Information about the results of an impairment test of the assets of Mall Group a.s. and WE|DO CZ s.r.o.
Current report No. 39/2022
Title: Information about the results of an impairment test of the assets of Mall Group a.s. and WE|DO CZ s.r.o.
Legal basis: Article 17 of MAR - inside information
The Board of Directors of Allegro.eu (the "Board" and the “Company”, accordingly) hereby informs about the results of an impairment test of the assets of Mall Group a.s. and WE|DO CZ s.r.o. The result of the impairment test was finalized on 28 November 2022 during a Board Meeting. The Board accepted modifications to the original investment plan for Mall Group a.s. and We|Do CZ s.r.o. acquisition and a resulting revised valuation. In turn the Board then accepted the result of the impairment test for inclusion in the Group's Condensed Consolidated Financial Statements for the third quarter of 2022.
The impairment test was performed in accordance with International Accounting Standards and compared a financial projection estimating the fair value of Mall Group and WE|DO, less costs to sell, as at 30 September 2022 with the carrying amount of Mall Group and WE|DO, which stood at PLN 4,072 million, and resulted in the Group recognizing a non-cash impairment charge of PLN 2,293.0 million. This impairment loss will be fully allocated to Goodwill and will be presented in the Interim Condensed Consolidated Statement of Comprehensive Income for the third quarter of 2022 in the expense line ‘Impairment losses of non-current non-financial assets’.
The impairment will reduce the net income of the Group in the third quarter of 2022. In contrast, it will not have an effect on earnings before interest, tax, depreciation, amortization and impairment losses of non-current non-financial assets ("EBITDA"). Neither does it affect the Group cash flow generation. This accounting event does not have any impact on the stability of Allegro’s business, nor the business priorities - including the launch of Allegro’s 3P marketplace in Czechia and other Mall markets.
The Board acknowledges that it agreed a full price in November 2021 to obtain a scarce asset to facilitate Allegro’s transformation into an international business and that, in hindsight, that price was set at the top of the market cycle, since when many traded peer e-commerce companies have lost 50-70% of their market value. In the meantime inflation and the cost of living crisis has led Mall and WE|DO to significantly underperform original expectations for its financial performance. Rising inflation and borrowing costs have caused the cost of equity to move up considerably, reducing the present value of the long term cash flows projected to be generated from these Allegro marketplace deployments.
Despite this very significant set-back, the Company remains fully committed to delivering the strategic value of a successful outcome whereby the Allegro 3P marketplace becomes a meaningful player in Central European e-commerce. Thus creating a combined multi-country 3P/1P capability and playbook which, after a successful launch in each of Mall’s key markets, can be rolled out organically into additional markets in future years and providing a key driver for future growth.
The impairment test result will be included in the Group consolidated quarterly report for the third quarter of 2022 which will be published on 30 November 2022.
Allegro.eu is a Luxembourg public limited liability company (société anonyme), registered office: 1, rue Hildegard von Bingen, L – 1282 Luxembourg, Grand Duchy of Luxembourg, R.C.S. Luxembourg: B214830.