Notes to the company’s financial statements at 31 december 2019

(All figures are expressed in millions of euros unless otherwise specified)

PRELIMINARY INFORMATION​
Lagardère SCA – the parent company of the Lagardère group, whose registered office is located at 4 rue de Presbourg in Paris 16 (registration number 32036644600013) – is a holding company, and as such its balance sheet items principally comprise investments and the Group’s financing resources.
Since 1 January 2014, Lagardère SCA has been directly responsible for billing the Group’s operating divisions for assistance provided by corporate functions, instead and in place of its subsidiary, Lagardère Ressources. This led to the following organisational changes:

  • Lagardère SCA, which previously had no employees, now employs eight people managing the corporate functions. These managers make use of Lagardère Ressources teams and resources, which the latter makes available to them and which they in turn continue to supervise.
  • In consideration for the services provided to it, Lagardère SCA pays Lagardère Ressources a fee intended to cover the costs directly or indirectly incurred by the latter. The annual amount of this fee is calculated based on the actual costs booked in the accounts.

As in the past, Lagardère SCA continues to directly bear any expenses relating to certain services provided to it at its request by external consultants.

ACCOUNTING PRINCIPLES AND VALUATION METHODS
1. GENERAL INFORMATION​
The Company’s financial statements have been prepared in accordance with the accounting methods and principles established by the laws and regulations applicable in France. In particular, they have been prepared in accordance with Regulation 2015-05 issued by the French accounting standard-setter (Autorité des normes comptables – ANC) on forward financial instruments and hedging transactions, effective for accounting periods beginning on or after 1 January 2017.

2. LONG-TERM INVESTMENTS​
Investments in subsidiaries and affiliates are stated at acquisition cost or subscription price. When value in use is lower than net book value, an impairment loss is booked. Value in use is generally estimated on the basis of a review of the situation at the year-end and of the outlook for future years, as well as of any other elements contributing to the formulation of a pertinent assessment.
The recoverability of loans and advances to subsidiaries and affiliates is assessed based on the characteristics of the loans and advances and on the growth and profitability outlook for the related entities. In principle, these loans and advances are only written down after the related investments have been written down in full.

3. MARKETABLE SECURITIES​
Marketable securities are stated at purchase cost using the first-in-first out (FIFO) method. Impairment losses are booked when the market price or realisable value of the securities at the year-end is lower than their initial acquisition cost.
Gains and losses on disposals of marketable securities are reported net of revenues generated by the same securities on a single line of the income statement, such that the economic benefit of transactions on these securities is directly visible.

4. TRANSACTIONS IN FOREIGN CURRENCIES​
Receivables, payables, loans and borrowings denominated in foreign currency are translated into euros in the balance sheet based on the year-end exchange rates, with an offsetting entry to “Translation adjustment” under either assets or liabilities in the balance sheet. Unrealised exchange gains do not affect the income statement.
All unrealised exchange losses are provided for in full, except:

  • for hedges, where the provision only covers the unhedged portion of the risk;
  • for unrealised gains and losses concerning transactions with similar settlement dates in the same accounting period: in such cases, a provision is only recognised to the extent of the unrealised net loss.

Bank accounts denominated in foreign currency are translated into euros at year-end exchange rates, with an offsetting entry to foreign exchange gains and losses.

5. FORWARD FINANCIAL INSTRUMENTS​
The Company may use currency and interest rate derivatives to hedge borrowings and/or loans granted to Group companies.

  • The foreign currency component of derivatives hedging receivables, payables, loans and borrowings in foreign currency are translated into euros in the balance sheet in order to present the symmetrical impact of changes in value in “Translation adjustment” under assets or liabilities in the balance sheet.
  • Unrealised gains and losses are considered as part of an overall foreign exchange position, limiting the provision for foreign exchange losses to the extent of the unrealised net loss, provided that the settlement dates of the items included in the position fall in the same accounting period.

