Vetoquinol Universal Registration Document 2019

Vetoquinol  Universal Registration Document 2019  Financial report   67 CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements 6 6.5.3.5 Impairment of assets In accordance with the requirements set forth in IAS 36, the Group assesses whether there is any indication that an asset may have suffered an impairment loss. If any such indication exists, the Group estimates the recove- rable value of the asset. In addition, the Group performs annual impairment tests on intangible assets with an indefinite useful life and intangible assets not yet ready to be put into service, by comparing the carrying amount to the recoverable amount. An impairment loss equal to the excess of the carrying amount over the asset’s recoverable value is recognized. The recoverable amount of an asset represents the higher of its fair value less costs to sell and its value in use. For the purposes of assessing impairment, assets are grouped together in cash-generating units (CGU), which represent the lowest level that generates independent cash flows. The CGUs defined for Vetoquinol Group are the following companies: Vetoquinol USA, Vetoquinol Canada, Vetoquinol France, Vetoquinol UK, Vetoquinol Belgium, Vetoquinol Switzerland, Vetoquinol Czech Republic, Vetoquinol Austria, Vetoquinol Poland, Veto- quinol Ireland, Vetoquinol Germany, Vetoquinol Italy, Vetoquinol Scandinavia, Vetoquinol India, Vetoquinol Asia and Vetoquinol Australia. Farmvet Systems, a new Group CGU, was not tested for impairment in 2019 but the 12-month purchase price allocation process was completed during the year. Non-financial assets (excluding goodwill) that have incurred impairment losses are reviewed for possible reversal of those losses at each annual or interim closing. Impairment losses are first charged against goodwill. The balance is allocated to the assets of the CGU. 6.5.4 Financial risk management 6.5.4.1 Currency risk management The Group focuses foreign exchange risk on the subsi- diaries with production facilities and, as far as possible, on the parent company, Vetoquinol SA, by having its sales subsidiaries send and receive invoices that are denomi- nated in their respective functioning currencies. Accordingly, the distribution subsidiaries are not exposed to exchange rate risk. Foreign currency movements are centralized at the level of Vetoquinol SA and hedging ins- truments may be put in place. These instruments usually have a term of less than one year. At the balance sheet date, there were no hedging instruments outstanding. For this reason, IAS 39 rules pertaining to such instru- ments were not found to apply to 2019 or the prior year. The Group is a net buyer of USD amounting to around $8 million a year. The Group is net seller of other curren- cies in circulation in the Group, such as CAD (c. CAD 10 million) and GBP (c. GBP 6-7 million). As described above, the currency risk related to subsi- diaries’ operations largely involves only a presentation risk in the consolidated income statement. On the basis of the 2019 financial statements, solely with regard to the foreign subsidiaries, a 10% increase in the value of the euro compared to all other foreign curren- cies would have resulted in a €21.1 million decrease in consolidated sales (2018: €19.1 million) and a €2.1 million decrease in consolidated operating income (2018: €2.5 million). Conversely, a 10% reduction in the value of the euro compared to other currencies would have resulted in a €25.8 million increase in sales (2018: €23.3 million) and a €2.6 million increase in consolidated operating income (2018: €3.0 million). On account of its sales in foreign currencies, the Company is exposed to currency risk between the invoice date and the date payment is received and the sale of currency on the market. Currency gains or losses and any gains or losses arising from hedging transactions are recognized under net financial income/(expense). Most of these transactions are entered into and closed during the year, over very short periods, and therefore there are no outstanding items recorded in the closing balance sheet.