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LISI 2016 FINANCIAL REPORT
as such are subject to formal documentation justifying in particular
the hedging relationship, its effectiveness and the objective of the
Group’s risk management and hedging strategy. Effectiveness tests
were carried out as at December 31, 2016 and have demonstrated
the effectiveness of the hedging relationship. The changes in the fair
value of hedging instruments that do not meet the hedge criteria are
recognized directly in income.
The sensitivity of financial instruments to a +/- 10% change in the
EUR / USD exchange rate is as follows:
12/31/2016
IMPACT
(in €’000)
USD
Exchange rate at
the closing date
1.0541
Euro/dollar exchange rate
development assumptions
–10%
+10%
Euro/dollar exchange rate used
for the sensitivity analysis
0.9487
1.1595
Impact (before tax)
(70,5)
38.4
2.4.4
I
Risk related to the impairment of intangible assets
The net amount of goodwill at December 31, 2016 amounted to
€300 million. In view of the modifications to the external environment
and the internal organization, as from December 31, 2016, to carry out
impairment tests on the goodwill, the Group has retained the strategic
combination of Business Units (B.U) corresponding to the segmentation
and the reporting structure of the LISI Group, namely, the three divisions
LISI AEROSPACE, LISI AUTOMOTIVE and LISI MEDICAL.
The results of the impairment tests confirm the soundness of the LISI
AEROSPACE Division, and show that the activities of LISI AUTOMOTIVE
and LISI MEDICAL divisions have strengthened.
2.5
I
DETAIL OF THE BALANCE SHEET ITEMS
2.5.1
I
Non-current assets
2.5.1.1 Intangible assets
a) Goodwill
(in €’000)
Goodwill
Gross goodwill at December 31, 2015
260,335
Impairment over financial year 2015
0
Net goodwill at December 31, 2015
260,335
Increase
46,056
Decrease
(8,600)
Changes in foreign exchange rates
2,637
Gross goodwill at December 31, 2016
300,426
Impairment over financial year 2016
0
Net goodwill at December 31, 2016
300,426
The increase may be explained by the entry of Remmele Medical Inc.
into the Group’s consolidation scope (€43.6 million) and by the
acquisition of 1.94% minority interests in Ankit Fasteners Pvt Ltd
enabling the Group to hold 51% of this company (€2.5 million).
The reduction concerns the deconsolidation of the Floor Covering
activity of the subsidiary Indraero Siren SAS.
Changes in currency exchange rate only concern LISI AEROSPACE
and result from translation differences on the dollar.
In view of the modifications to the external environment and the internal
organization, as from financial year 2016, the impairment tests are
carried out on the goodwill on the basis of a split corresponding to the
Group’s three divisions even though, up to now, they were carried out
on the 12 CGU’s detailed in paragraph 2.2.8.5. This change in methods
is explained below:
Significant changes in the external environment
The Aerospace market for fasteners has become very concentrated
over the past 10 years. External growth opportunities in this sector
have become rate or subject to very high purchasing multiples.
Critical size in this area where the fixed costs are very high (R&D,
investments, etc.) was achieved by the search for and acquisition
of companies which would enable LISI to offer a range of products
complementary to the existing one and, in this way, to increase its
visibility on the market. On the Automotive side, the market is much
more splintered with a much greater number of players (3 large players
in Aerospace compared with 8 to 10 in Automotive) whose sizes do not
allow significant external growth to be envisaged. Consequently, the
approach consisted in developing an offering based on the technical
nature of the products (multi-specialist rather than multi-generalist).
This is how the synergies produced were developed between the the
three business groups in this division.
Modifications arising from the internal organization.
In the LISI AEROSPACE division, the event triggering the reflection
was based on the consolidation of the Forging and Casting activity
in 2014. The maturity phase lasted almost 18 months. After this
period, the synergies are genuine and all processes are concerned
(commercial, industrial, monitoring, quality, investments, etc.). 2016 is
the year which saw the completion of the centralization of the main
processes at division level: commercial, purchasing, industrialization,
quality, monitoring, HR, training, etc.
The same centralization process was implemented in the LISI
AUTOMOTIVE division.
In 2016, the Group drew conclusions from the modifications to its
environment and those arising from the changes in its organization,
and particularly considered that the elements justifying the goodwill
could no longer be measured in a relevant way only at CGU level, but
should be assessed at the level of the “operating sectors”. For this
purpose:
CONSOLIDATED FINANCIAL STATEMENTS
3