21. Goodwill - €14,241 million

(1) Includes Endesa and Enel Green Power España.
(2) The figure can be subject to change once the purchase-price allocation process has been finalized. For more information, see note 6.
(3) Includes Enel Energia.
(4) Includes Enel Distribuţie Muntenia, Enel Energie Muntenia and Enel Green Power Romania.

Goodwill matrix

The €32 million decrease in goodwill can be attributed mostly to impairment in the amount of €27 million, which concerns the impairment loss on the wind farm of Padoma Wind Power, a company of the Enel Green Power North America Group.

The exchange rate differences are mainly due to unfavorable exchange rate developments in Romania and Brazil, which were partially offset by the positive impact of the US dollar.

The criteria used to identify the cash generating units (CGUs) were essentially based – in line with management’s strategic and operational vision – on the specific characteristics of their business, on the operational rules and regulations of the markets in which Enel operates, on the corporate organization, and on the level of reporting monitored by management.

The recoverable value of the goodwill recognized was estimated by calculating the value in use of the CGUs using discounted cash flow models, which involve estimating expected future cash flows and applying an appropriate discount rate, selected on the basis of market inputs such as risk-free rates, betas and market-risk premiums.
Although the CGUs have not changed since last year, the impairment tests were carried out this year at the level of the operating segment within the CGU resulting from the combination of Business Lines and countries/regions.
Cash flows were determined on the basis of the best information available at the time of the estimate, taking account of the specific risks of each CGU, and drawn:

• for the explicit period, from the business plan approved by the Board of Directors of the Parent Company on November 25, 2019, containing forecasts for volumes, revenue, operating costs, capital expenditure, industrial and commercial organization and developments in the main macroeconomic variables (inflation, nominal interest rates and exchange rates) and commodity prices. The explicit period of cash flows considered in impairment testing was five years; 
• for subsequent years, from assumptions concerning longterm developments in the main variables that determine cash flows, the average residual useful life of assets or the duration of the concessions. 

More specifically, the terminal value calculated based on the specific characteristics of the businesses related to the various CGUs subject to impairment testing:

• perpetuity, for the businesses of large-hydro (LH) power generation and of distribution, in which the licenses and public concessions are of a long-term nature and are easily renewable; as well as for the Enel X businesses, as they feature the development of specific know-how that is sustainable over the long term; 
• annuity, for CGUs that are predominantly characterized by retail business, for which the residual life is, therefore, essentially correlated with the average duration of the customer relationships; as well as for businesses of conventional thermal power generation (G&T). It is also used for the renewable energy (Enel Green Power) businesses to take account of: (i) the value resulting from the remaining useful lives of the plants; and (ii) the residual value, in the event of plant decommissioning, associated with licensing rights, the competitiveness of the production facilities (in terms of natural resources), and network interconnectivity. 

The nominal growth rate is equal to the long-term rate of growth in electricity and/or inflation (depending on the country and business involved) and in any case no higher than the average long-term growth rate of the reference market. The value in use calculated as described above was found to be greater than the amount recognized on the balance sheet. In order to verify the robustness of the value in use of the CGUs, sensitivity analyses were conducted for the main drivers of the values, in particular WACC, the long-term growth rate and margins, the outcomes of which fully supported that value.

The table below reports the composition of the main goodwill values according to the company to which the cash generating unit (CGU) belongs, along with the discount rates applied and the time horizon over which the expected cash flows have been discounted.

(1) Perpetual growth rate for cash flows after the explicit forecast period.
(2) Pre-tax WACC calculated using the iterative method: the discount rate that ensures that the value in use calculated with pre-tax cash flows is equal to that calculated with post-tax cash flows discounted with the post-tax WACC.
(3) The terminal value has been estimated on the basis of a perpetuity or an annuity with a rising yield for the years indicated in the column (G&T = Generation & Trading, EGP = Enel Green Power, LH = Large Hydro).
(4) Includes Endesa and Enel Green Power España.
(5) Includes Enel Energia.
(6) Includes E-Distribut¸ie Muntenia, Enel Energie Muntenia and Enel Green Power Romania.

At December 31, 2019, impairment tests conducted for the CGUs and at the level of the operating segments within the CGUs identified at the intersection of the Business Lines and the countries/regions to which goodwill was allocated found no impairment losses.