Chapters
Annual Report 2019

2. Basis of Preparation

2.1 Statement of Compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) as adopted within the European Union.

The accounting policies based on IFRS have been applied consistently for the years presented in these consolidated financial statements. There were no changes in the accounting policies applied compared to the previous year, except as described in note 2.7.1.

2.2 Basis of Measurement

The IFRS financial statements have been prepared under the historical cost convention, except for derivatives, share-based payment plans, contingent considerations, certain non-current assets and post-employment benefits.

In preparing these consolidated financial statements, management has made judgements and estimates that affect the application of the Group's accounting policies and the reported amounts of assets, equity, liabilities, commitments, income and expenses.

2.3 Significant Accounting Policies

The Group’s significant accounting policies are included in the relevant individual notes to the consolidated financial statements, as well as the significant accounting estimates and judgments made, where applicable, as described in note 2.8.

2.4 Subsidiaries

Subsidiaries are those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. All intercompany transactions, balances and unrealized gains or losses on transactions between Group companies are eliminated.

2.5 Foreign Currency

2.5.1 Functional and Presentation Currency

Items in the consolidated financial statements of the various Group companies are measured in the currency of the primary economic environment in which each entity operates (the functional currency). The consolidated financial statements are presented in euros (€), this being GrandVision’s presentation currency. Amounts are shown in thousands of euros, unless stated otherwise.

2.5.2 Transactions, Balances and Translation

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation when items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, excluding foreign operations in hyperinflationary economies, are recognized in the consolidated Income Statement, except when deferred in the consolidated Other Comprehensive Income as qualifying cash flow hedges.

Foreign currency exchange gains and losses are presented in the consolidated Income Statement either in the operating result, if foreign currency transactions relate to operational activities, assets and liabilities, or within the financial result for non-operating financial assets and liabilities.

2.5.3 Foreign Subsidiaries

The assets and liabilities of foreign subsidiaries, including goodwill and fair value adjustments arising on consolidation, are translated into the presentation currency at the exchange rate applicable at the balance sheet date. The income and expenses of foreign subsidiaries are translated into the presentation currency at average exchange rates to approximate the exchange rates at the date of the transaction. Resulting exchange differences are recognized in the consolidated Other Comprehensive Income.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and are translated at the closing rate.

2.5.4 Hyperinflation Accounting

The Group applies hyperinflation accounting for its operations in Argentina. The effects of this hyperinflation accounting on the consolidated financial figures of the Group are limited, since the operations in Argentina represent a limited part of the total assets and the operating result of the Group.

The index used to apply hyperinflation accounting is the Retail Price Index published by the Government Board of the Argentine Federation of Professional Councils of Economic Sciences (FACPCE).

2.6 Principles for the consolidated Statement of Cash Flows

The consolidated statement of cash flows is compiled using the indirect method. The consolidated statement of cash flows distinguishes between cash flows from operating, investing and financing activities. For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, cash pool balances and bank overdrafts, as they are considered an integral part of the Group’s cash management. In the consolidated Balance Sheet, bank overdrafts and cash pool liabilities are included in borrowings in current liabilities.

Cash flows in foreign currencies are translated at the rate of the transaction date.

Interest paid and received is included under cash flow from financing activities . Cash flows arising from the acquisition or disposal of financial interests (subsidiaries and participating interests) are recognized as cash flows from investing activities, taking into account any cash and cash equivalents in these interests. Dividends paid out are recognized as cash flows from financing activities; dividends received are recognized as cash flows from investing activities. Repayments of lease liabilities and receipts from finance subleases including principal amount and interest are classified as cash flows from financing activities (see note 2.7.1).

2.7 Changes in Accounting Policies and Disclosures

2.7.1 New and Amended Standards and Interpretations Adopted by the Group

A number of new or amended standards and interpretations became applicable for the current reporting period and the Group had to change its accounting policies as a result of adopting the following standards, where applicable:

• IFRS 16 Leases

• IFRIC 23 Uncertainty over Income Tax Treatments

No other new or amended standards and interpretations had significant impact on the Group's consolidated
financial statements.

IFRS 16 Leases

IFRS 16 Leases is effective for accounting periods beginning on or after 1 January 2019. GrandVision has up to 10,000 leases in its current lease portfolio. The majority of these leases is modified during the year due to indexations, store closures, decisions about renewals or terminations.

The impact of IFRS 16 on the consolidated Balance Sheet at 1 January is disclosed in relevant notes to this Consolidated Financial Statements.

Transition to IFRS 16 Leases

The Group has adopted the new standard on the required effective date using the modified retrospective transition approach, with the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of equity on 1 January 2019. The Group will therefore not restate comparative amounts for the year prior to first adoption.

The Group measured the right-of-use assets as follows on 1 January 2019:

  • For its property leases, which make up the majority of the Group's leases, at its carrying amount as if IFRS 16 had been applied since the commencement date of the lease.
  • For other leases, at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the Balance Sheet immediately before the date of initial application.

