FINANCIAL STATEMENTS Consolidated financial statements as of December 31, 2017 3 Goodwill subsequent measurement and impairment Goodwill is carried at cost less any accumulated impairment losses. In compliance with IAS 36, the Group performs impairment testing if there is any indication of impairment, at least once a year. For the purposes of this test, assets are grouped into Cash Generating Units (CGUs). CGUs are standardized groups of assets whose continued use generates cash inflows that are largely separate from those generated by other asset groups. An impairment loss must be recognized wherever the recoverable value of the goodwill is less than its carrying amount. Goodwill corresponding to optimized value of deferred taxes This goodwill results from the recognition of deferred taxes at business combination accounting date. It represents the difference between the deferred tax liabilities booked in the balance sheet according to IAS 12 and the expected tax to be paid in case of sale by mean of share deal. As a consequence, impairment tests performed on this goodwill at each closing consist on comparing its net book value with the amounts of expected deferred taxes optimization. Goodwill of management activities This goodwill relates to management activities. Impairments test are performed annually and are based on valuations as performed by independent external appraisal. These appraisals, which are performed on behalf of Klépierre by Accuracy, are based on the Discounted Cash Flow (DCF) method in every country where the Klépierre Group conducts management activity. This method consists of three stages. In the first stage, cash flows that may be generated in the future by activity strictly interpreted (i.e., before consideration of explicit or implicit financing costs) are estimated on the basis of the specific business plans developed in each country where the Group conducts management activity for itself and for third parties. In the second stage, forecast cash flows and the probable value of the management activity portfolio at the end of the forecast period (terminal value) are discounted at an appropriate rate. This discount rate is determined on the basis of the Capital Asset Pricing Model (CAPM) and is the sum of the following three components: the risk-free interest rate, a general market risk premium (forecast average market risk premium multiplied by the beta coefficient for the business portfolio) and a specific market risk premium (which takes account of the proportion of specific risk not already included in flows). In the third and final stage, the value of shareholders’ equity is obtained by deducting its net debt on the valuation date from the value of its business portfolio. The impairment test done at least annually by an external appraiser consists in comparing the net book asset value of the entities with the net asset value measured by the independent appraiser. The main assumptions used to calculate the enterprise value according to the last appraisals are the following: > the discount rate applied is 7.6%; > the free cash flows over the duration of the business plan are based on business volume and operating margin assumptions that take into account economic and market assumptions on the date on which the plan was established; > a growth rate for the 2018-2023 period based on the assumptions of the internal business plan approved by the management; > Klépierre Management’s end value was determined with a growth rate applied from 2023 of 1%. KLÉPIERRE 2017 REGISTRATION DOCUMENT 83