and an additional goodwill impairment test is performed during the year when there is a triggering event.
Due to the temporary store closures in most of the countries of the Group in the second quarter of 2020, following the pandemic outbreak the Group performed the following analysis to identify CGU's with a triggering event: (a) assessment of the impact of the pandemic on the market and expected recovery of the operations in the region; (b) extent and duration of the local government assistance to support the business. Apart from that analysis, when the recoverable amount as per 2019 Annual impairment test was significantly greater than the carrying amount of the CGU and/or was not sensitive to changes in key assumptions, the Group did not re‑estimate the recoverable amount of the relevant CGU. As a result, the following seven CGUs were tested for impairment: United Kingdom & Ireland (G4 segment); Switzerland, Italy (Other Europe segment); United States, Chile & Uruguay, Colombia, and Peru (Americas & Asia segment).
Impact of COVID-19 on impairment test models in 2020
During the year, to reflect the uncertainties of the pandemic, the Group changed its valuation technique used to estimate the recoverable amount for the value-in-use from the traditional approach, which uses a single cash flow scenario, to the expected cash flow approach. This approach is based on different scenarios depending on the recovery of the business to the pre-pandemic level. The discounted cash flow projections in each scenario of the value-in-use model cover a period of five years and include the effects of restructuring plans and benefits of the government assistance, as committed at the end of the reporting period, where applicable. Cash flows beyond the five-year period were extrapolated using an estimated growth rate of nil. The discount rates do not reflect uncertainty risks, for which the estimated cash flows have been adjusted.
Scenarios in the impairment test in the second quarter of 2020
Five scenarios were developed , including two V-shaped rebounds with recovery of the business to the pre-pandemic level ('recovery point') in the next 6 and 12 months (Scenarios V1 and V2, respectively); U-shaped with recovery in the next 24 months (Scenario U); and two L-shaped scenarios, in which the optical market in the country goes into longer recession and stays below the pre-pandemic trend (Scenario L1 and L2).
The EBITA and revenue growth rates in the second half of 2020 were based on the latest ramp-up plans as approved by the management in June 2020. The revenue growth rate and EBITA after recovery point were based on the financial plans as approved by management before pandemic at the end of 2019 with a respective postponement of the Group strategy and adjusted for the COVID-19 impact as follows: (a) all the scenarios include costs for the COVID-19 preventive measures in the stores at 0.85 % of sales in year 1; (b) for the L-shaped scenarios potential negative impact of a change in the future customer behavior and preferences, as well as additional COVID-19 related costs, are added to the projections of the U-shaped scenario. Management has subjectively assigned probability weights to each scenario based on business development during the ramp-up period and its expectations for the eyewear industry in a specific country following the pandemic:
United Kingdom & Ireland, Switzerland, Italy
Chile & Uruguay, Colombia, and Peru
Scenarios in the 2020 annual impairment test
Since 2020 the annual goodwill impairment test was performed in the fourth quarter, it was based on the updated financial plans, which included the COVID-19 implications for the business. Since in the end of the year, the uncertainty about the impact of the pandemic outbreak on the industry was relatively lower, compared to second quarter, there were only 3 scenarios developed for the annual impairment test. These scenarios included base scenario (Scenario U1), which was based on the financial plans as approved by management in 2020, including the assumption that the year 2021 will be on the level of 2019; optimistic scenario (Scenario U2) which included improvement compared to the base scenario in terms of higher profitability by 2% of sales in each year; W-shaped scenario (Scenario W), which included future 'waves' of the pandemic in year 1 and recovery of the business with one year delay, compared to the base scenario. The revenue growth and EBITA were based on the approved latest budget for the next five years. The EBITA percentage incorporated changes due to the pandemic, including additional costs for the COVID-19 preventive measures in the stores as well as improvements due to expected change in customer behavior and preferences.
Management believes that the probability weights below represent a reasonable assessment of the likelihood of the scenarios, taking into account that the most-likely base scenarios already include a country-specific impact of the pandemic on the expectations for the eyewear industry:
Americas & Asia
Key assumptions and judgments for value-in-use
The value-in-use model based on discounted cash flow method requires management to apply judgements around revenue growth, profit assumptions and the discount rate.