NOTES TO THE COMPANY’S BALANCE SHEET AND INCOME STATEMENT

1. FIXED ASSETS​
Movements in the gross value of fixed assets can be analysed as follows:

  1 Jan. 2019 Increase Decrease 31 Dec. 2019
Tangible assets - - - -
Long-term investments:        
Investments in subsidiaries and affiliates
and other investment securities(*)		 4 821 52 (54) 4 819
Loans and advances to subsidiaries and
affiliates		 757 15 - 772
Other long-term investments 4   - 5
Total 5 582 67 (54) 5 596

(*) This item includes the Company’s investment in the FPCI Idinvest fund amounting to €11 million. €9 million had been subscribed at 31 December 2019.

Investments in subsidiaries and affiliates amounted to €4,819 million at 31 December 2019:

  • of which €52 million shown under “Increase” and attributable to purchases of treasury shares, including €29 million allocated to employee share plans and €23 million in connection with the liquidity agreement; and
  • €54 million shown under “Decrease” chiefly reflecting (i) the sale of treasury shares under the liquidity agreement for €22 million; the cancellation of the gross amount of treasury shares by means of a capital reduction for €15 million; and (iii) the derecognition of the gross value of Holpa SAS shares in light of their sale to Lagardère Participations, for €17 million.

Loans and advances to subsidiaries and affiliates chiefly relate to USD loans granted to Lagardère North America in connection with the financing of the acquisition of the Paradies group in 2015 for USD 530 million and of Hojeij Branded Foods (HBF) at end-2018 for USD 330 million. The €15 million increase is attributable to the remeasurement of loans denominated in foreign currency at the year-end exchange rate.

Changes in depreciation, amortisation and impairment can be analysed as follows:

  1 Jan. 2019 Increase Decrease 31 Dec. 2019
Long-term investments:​        
Investments in subsidiaries and affiliates and other investment securities (220) (4) 15 (209)
Loans and advances to subsidiaries
and affiliates		 - - - -
Total (220) (4) 15 (209)

The €4 million increase in this item during the year corresponds to the write-down of treasury shares for €1 million and to Lagardère Ressources shares for €3 million.
The amount of €15 million shown in “Decrease” reflects the reversal of the provision for impairment of Holpa SAS shares in light of their sale to Lagardère Participations for €13 million, and the cancellation of provisions for treasury shares in an amount of €2 million, offset against the corresponding share capital reduction.

2. RECEIVABLES​
At 31 December 2019, the maturity of receivables was as follows:

  Gross Due within one year Due beyond one year
Long-term receivables 772 6 766
Short-term receivables 57 57 0
Total 829 63 766
 

Long-term receivables correspond to the loans granted to Lagardère North America for USD 860 million. Short-term receivables include:

  • €3 million corresponding to the remeasurement of the currency component of the cross-currency swaps hedging half of the loans granted to Lagardère North America;
  • €3 million attributable to a credit note from Lagardère Ressources;
  • €18 million in Group trade receivables;
  • €23 million corresponding to tax-related receivables (including €20 million in tax receivables and €3 million in refundable VAT);
  • €10 million in intercompany receivables arising on tax consolidation.

3. MARKETABLE SECURITIES​

  31 Dec. 2019 31 Dec. 2018
At cost 3 4
Impairment - -
Carrying amount​ 3 4
Market value 3 4
Unrealised gains​ - -

4. CHANGES IN SHAREHOLDERS’ EQUITY​
Changes in shareholders’ equity are analysed below:

  Share capital Share
premiums
and reserves		 Retained
earnings		 Profit
for the year		 Interim
dividend to be
allocated		 Total
Shareholders’ equity
at 31 December 2018​		 800 1 817 100 278 - 2 995
Capital reduction (4) (14) - - - (18)
Capital increase 4 - - - - (4)
Allocation of 2018 profit - - 278 (278) - -
Dividends paid(*)​ - - (172) - - (172)
Profit for the year - - - 78 - 78
Shareholders’ equity
at 31 December 2019​		 800 1 803 206 78 - 2 887

(*) Including the portion of profit paid to the General Partners.

