Chapters
Annual Report 2019

27. Provisions

Accounting Policy
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as interest expense.

Provisions are classified as current liabilities unless the Group has an unconditional right to postpone settlement for, or the provision is due to be settled at least 12 months after the balance sheet date.

Legal and regulatory provisions

Legal and regulatory provisions are recognized for possible claims mainly related to governmental institutions.

Warranty provisions

Provisions for rectifying and replacement defects are classified as warranty provisions. The provision is based on past experience and future expectations of warranty claims. Warranty costs are recognized in the consolidated Income Statement under cost of sales and directly related costs.

Employee-related provisions

Employee-related provisions are mainly related to jubilee and termination benefits. Jubilee benefits are paid to employees upon completion of a certain number of years of service. Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits.

Other provisions

Other provisions are mainly related to restructuring provisions.

Bank borrowings to franchisees of the Group are often secured by a guarantee given by the Group to the landlord. The guarantees given are secured by the activities, store rental contracts, the inventories and store furniture of the franchisees. When a cash outflow is likely, a provision is recognized, being the present value of the expected cash outflow. If a cash outflow is not likely, the guarantee is included in the contingent liabilities.

Accounting policy applied until 31 December 2018

Restructuring provisions comprise lease termination penalties, future lease payments for closed stores and offices, and costs related to returning a store or office to its original state.

Accounting policy applied from 1 January 2019

Restructuring provisions comprise costs related to returning a store or office to its original state.

Significant Accounting Estimates and Judgments

The recognition of provisions requires estimates and judgment regarding the timing and the amount of outflow of resources. The main estimates relate to the probability ('more likely than not') of the outflow of resources. If the outflow of resources is 'more likely than not' a best estimate of the outflow is recognized. Otherwise, it is disclosed as a contingency.

If a provision is recognized, it is measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The expected expenditures are uncertain future cash flows for which management uses its knowledge, experience and judgment to determine if a corresponding provision should be recognized.

Movements in provisions are as follows:

in thousands of EUR

Legal and regulatory

Warranty

Employee-related

Share based payments

Other

Total

At 1 January 2018

18,677

8,784

9,031

-

2,750

39,242

Movements in 2018

Addition to provision

2,266

2,773

3,477

760

761

10,037

Reversal of provision

- 563

- 4,954

- 1,049

-

- 773

- 7,339

Utilized during the year

- 1,411

- 2,875

- 2,081

-

- 863

- 7,230

Exchange differences

- 455

- 1

- 446

26

10

- 866

At 31 December 2018

18,514

3,727

8,932

786

1,885

33,844

Non-current

11,397

330

4,019

786

471

17,003

Current

7,117

3,397

4,913

-

1,414

16,841

At 31 December 2018

18,514

3,727

8,932

786

1,885

33,844

At 31 December 2018

18,514

3,727

8,932

786

1,885

33,844

Adjustment on initial application of IFRS 16

- 175

- 175

Adjusted at 1 January 2019

18,514

3,727

8,932

786

1,710

33,669

Movements in 2019

Addition to provision

2,142

3,140

8,715

149

3,555

17,701

Reversal of provision

- 490

- 162

- 1,241

- 758

- 379

- 3,030

Utilized during the year

- 375

- 2,630

- 2,180

-

- 655

- 5,840

Exchange differences

- 135

8

- 163

17

-

- 273

At 31 December 2019

19,656

4,083

14,063

194

4,231

42,227

Non-current

11,257

355

5,974

194

413

18,193

Current

8,399

3,728

8,089

-

3,818

24,034

At 31 December 2019

19,656

4,083

14,063

194

4,231

42,227

Legal and regulatory

This matter was initiated by a dawn raid undertaken by the French Competition Authority (Autorite de la Concurrence or ADLC) of the GV France offices on June 24, 2009. Solaris was not part of the dawn raid. The ADLC also raided suppliers (e.g. Luxottica, Safilo) and other distributors (e.g. Afflelou, Centrale des Opticiens, Alliance Optique, Optic 2000, Krys). The ADLC was looking for information on resale price maintenance. In Sept/Oct 2011 a number of GV employees were heard and some documents were provided to the ADLC. After a long silence, we received a questionnaire from the ADLC in this matter on May 9, 2014 and provided our answers on September 29, 2014, in accordance with the deadline imposed by the ADLC. On May 27, 2015 we were formally served with a Notice of Objections from the ADLC, formally accusing us, and all other defendants, of resale price maintenance in France during 2004-2009. The Notice of Objections is a confidential document and does not contain a fine. We submitted an initial response to this Notice of Objections on July 27, 2015 with the assistance of Linklaters France. On July 22, 2016 we received the official Rapport, which is the next procedural step, from the ADLC. The Rapport did not contain any surprises and confirmed our assumptions with respect to the calculation of the fine. We submitted our official response to this Rapport on October 26, 2016. An Audience (confidential hearing) was held by the ADLC on December 15, 2016 allowing the defendants to defend their legal position. On February 24, 2017, the College of the ADLC sent the matter back to the case handlers. After a long period of inaction, on April 19, 2019 an additional Notice of Objections was received by a number of defendants, not including GrandVision. The next step will be another Audience before the ADLC.

Secondly, the provision relates mainly to the Group's ongoing tax risk management process in which it determines potential fiscal claims on VAT and other taxes in various countries. The additions in 2019 and 2018 mainly relate to VAT and other tax risks in Germany and Austria.

Employee-related

The additions in 2019 relate mainly to jubilee benefits to employees upon completion of a certain number of years of service, employee expenses related to the announced acquisition of GrandVision shares by EssilorLuxottica and severance costs of certain employees as a part of restructuring activities.

Other

Increase in other provisions relate mainly to restructuring of activities in China.

Share-based payment plans

Refer to note 26.