All assumptions are weighted based on the relevant scenarios. The revenue growth in 2020 key assumptions was calculated as a weighted per scenario average growth rate taking 2019 as a base year. Key assumptions for Q2 2020 are in respect only to the following CGUs per segment: 'G4' - CGU United Kingdom & Ireland; 'Other Europe' - CGU Switzerland, CGU Italy; 'Americas & Asia' - CGU United States, CGU Chile & Uruguay) are presented in table below.
2020 Annual impairment test
Impairment test in Q2 2020
2019 Annual impairment test
Revenue growth rate
2.3% - 4.2%
3.2% - 5.6%
0.6% - 7.5%
3.6% - 4.6%
1.3% - 6.1%
Americas & Asia
4.3% - 13.6%
EBITA percentage (average)
5.9% - 17.5%
6.8% - 11.6%
7.6% - 24.7%
Americas & Asia
9.7% - 16.6%
-3.5% - 10.3%
4.9% - 17.4%
Discount rate (pre-tax)
6.4% - 7.1%
6.4% - 7.5%
5.5% - 8.9%
6.1% - 8.9%
Americas & Asia
7.4% - 23.5%
6.9% - 11.4%
11.8% - 22.3%
Key assumptions and judgments for fair value less costs of disposal model
For mature markets the Group calculates fair value less costs of disposal using the discounted cash flows method. For emerging markets, a sales multiple is used to determine fair value less cost of disposal. The Group applies a multiple to the average sales of the last three full calendar years. The sales multiple is based on the recent market transactions and peers of the Group, considering risk factors of the CGU, for which the fair value less costs of disposal is calculated. For recently acquired cash-generating units and cash-generating units with large investments in store openings to generate growth, the average sales of the last three years are adjusted to reflect these developments.
In 2020, following implementation of IFRS 16, right-of-use assets are included in the carrying amount, which have negative impact on the headroom. To compensate this impact sales multiples are adjusted accordingly. Uncertainty around the impact of the pandemic is reflected by a reduction of the sales multiple in line with a country-specific impact of the pandemic on the expectations for the eyewear industry.
Sales multiples are used to determine the recoverable amount for the CGU Brazil, Argentina, Colombia and Peru and are as shown below:
2020 Annual impairment test
Impairment test in Q2 2020 (only CGUs with triggering events)
2019 Annual impairment test
Americas & Asia
0.8 - 0.9
0.9 - 1.0
1 – 1.2
Movements in goodwill are as follow:
in thousands of EUR
At 1 January
At 31 December
The impairment charge recognized in June 2020, relates to an impairment of goodwill in the CGUs United States, Colombia and Peru, which operate in the Americas & Asia segment and in the CGU Italy, which operates in the Other Europe segment. In 2019, the impairment charge relates to an impairment of goodwill in the CGU United States, which operates in the Americas & Asia segment.
In 2019, increase in Goodwill is mainly related to acquisitions of Charlie Temple, which operates in the G4 segment, Óptica2000 and McOptic, which operate in the Other Europe segment.
The table below shows goodwill per segment:
in thousands of EUR
31 December 2020
31 December 2019
Americas & Asia
Goodwill impairment charge
See the results for the Goodwill impairment test, performed in the second quarter 2020 :
The recoverable amount of all CGUs was determined based on their value-in-use, except for CGUs Colombia and Peru, for the latter it is their fair value less costs of disposal, consistent with the 2019 Annual impairment test.
- The carrying amount of the CGU Italy has been reduced to its recoverable amount of €207,987 through recognition of an impairment loss against goodwill of €17,379.
- The carrying amount of the CGU United States has been reduced to its recoverable amount of €12,662 ($15,538) through recognition of an impairment loss against goodwill of €38,010 ($43,345).
- The carrying amount of the CGU Colombia has been reduced to its recoverable amount of €19,702 (COP 82,278 million) through recognition of an impairment loss against goodwill of €8,582 (COP 36,113 million).
- The carrying amount of the CGU Peru has been reduced to its recoverable amount of €16,588 (PEN 73,205) through recognition of an impairment loss against goodwill of €9,165.
Total impairment charge on goodwill of €73,136 is included in the general and administrative costs in the consolidated Income Statement.
