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In line with the guidance in IFRS 8, the segment information relating to Gruppo Campari is based on four regions identified as operating segments: Italy, Rest of Europe, Americas and Rest of the World, which includes Duty Free. To tie in with the segment reporting structure, Gruppo Campari has identified four cash generating units (CGUs), represented by Italy, Rest of Europe, Americas and Rest of the World and Duty Free, which it considers accurately and consistently reflect the structure of the operating segments.

Goodwill was allocated in aggregate form to the CGUs, for impairment tests to be carried out at that level. For brands, the values were tested individually.

Allocation and impairment testing of goodwill

Goodwill was allocated to each CGU at 31 December 2014 based on the first allocation made at 31 December 2012 (allocated proportionally based on the relevant recoverable value of the four CGUs, calculated on value in use), adjusted to take account of the impact of exchange rates on goodwill values and changes in the scope of consolidation. The carrying amounts of the CGUs were calculated by allocating, in addition to 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 working capital, which were mainly allocated on the basis of the relevant sales by region.

Estimates of cash flows generated by individual CGUs were used for calculating the recoverable value of the CGUs based on value in use. Forecasts of operating cash flows come from the 2015 budget and the strategic plans prepared by the Group’s subsidiaries in 2014 for the period 2016-2019 and approved by the Board of Directors of Davide Campari-Milano S.p.A.

In addition, the five-year plan was extrapolated over ten years, factoring in medium to long-term growth rates, which do not, however, exceed the average long-term growth rates for the market in which the Group operates. The use of a ten- year period was justified by the extension of the life cycle of the brands in the spirits market, as well as the length of the maturing process of certain brands 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 historical averages and its potential growth, expressed by expected demand in the key markets for the individual CGUs. Estimates of future cash flows were calculated based on prudent criteria in respect of growth rates and sales development. In addition, projections are 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 CGUs, from 1.0% for the Rest of Europe to 1.5% for Italy, Americas, and the Rest of the world and duty free, 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 2014, which was calculated differently for the four CGUs, and determined with reference to indicators and parameters observable on the main markets that make up the individual CGUs, 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: 6.5% for the Americas, 6.4% for the Rest of the world and duty free, 7.0% for Italy and 8.4% for the Rest of Europe (in 2013, the discount rates used for these CGUs were 6.4%, 6.8%, 7.8% and 8.4% respectively).

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, it should be pointed out that the effects of the acquisitions of Forty Creek Distillery Ltd. and Averna Group, which were completed on 2 and 3 June 2014 respectively, are not included in the projections of the consolidated plans, as current growth forecasts are not considered to fully reflect the opportunities identified by the Group, based on which it will formulate new strategic plans for the brands acquired. Therefore, in order to test for any impairment of the brand value allocated to Forty Creek Distillery Ltd. and Averna Group (provisional values at 31 December 2014), the Group considered it more appropriate to use the method of fair value minus sales costs rather than the criterion of value in use based on forecasts of operating cash flows.

This methodology is based on the application of parameters deduced from the valuation attributed to brands that have been acquired or are comparable, in an active market, in terms of type of brand acquired and transaction structure: these are implicit parameters or multiples deduced from the ratio of the price paid for the acquisition to specific economic and financial indicators relating to those companies. Specifically, the recoverable value of the brands allocated to Forty Creek Distillery Ltd. and Averna Group was calculated using the EV/EBITDA multiple, deduced from a sample of transactions comparable to the acquisition. The use of this multiple is considered particularly effective as it avoids distortions caused by the different tax regulations and financial structures; is less sensitive to distortions caused by variations in extraordinary profit; and facilitates comparison at international level.

Results of impairment testing

During the year, as part of the reorganisation of the still wines business, several impairment indicators were identified. Consequently, the recoverable amounts were compared with the carrying values in the consolidated financial statements. The test showed that the carrying amounts of this business (including a portion of goodwill allocated according to the relative values method) were higher than the recoverable amounts. As a result, on 30 September 2014, impairment of € 16.1 million on goodwill was charged to the Italy CGU (to which this goodwill is allocated).

In relation to goodwill values, at 31 December 2014, based on the methodologies and assumptions set out above, the impairment tests revealed that the values recorded were fully recoverable.