At 31 December 2019, the share capital of Lagardère SCA amounted to €799,913,044.60, represented by 131,133,286 shares with a par value of €6.10 each, all ranking pari passu and fully paid up. In 2019, the Group carried out two capital reductions by cancelling 581,012 treasury shares for an amount of €4 million. These operations took place following capital increases carried out by capitalising reserves and involving the same number of shares. The newly-issued shares were definitively allocated:

  • on 1 April 2019, to beneficiaries of the 1 April 2015 plan residing outside France for tax purposes (59,000 shares);
  • on 9 May 2019, to beneficiaries of the 9 May 2016 plan residing in France for tax purposes (522,012 shares).

5. TREASURY SHARES​
Changes in the number of treasury shares held by Lagardère SCA break down as follows for 2019:

  2019
Number of treasury shares held at 1 January​ 1 260 478
Purchases of treasury shares under the liquidity agreement(*)​ 1 087 474
Sales of treasury shares under the liquidity agreement(*)​ (989 974)
Purchases (for treasury shares awarded to employees) 1 500 000
Awards -
Capital reduction by cancellation of treasury shares (581 012)
Number of treasury shares held at 31 December​ 2 276 966

(*) Liquidity agreement entered into in 2008 with Crédit Agricole Cheuvreux for market-making purposes.

6. BONDS​
On 6 April 2016, Lagardère SCA undertook a €500 million bond issue settled on 13 April 2016, which is redeemable at maturity on 13 April 2023 and pays interest at a fixed rate of 2.75%. The interest expense for 2019 amounted to €14 million.
On 14 June 2017, Lagardère SCA undertook a €300 million bond issue settled on 21 June 2017, which is redeemable at maturity on 21 June 2024 and pays interest at a fixed rate of 1.625%.
The interest expense for 2019 amounted to €5 million.
On 9 October 2019, Lagardère SCA undertook a €500 million bond issue settled on 16 October 2019, which is redeemable at maturity on 16 October 2026 and pays interest at a fixed rate of 2.125%. The interest expense for 2019 amounted to €2 million.

7. MATURITIES OF LIABILITIES​

  31 Dec. 2019 Due within one year Due between
one and five years		 Due beyond
five years
Bonds 1 315 15 800 500
Negotiable securities 512 448 64 -
Other borrowings 947 3 387 557
Trade and other payables 50 50 - -
Total 2 824 516 1 251 1 057


Details of the Group’s bond issues are set out in note 6.
Negotiable securities include:

  • commercial paper issuance under the NEU CP programme with an €850 million ceiling. Debt issues under the programme represented €449 million at 31 December 2019 versus €477 million at 31 December 2018; and
  • the negotiable European Medium Term Notes (NEU MTN) programme with a ceiling of €200 million. Debt issues under the programme represented €64 million at 31 December 2019 versus €19 million at 31 December 2018.

Other borrowings for €947 million break down as follows by maturity:

  • €387 million in borrowings due between one and five years (bank loans and Schuldscheindarlehen German law private placement);
  • €557 million in borrowings due beyond five years (€66 million relating to a Schuldscheindarlehen German law private placement and €491 million corresponding to the current account with Lagardère Finance);
  • €3 million due within one year (accrued interest not yet due on the EUR/USD cross-currency swap).

8. PROVISIONS AND IMPAIRMENT​

Type of provision and impairment 1 Jan. 2019 Additions Reversals 31 Dec. 2019
Provisions for risks and liabilities(*) 31 12 11 32
Impairment        
  • long-term investments(**)​
 220 4 15 209
  • other​
 - - - -
Impairment sub-total​ 220 4 15 209
Total 251 16 26 241
Including additions and reversals:        
  • relating to operating items​
   5 4  
  • relating to financial items​
   4 15  
  • relating to exceptional items​
   7 7  

(*) Including additions to provisions for risks and liabilities for €12 million (€7 million in respect of negative net equity at Lagardère Ressources and €4 million in respect of restructuring costs at Lagardère SCA in the scope of the headquarters reorganisation. Reversals for €11 million include the reversal of a provision for subsidiary risks relating to Matra Manufacturing Services for €3 million and reversals of risks that were extinguished in 2019 for €6 million.
(**) Details are provided in note 1.