For the recoverable amount under expected cash flow approach, the most sensitive assumptions relate to the probabilities (‘weights’) of each scenario and a discount rate. A reasonably possible change to these assumptions would not result in any impairment of goodwill, where the value-in-use method is used, as this method (where applied) indicated sufficient headroom, except for CGUs Italy and United States. For CGUs Italy and United States, the following changes in assumptions would have resulted in a higher/(lower) impairment as follows:
in thousands of EUR
increase of the weight of L2 scenario and decrease of V1 scenario by 5 pp.
decrease of the weight of L2 scenario and an increase of V1 scenario by 5 pp
increase of the discount rate by 10%
decrease of the discount rate by 10%
In the fair value less costs of disposal method based on the sales multiple, the sales multiple and the adjusted average sales used are the sensitive key assumptions. A 10% reduction/(increase) of the sales multiple used in the Group impairment test would result in an additional/(lower) impairment of €2,094 million in Colombia and €2,040 in Peru.
Annual goodwill impairment test
In the G4 in 2020 the higher end of the average revenue growth rate range mainly relates to the CGUs of the Netherlands & Belgium and Germany & Austria and the lower end to the CGU of France. The CGU of the Netherlands & Belgium is at the higher end of the average EBITA percentage range with the CGUs of France and Germany & Austria closely following. The lower end of the EBITA range relates to the CGU of the United Kingdom & Ireland. The higher end of the pre-tax discount rate range relates to the CGU of France while the lower end relates to the CGUs of the Netherlands .
In recent years, significant efforts have been made to ensure the business was prepared for any given Brexit outcome, whether there was a deal or not, including development of IT systems to support timely shipment of goods. In 2020, the Group considered and incorporated the impact on the assumptions resulting from Brexit in its goodwill impairment test. The strategic plan for the CGU of the United Kingdom & Ireland includes expected implications of higher import duties and the costs relating to customs clearance administration and bureaucracy.
The carrying value of goodwill allocated to the CGU of France of €211,175 (2019: €211,175) is considered significant in relation to the Group's total carrying value of goodwill. A reasonably possible change to key assumptions used in the value-in-use would not result in a material impairment of goodwill for CGU of France, as this method indicated sufficient headroom. The approach for determining key assumptions for CGU France is consistent with the Group's approach described above.
Other Europe segment
In 2020, the higher end of the average revenue growth rate range mainly relates to the CGU of Poland and the lower end to the CGU of Finland & Estonia. The higher end of the EBITA percentage range relates to the CGU of Hungary, Czech Republic & Slovakia and the lower end to the CGU of Greece & Cyprus. The higher end of the pre-tax discount rate range relates to the CGUs of Hungary, Czech Republic & Slovakia and Italy (discount rate in Italy reduced compare to Q2 2020 mainly due to a significant drop in the government bonds yield and reduced volatility (beta) of the optical retail industry returns compared to the market). The lower end relates to the CGUs of Switzerland, Norway, Finland & Estonia and Denmark.
The remaining CGUs within the Other Europe segment have average revenue growth rates, EBITA percentages and pre-tax discount rates around the midpoint of the respective ranges.
Americas & Asia segment
In 2020, the higher end of the average revenue growth rate range mainly relates to the CGU of Turkey and the lower end relates to the CGU of Chile & Uruguay and Russia. The higher end of the average EBITA percentage range relates to the CGU of the Turkey and the lower end relates to the CGU of Colombia. The higher end of the pre-tax discount rate range related to the CGU of Turkey, while the lower end related to the CGU of United States. The remaining CGUs within the Americas & Asia segment have average revenue growth rates, EBITA percentages and pre-tax discount rates around the midpoint of the respective ranges.
The assumptions for CGU of United States used in impairment test in the second quarter 2020, were updated in the annual impairment test to include a change in a business strategy in the US market to have more focus on the store-in-store concept in the Walgreens pharmacy chain.
In 2020, for the recoverable amount under expected cash flow approach, the most sensitive assumptions relate to the probabilities (‘weights’) of each scenario and a discount rate (2019: revenue growth, profit assumptions and the discount rate). A reasonably possible change to key assumptions would not result in a material impairment of goodwill where the value-in-use method is used (2019: no material impairment). Allocation of 100% probability to Scenario W would not result in a material impairment of goodwill, except for the CGU of the United Kingdom & Ireland, where there is a nil headroom with allocation of approximately 80% probability to Scenario W and 20% to Scenario U.
In the fair value less costs of disposal method based on the sales multiple, the sales multiple and the adjusted average sales used are the sensitive key assumptions. A 10% reduction of the sales multiple used in the Group impairment test would not result in an impairment (2019: no impairment).