CAUSAS DEL DESPLAZAMIENTO

In line with the guidance in IFRS 8, the Group reorganized its segment reporting as of 1 January 2015. The new segments reflect the Group’s renewed business unit structure, based on the Group’s current operating model. In this respect, the previous four business units, Americas, Italy, Rest of Europe and Rest of the World, were reorganized in the following new regions: Americas, Southern Europe, Middle East and Africa (‘SEMEA’) including global travel retail, Northern, Central and Eastern Europe (‘NCEE’) and Asia-Pacific (’APAC’). Coherently, the segment reporting structure change has made it necessary for the Group to reorganize its Cash Generating Units (CGU) structure and reallocate the original goodwill values for the purpose of impairment test. The previous CGUs (CGU Americas, CGU Italy, CGU Rest of Europe, CGU Rest of World) were redefined in the following CGUs: CGU Americas, CGU SEMEA, CGU NCEE and CGU APAC. It should be noted that the new regions, as identified above, reflect the highest level of CGUs of the Group for which the allocated goodwill is considered appropriate given the synergies and the efficiencies achieved at each regional level.

In order to test the impairment of intangible assets, goodwill value has been tested at an aggregate level by CGU. Trademark values have been tested at an individual level by brand.

Re-allocation and impairment testing of goodwill

Following the introduction of the new CGUs structure, the goodwill value as of 31 December 2014 was reallocated to the new CGUs based on the same criteria as the goodwill allocation performed at 31 December 2012, when the Group introduced the segment reporting by region for the first time. Under this criteria, the goodwill value of each CGU as of 31 December 2014 was allocated as the difference between the capital invested (allocated proportionally based on the weight of the recoverable value of each CGU) and the carrying amount of each CGU, including net operating working capital, fixed assets and intangible assets (excluding goodwill). In this respect, the goodwill value as of 31 December 2014 was reallocated proportionally to each CGU based on the weight of the recoverable value of the newly identified CGUs, applying a value in use methodology. Then the goodwill values were adjusted to take into account the perimeter changes (acquisitions and disposals) as well as goodwill write-down. Lastly, to determine the goodwill value as of 31 December 2015, the goodwill values allocated to each CGU as of 31 December 2014 were adjusted proportionally to take into account the exchange rates effects.

The carrying amounts of the CGUs were calculated by allocating, in addition to the goodwill, the brand values assigned on the basis of the profitability achieved by the brand in each CGU, as well as the fixed assets and operating working capital, which were mainly allocated on the basis of the relevant sales achieved in each region.

The recoverable amounts of CGUs were calculated based on the forecasts of operating cash flows generated in each CGU, applying a value in use methodology. The forecasts of operating cash flows were taken from the Group’s 2016 budget and strategic plans drafted by the Group’s subsidiaries in 2015 for the 2017-2020 period and approved by the Board of Directors of Davide Campari-Milano S.p.A.

In addition, the cash flow projections were then extrapolated beyond the five-year period covered by the budget and the strategic plans to a ten-year period, with a growth rate that does not exceed the average long-term growth rates for the market in which the Group operates. The use of a ten-year period is justified by the long life cycle of the brands with respect to the reference markets, it also takes into account the long aging process of certain brands included in some CGUs. The main assumptions used in calculating the value in use of the CGUs are the operating cash flows in the ten-year period covered by the estimates, the discount rate and the growth rate used to determine the terminal value. With regard to the cash flow projections, reference was made to both the Group’s historic averages and its potential growth, expressed by expected demand in the key markets for the individual CGUs.

Estimates of future cash flows were made based on prudent criteria with respect to growth rates and sales development. In addition, projections were based on reasonableness, prudence and consistency with respect to the allocation of future general expenses, trends in capital investment, conditions of financial equilibrium and the main macroeconomic variables. Cash flow projections relate to current operating conditions and therefore do not include cash flows connected with any one-off operations.

For the purposes of determining the terminal value, the perpetuity growth method of discounting was used. Specifically, a terminal growth rate was taken that varied according to the individual CGU, from 1.0% for the CGU NCEE to 1.5% for CGU Americas, CGU SEMEA and CGU APAC, and which does not exceed the sector’s estimated long-term growth rate.