9. TRANSACTIONS WITH SUBSIDIARIES AND AFFILIATES (NET VALUES) – BALANCE SHEET

Assets   Liabilities  
Long-term investments 5 328 Borrowings 491
Short-term receivables 32 Trade and other payables 37
Other - Other -

Long-term investments mainly include shares in Lagardère Media, Lagardère Finance, and MNC, along with the loans granted to Lagardère North America.
Borrowings comprise the current account with Lagardère Finance. Short-term receivables and trade payables include intra-group trade payables and receivables and tax consolidation current accounts.

10. TRANSACTIONS WITH SUBSIDIARIES AND AFFILIATES – INCOME STATEMENT

Expenses   Revenues  
Operating(*) 57 Operating(**) 68
Financial - Financial(***) 86
Exceptional(****) 3 Exceptional(****) 3

(*) General services provided by Lagardère Ressources.
(**) Including services provided for €53 million, brand royalties for €9 million and expense transfers for €6 million.
(***) Including dividends for €48 million and loan interest for €38 million.
(****) Exceptional income and expenses relate to the sale of Holpa shares to Lagardère Participations.

11. ACCRUED INCOME AND EXPENSES

Accrued income included
in the following balance sheet items:		   Accrued expenses included
in the following balance sheet items:		  
Long-term investments 10 Borrowings 18
Short-term receivables 8 Trade and other payables 4
Cash and cash equivalents -   -
Total 18 Total 22

12. NET FINANCIAL INCOME

  2019 2018
Financial income 96 254
Financial income from investments in subsidiaries and affiliates 86 236
Income from other investment securities and long-term receivables 2 1
Other interest and similar income 8 7
Net income from marketable securities - -
Reversals of provisions and expense transfers - 10
Foreign exchange gains - -
Financial expenses (59) (56)
Interest and similar expenses (54) (47)
Additions to provisions (4) (8)
Foreign exchange losses (1) (1)
Net financial income 37 198

13. EXCEPTIONAL ITEMS

  2019 2018
Net gains (losses) on disposals of assets 4 -
Net (additions to) reversals of provisions - (5)
Other exceptional income and expenses (4) -
Net exceptional income (expense) - (5)

14. INCOME TAX
The Company reported an income tax benefit of €51 million in 2019. This reflects tax consolidation relief of €41 million and Group tax income of €10 million. At 31 December 2019, the tax group comprising Lagardère SCA and its subsidiaries had unused tax loss carryforwards of some €166 million.

15. OFF-BALANCE SHEET COMMITMENTS

Commitments given Amount Commitments received Amount
Guarantees given on behalf of
subsidiaries to cover contract-related
financial commitments		 5    
Rent guarantees given to subsidiaries - Confirmed, unused lines of credit 1 250
Guarantees given to third parties - Counter-guarantees received from third
parties		 -

Free share award plans
From 2016 to 2019, the Group set up plans to award free shares to employees, the Co-Managing Partners and members of the Enlarged Committee (the Lagardère Media Operating Committee up to May 2016).

  Number of free shares awarded
at inception		        Number of outstanding rights
at 31 Dec. 2019
9 May 2016 plans 829 660 186 240
6 April 2017 plans 817 660 805 010
16 April 2018 plans 812 460 790 860
8 April 2019 plans 474 990 464 990
14 May 2019 plans 232 370 228 370
10 October 2019 plans 100 000 100 000
  • 9 May 2016 plans: 829,660 shares;
  • 6 April 2017 plans: 817,660 shares;
  • 16 April 2018 plans: 812,460 shares;
  • 8 April 2019 plans: 474,990 shares;
  • 14 May 2019 plans: 232,370 shares;
  • 10 October 2019 plans: 100,000 shares.