To take into account current market volatility and uncertainty over future economic prospects, sensitivity analysis has been carried out to assess the recoverability of amounts relating to goodwill. Specifically, sensitivity analysis of recoverable values of the individual CGUs and individual brands was carried out 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.

At 31 December 2014, 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 10.1 million, corresponding to a reduction of € 8.3 million in consolidated brands. Meanwhile, the non-recurring liability posted to the income statement in 2014, converted at the average exchange rate for the year, was € 7.6 million (see note 14 - Non-recurring overheads, above).

Impairment tests on other brand values revealed that the values recorded were fully recoverable. To take into account current market volatility and uncertainty over future economic prospects, sensitivity analysis was carried out on the recoverable values of these brands using methods in line with those used for goodwill values. Sensitivity analysis was also carried out on the recoverable value of the brands allocated to Forty Creek Distillery Ltd. and Averna Group, assuming a reduction of up to 20% of the financial value to which the multiplier is applied.

CONSOLIDATED FINANCIAL STATEMENTS 95 The values for goodwill and brands at 31 December 2014 allocated by CGU are shown in the table below.

31 December 2014 31 December 2013

CGU € million € million

Italy 205.9 206.8

Rest of Europe 252.6 235.4

Americas 515.0 479.8

Rest of the world and duty free 58.3 54.3

Total allocated 1,031.9 976.4

Unallocated values (1) 71.6 -

Total goodwill at 31 December 2014 1,103.5 976.4

of which reclassified as assets held for sale

Jamaican businesses 4.0 -

Limoncetta business 4.1 -

Total goodwill held for sale 8.1 -

Total goodwill recorded in the accounts 1,095.5 976.4

(1)

The value of goodwill not allocated to a CGU at 31 December 2014, of € 71.6 million, relates to the acquisitions of Forty Creek Distillery Ltd. and Averna Group, and was calculated based on the provisional allocation at 31 December 2014 of amounts arising from the acquisition, converted at the final exchange rates of the year.

Changes in goodwill values at 31 December 2014 compared with 31 December 2013 are due to the effects arising from the allocation of the Forty Creek Distillery Ltd. and Averna Group acquisition values shown above (totalling € 67.5 million, net of the values reclassified as held for sale of € 4.1 million) and to positive exchange rate effects (€ 71.7 million), as well as to the write-down of the value of goodwill of the still wines business (€ 16.1 million), which was fully allocated to the Italy CGU and commented on above. In addition, some businesses sold by the Group in Jamaica (€ 4.0 million) were also reclassified as assets held for sale. The agreements for these sales were signed on 22 and 23 December 2014, and the transactions are expected to be completed by end-March 2015.

In relation to the Averna Group acquisition, it should be noted that on 22 December 2014, the Group signed an agreement to sell the Limoncetta di Sorrento business, which was completed on 30 January 2015. The related amounts were reclassified as assets held for sale to 31 December 2014, as shown in the goodwill and brands tables.

See note 35 – Assets held for sale, below, for more information on the businesses sold, with closing expected in 2015. The values of brands at 31 December 2014 is shown in the table below:

31 December 2014 31 December 2013

€ million € million

Wild Turkey 150.4 132.4

Frangelico and Carolans 116.6 116.6

GlenGrant and Old Smuggler 104.3 104.3

Cabo Wabo 58.5 51.5

X-Rated Fusion Liqueur 33.5 37.0

Riccadonna-Mondoro 11.3 12.3

Jamaican acquisition 112.0 106.4

Averna Group(1) 66.9 -

Forty Creek Distillery Ltd.(1) 73.9 -

other 20.5 19.5

Total brands at 31 December 2014 747.9 580.0

of which reclassified as assets held for sale

Limoncetta business 2.4 -

Total brands held for sale 2.4 -

Total brands recorded in the accounts 745.6 580.0

(1)

Amounts resulting from the Averna Group and Forty Creek Distillery Ltd. acquisitions based on the provisional allocation at 31 December 2014 and converted at the final exchange rates of the year.

The changes in brand values in 2014 are due to the effects arising from the allocation of the Forty Creek Distillery Ltd. and Averna Group acquisition values shown above (totalling € 138.4 million net of the reclassification of assets held for sale), positive exchange rate effects (€ 35.4 million) and the write-down of the X-Rated brand (€ 8.3 million).