The value in use of the CGUs was calculated by discounting the estimated value of future cash flows, including the terminal value, which it is assumed will derive from the continuing use of the assets, at a discount rate (net of taxes and adjusted for risk) that reflects the average weighted cost of capital. Specifically, the discount rate used was the Weighted Average Cost of Capital (WACC) determined at 31 December 2015, which was calculated differently for the four CGUs, and determined with reference to indicators and parameters observable on the main markets of each individual CGU, the present value of money and specific risks connected with the business being valued. The discount rates used on the date the valuation was performed varied for the four CGUs tested as follows: 6.4% for the CGU Americas, 7.3% for CGU SEMEA, 8.5% for the CGU NCEE and 6.3% for the CGU APAC.

Impairment testing on brands

Impairment testing was performed on brands individually using the value in use criterion. Estimates of cash flows generated by individual brands, discounted to present value using an appropriate discount rate as described above, were used to calculate the recoverable value of brands. The carrying amounts of individual brands were determined by allocating the fixed assets and working capital based on related sales, in addition to intangible assets with an indefinite life. Furthermore, based on the materiality principle, brands with immaterial trademark value (lower than € 2 million) are not subject to the annual impairment test.

It should be noted that within the annual re-assessment of the useful life of brands, X-Rated has been identified as an asset with limited useful life. This change is in line with the decision by the Group to progressively reduce the marketing investments behind the brand in its core US market where the brand performance is not sustainable given the continued weakness of the category. Nevertheless, in medium term, the brand has opportunity to further expand in some Asian markets. Pursuit to this re-assessment, in the current discounted cash flow valuation, the recoverable amount of the brand was calculated based on the expected future operating cash flow of the 10-year period between 2016 and 2025, and taking into account the tax benefits generated by intangibles amortization. Moreover, it should be noted that the brand X-Rated is subject to impairment test in 2015 and starting from 2016 the remaining trademark value will be amortized for a timeframe of 10 years.

Results of impairment testing

In relation to the goodwill, as of 31 December 2015, based on the methodologies and assumptions set out above, the impairment tests revealed that the values recorded are fully recoverable.

To take into account current market volatility and uncertainty over future economic prospects, sensitivity analyses were carried out to assess the recoverability of amounts relating to goodwill. Specifically, sensitivity analyses of recoverable values of the individual CGUs and individual brands based on the assumption of a percentage point increase in the discount rate and a percentage point reduction in the terminal growth rate. The sensitivity analysis described above confirmed that goodwill values are fully recoverable.

As of 31 December 2015, the impairment tests on brand values, carried out using the methodologies and assumptions set out above, revealed a loss in value for the X-Rated brand of USD 16.5 million, corresponding to a reduction of € 15.2 million in consolidated brands. Meanwhile, the non-recurring liability posted to the income statement in 2015, converted at the average exchange rate for the year, was € 14.9 million (see note 14 - Non-recurring overheads, above). The remaining brand trademark value of the brand X-Rated (€ 22.1 million) will be amortized at an equal annual amount of € 2.2 million for the next 10 years until 2025.

Impairment tests on other brand values revealed that the values recorded are fully recoverable. To take into account current market volatility and uncertainty over future economic prospects, a sensitivity analysis was carried out on the recoverable values of these brands using methods in line with those used for goodwill values. The sensitivity analysis described above confirmed that the values of these brands are fully recoverable.

The values for goodwill and brands at 31 December 2015 allocated by CGU are shown in the table below.

31 December 2015 31 December 2014 (1) € million € million Americas 581.6 555.9 SEMEA 325.1 310.7 NCEE 220.2 210.5 APAC 19.6 18.7 Total 1,146.4 1,095.8

consolidated financial statements Changes in goodwill values at 31 December 2015 compared with 31 December 2014 were due to positive exchange rate effects (€ 50.6 million), reallocated proportionally to each CGU.

The values of brands at 31 December 2015 is shown in the table below:

31 December 2015 31 December 2014

€ million € million (1)

Wild Turkey 167.7 150.4

Frangelico, Carolans 116.6 116.6

Jamaican Rum Portfolio 119.0 112.0

Glen Grant and Old Smuggler 104.3 104.3

Cabo Wabo 65.2 58.5 X-Rated 22.1 (2) _33.5 Riccadonna 11.3 11.3 Forty Creek 68.7 73.9 Averna 65.5 64.5 Others 19.6 (3) _20.5 Total 760.1 745.6

(1) _{Value of trademark as of the consolidated financial statements as of 31 December 2014} (2) _{Value of X-Rated, net of write-down of € 15.2 million}

The changes in brand values at 31 December 2015 were due to the positive exchange rate effects (€ 28.7 million) and adjustments due to the final purchase price allocation of Averna Group.