For Group employees who are beneficiaries of the 9 May 2016, 6 April 2017, 16 April 2018, 8 April 2019 and 10 October 2019 plans, these plans do not include any performance conditions. The shares vest definitively only after a three-year period, provided employee beneficiaries who are tax-resident in France have remained in the Group’s employment throughout that time. For beneficiaries who are not tax-resident in France, the shares vest definitively at the end of a four-year period, provided that the beneficiaries have remained in the Group’s employment for three years.
For the Group’s Co-Managing Partners and the members of the Enlarged Committee, who are beneficiaries of the 9 May 2016, 6 April 2017, 16 April 2018, 14 May 2019 and 10 October 2019 plans, the shares will only vest subject to:

  • the beneficiaries remaining with the Group until at least 9 May 2019, 6 April 2020, 17 April 2021, 15 May 2022 and 11 October 2022, respectively, under the 2016, 2017, 2018 and 2019 plans;
  • and
    • for plans awarded in 2018 and earlier, achievement of objectives based on criteria internal to the Group (consolidated operating profit and net cash from operating activities), with the number of shares awarded reduced accordingly if these objectives are not met;
    • for plans awarded in 2019, 80% of the award is subject to the achievement of objectives based on criteria internal to the Group (recurring operating profit of fully consolidated companies, free cash flow, and proportion of women in senior management), with the number of shares awarded reduced accordingly if these objectives are not met. The remaining 20% of the award is subject to meeting criteria linked to market conditions (relative performance of Lagardère SCA’s Total Shareholder Return), with no adjustment to the corresponding plan expense if these objectives are not met.

16. FINANCIAL INSTRUMENTS
As part of the management of currency and interest rate risks generated by external financing or intragroup loans and borrowings in foreign currency, the Company may enter into hedging agreements with leading banks.
At 31 December 2019, Lagardère SCA held cross-currency swaps hedging USD 430 million of the USD 860 million in loans granted to Lagardère North America.

  Forward sales
of USD
(in millions
of currency units)		 Forward purchases
of euros
(in millions
of currency units)		 Fair value
at 31 Dec. 2019
(in millions of euros)(*)		 Fair value
at 31 Dec. 2018
(in millions of euros)
Cross-currency swaps
maturing 19 September 2019		 - - - 3
Cross-currency swaps
maturing 13 April 2023		 165 148 1 5
Cross-currency swaps
maturing 21 June 2024		 165 145 (2) (1)
Cross-currency swaps
maturing 26 June 2026		 100 91 2 -
Hedging derivatives 384 384 1 7

(*) Including €1 million in respect of the currency component recognised in the balance sheet under other receivables/payables with an offsetting entry to translation adjustment under assets/liabilities in order to present the symmetrical impact of the hedge.

At 31 December 2019, the remeasurement of the loans granted to Lagardère North America at the year-end rate gave rise to an €8 million unrealised foreign exchange gain, and the remeasurement of hedging instruments generated an unrealised gain of €1 million. The maturities of the cross-currency swaps are aligned with those of the underlying bonds. From an economic standpoint, the derivatives enable the Group to convert fixed-rate euro-denominated bonds into fixed-rate US dollar-denominated debt.

Subsidiaries and affiliates at 31 December 2019

(in thousands of euros) Share capital Reserves (excl.
retained earnings)		 Share of capital
held (%)		 Carrying amount
of shares held		 Outstanding
loans and
advances
granted
by the Company		 Guarantees given
by the Company		 Revenue
for the last
fiscal year		 Profit (loss)
for the last
fiscal year		 Dividends
received by the
Company during
the year
        Gross Net          
Information on investments with a book value in excess
of 1% of Lagardère SCA’s share capital or over which it
exercises significant influence		                    
A - Subsidiaries (Lagardère SCA’s holding: at least 50%)
LAGARDÈRE FINANCE
(immeuble Monceau - 42. rue Washington - 75008 Paris)		 1 540 000 169 784 100,00 1 695 000 1 695 000     0 9 955 8 400
LAGARDÈRE MEDIA
(4. rue de Presbourg - 75116 Paris)		 879 611 310 653 100,00 2 730 374 2 730 374     11 (527 477) 39 033
LAGARDÈRE PARTICIPATIONS
(4. rue de Presbourg - 75116 Paris)		 15 250 2 319 100,00 25 445 25 445     0 (69) 0
LAGARDÈRE RESSOURCES
(immeuble Monceau - 42. rue Washington - 75008 Paris)		 2 000 476 100,00 101 332 0     61 750 (9 502) 0
MATRA MANUFACTURING & SERVICES
(4. rue de Presbourg - 75116 Paris)		 13 528 (23 519) 100,00 94 035 0     171 390 0
M N C
(immeuble Monceau - 42. rue Washington - 75008 Paris)		 89 865 14 433 100,00 112 732 104 262     0 (36) 0
B - Affiliates (Lagardère SCA’s holding: 10% to 50%)
C - Other significant investments (Lagardère SCA’s holding: less than 10%)
Information concerning other subsidiaries and affiliates                    
A - Subsidiaries not included in paragraph A above
  • Other subsidiaries: Lagardère UK
       452 452       59 451
B - Affiliates not included in paragraph B above
  • Other subsidiaries
                    