Practical expedients:

  • The Group adjusted the right-of-use assets recognized as at 1 January 2019 for the amount of any provision for onerous lease contracts recognized in the consolidated Balance Sheet as at 31 December 2018.
  • The Group applied a single discount rate as at 1 January 2019 to a portfolio of leases with reasonably similar characteristics.
  • The Group used hindsight in determining the lease term when the contract contains options to extend or terminate.
  • On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Group applied IFRS 16 only to the contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease under IFRS 16. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after 1 January 2019.

Reconciliation to operating lease commitments as at 31 December 2018

The following reconciliation to the opening balance of lease liabilities at 1 January 2019 is based on the operating lease commitments as at 31 December 2018 (see note 12):

in millions of EUR

At 1 January 2019

Reported operating lease commitments at 31 December 2018 (undiscounted)

1,420

Less: Short-term and low-value leases

- 6

Other

- 5

Operating lease commitments at 31 December 2018 under IFRS 16 (undiscounted)

1,409

Less: Effect of discounting

- 86

Add: Non-lease components (fixed service costs) (discounted)

39

Lease liabilities due to initial application of IFRS 16 at 1 January 2019

1,362

Add: Lease liabilities from finance leases at 1 January 2019

1

Total lease liabilities at 1 January 2019

1,363

The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 2.3%.

Changes in Presentation
The application of IFRS 16 resulted in changes in presentation of certain items in the consolidated financial statements (comparative information is not restated for these changes).

Changes in the Consolidated Balance Sheet:

  • Right-of-use assets are presented as a separate line in the consolidated Balance Sheet under Non-current assets.
  • Lease liabilities are presented as separate lines in the consolidated Balance Sheet under Non-current liabilities and Current liabilities.

Changes in the Consolidated Income Statement:

  • Rental income from operating subleases is recognised in the consolidated Income Statement within other revenue.

In addition, lease costs are now split between depreciation of right-of-use assets and interest expenses , which resulted in decrease in occupancy costs. Please refer to note 7 for more details.

Changes in the Consolidated Cash Flow Statement:

  • Repayments of lease liabilities including both repayments of the principal amount and interest are classified as cash flows from financing activities and presented in a separate line ‘Repayments of lease liabilities’
  • Receipts from finance subleases including both repayments of the principal amount and interest are classified as cash flows from financing activities and presented in a separate line ‘Receipts from finance subleases’
  • Line ‘Other non-current receivables’ in the Cash flows from investing activities is renamed to ‘Change in other non-current receivables and lease prepayments’ to include key money paid and lease payments made before or at the lease commencement date.

IFRIC 23 Uncertainty over Income Tax Treatments

IFRIC 23 was issued in 2017 and is effective for accounting periods beginning on or after 1 January 2019. The interpretation sets out how to determine the accounting tax positions when there is uncertainty over income tax treatments under IAS 12 Income Taxes. The Group adopted IFRIC 23 as from 1 January 2019 and it did not have a significant impact on the consolidated financial statements.

2.7.2 New Standards, Amendments and Interpretations Issued But Not Effective for the Reported Period and Not Adopted Early

The following new standards and amendments to standards and interpretations are applicable to the Group and are effective for annual periods beginning on or after 1 January 2020. These have not been applied in preparing these consolidated financial statements and will be adopted by the Group at the moment they become effective. The Group does not expect significant impact from these standards.

Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest Rate Benchmark Reform

The amendments to IFRS 9, IAS 39 and IFRS 7 - Interest Rate Benchmark Reform were issued in 2019 and are effective for accounting periods beginning on or after 1 January 2020. Many interest rate benchmarks such as LIBOR (the London Inter-Bank Offered Rate) are in the process of being replaced. There will be financial reporting implications to this reform, with some effects arising even before a particular interest rate benchmark has been replaced (pre-replacement issues).The amendments provides relief from certain hedge accounting requirements in order to avoid unnecessary discontinuation of existing hedge relationships during the period of uncertainty over interest rate benchmark reform.

Amendments to IAS 1 and IAS 8: Definition of "Material"

The amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors on the definition of "Material" were issued in 2018 and are effective for accounting periods beginning on or after 1 January 2020. The amendments were issued to align the definition of ‘material’ across the IFRS standards and to clarify certain aspects of the definition.

Amendments to References to the Conceptual Framework in IFRS

Amendments to References to the Conceptual Framework in IFRS were issued in 2018 and are effective for accounting periods beginning on or after 1 January 2020. The amendments were issued to align various standards to reflect the issue of the revised Conceptual Framework for Financial Reporting. In addition, the amendments clarify that the definitions of asset and liability applied in certain standards have not been revised, with the new definitions included in the new conceptual framework.

2.8 Significant Accounting Estimates and Judgments

The estimates made and the related assumptions are based on historical experience and various other factors, including expectations of future events that are believed to be reasonable under the given circumstances. Estimates and underlying assumptions are subject to constant assessment. Changes in estimates and assumptions are recognized in the period in which the estimates are revised. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are described together with the applicable note, as follows:

Acquisition accounting

Note 4

Uncertain tax positions

Note 10

Leases

Note 12

Impairment test of Goodwill

Note 13

Consolidation of the Synoptik Group

Note 22

Post-Employment Benefits

Note 25

Provisions and contingencies

Note 27