C - Investments not included in paragraph C above
  • Other subsidiaries
                    

Investment portfolio at 31 December 2019
(Article 6 of the French law of 1 March 1986)

I. Investments in subsidiaries and affiliates (in thousands of euros)  
A. Investments in French companies  
Book value over €15,000  
Number of shares held:  
280 000 000 Lagardère Finance 1 695 000
54 974 977 Lagardère Media 2 730 374
999 991 Lagardère Participations 25 445
200 000 Lagardère Ressources 0
845 474 Matra Manufacturing & Services 0
7 848 480 MNC 104 262
Book value below €15,000   0
Total investments in French companies   4 560 978
B. Investments in non-French companies    
Number of shares held:    
325 100 Lagardère UK 452
Book value below €15,000   0
Total investments in non-French companies   452
Total investments in subsidiaries and affiliates   4 555 533

 

II. Other long-term investments (in thousands of euros)    
C. Investment funds    
  FCPR IDINVEST 9 047
Total investment funds   9 047
D. Treasury shares   44 527
Total treasury shares   44 527
Total other long-term investments   53 574

 

III.  Short-term investments
(in thousands of euros)		    
A. French securities    
1.Equities and mutual funds   0
Number of shares held:  0 0
2. Collective investment funds   0
Number of shares held: 11 2 566
Total short-term investments (book value)   2 566

Lagardère SCA – Five-year financial summary
(Articles R. 225-83 and R. 225-102 of the French Commercial Code)

Type of indications 2015 2016 2017 2018 2019
I Share capital at 31 December
(in euros)		          
a) Share capital 799 913 045 799 913 045 799 913 045 799 913 045 799 913 045
b) Number of ordinary shares outstanding 131 133 286 131 133 286 131 133 286 131 133 286 131 133 286
c) Maximum number of shares to
be issued upon exercise of share
subscription options		 - - - - -
d) Maximum number of shares to be
issued upon conversion of bonds		 - - - - -
e) Number of shares to be issued upon
exercise of subscription warrants		 - - - - -

 

Type of indications 2015 2016 2017 2018 2019
II Results of operations
(in thousands of euros)		          
a) Revenue 56 327 59 453 59 546 60 202 71 202
b) Earnings (loss) before tax, depreciation,
amortisation and provisions		 (13 960) (40 470) 82 873 188 116 31 627
c) Income tax(*)​ 74 308 63 132 87 805 94 576 51 161
d) Earnings after tax, depreciation,
amortisation and provisions		 41 082 31 440 162 282 277 979 77 512
e) Dividends paid 168 088 170 025 170 604 171 673 **

 

Type of indications 2015 2016 2017 2018 2019
III Earnings per share (in euros)          
a) Earnings (loss) per share after tax, but
before depreciation, amortisation and
provisions		 (0,67) 0,17 1,30 2,16 0,63
b) Earnings per share after tax, depreciation,
amortisation and provisions		 0,31 0,24 1,24 2,12 0,59
c) Dividend per share 1,30 1,30 1,30 1,30 **

 

Type of indications 2015 2016 2017 2018 2019
IV Personnel
(in euros, excluding headcount)​		          
a) Average headcount 9 9 8 8 8
b) Total wages and salaries 2 509 884 2 944 590 2 607 183 2 607 183 2 160 348
c) Total employee benefit expense 1 038 059 1 025 805 1 275 889 896 224 735 669

(*) Mainly the tax benefit resulting from tax consolidation.
(**) The Annual General Meeting on 5 May 2020 will be asked to approve a dividend of €1.00 per share.