Note 1 - Accounting policies

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
(All figures are expressed in millions of euros unless otherwise specified)

In application of European Commission Regulation (EC) 1606/2002 of 19 July 2002, the consolidated financial statements of the Lagardère group have been prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB).
All IFRS standards and interpretations of the IFRS Interpretation Committee (IFRS-IC) endorsed by the European Union at 31 December 2019 have been applied. They can be viewed on the European Commission website at:
http ://ec.europa.eu/finance/company-reporting/
ifrs-financial-statements/index_fr.htm.
The new standards and/or amendments to IFRSs adopted by the European Union that are effective for periods beginning on or after 1 January 2019, are as follows:

  • IFRS 16 – Leases, which the Group has elected to apply using the full retrospective approach. The IFRS 16 transition approach and the impacts of applying the new standard are described in note 1.1.
  • IFRIC 23 – Uncertainty over Income Tax Treatments, which clarifies the provisions of IAS 12 – dealing with the recognition and measurement of income taxes – when there is uncertainty over income tax treatments. IFRIC 23 is applied as of 1 January 2019 and provisions for tax contingencies were therefore reclassified at that date as tax payables within other current liabilities in an amount of €19 million.
  • Amendment to IAS 28 – Long-term Interests in Associates and Joint Ventures.
  • Amendment to IAS 19 – Plan Amendment, Curtailment or Settlement.
  • Annual Improvements to IFRSs (2015–2017 Cycle).

The application of IFRS 16 results in a change in accounting principles and valuation methods, described in note 3 to the consolidated financial statements.
The other standards and amendments endorsed by the European Union that are effective for periods beginning on or after 1 January 2019 do not have a material impact on the consolidated financial statements.
In addition, the Group did not elect to early adopt the following new amendments which had been endorsed by the European Union at 31 December 2019 but which will only be effective subsequent to 2019:

  • Amendments to IAS 1 and IAS 8 – Definition of Material.
  • Amendments to the IFRS Conceptual Framework.

The new standards and amendments to existing standards published by the IASB at 31 December 2019 which have not yet been endorsed by the European Union and which will be effective subsequent to 2019 are as follows:

  • Amendment to IFRS 3 – Definition of a Business.

The Group is currently analysing the potential impact on its consolidated financial statements of applying the above amendments.
The consolidated financial statements were approved for issue by the Managing Partners on 27 February 2020 and are subject to the approval of the General Meeting of Shareholders on 5 May 2020.

Measurement principles
The financial statements have been prepared using the historical cost method, except for certain financial assets and liabilities which have been measured at fair value where applicable under IFRS.

Use of estimates and judgements
The preparation of financial statements requires the use of estimates and assumptions to determine the value of assets and liabilities and contingent amounts at the year-end, as well as the value of income and expenses for the year.
As part of the Group’s strategic refocusing around two divisions, initiated in 2018 and continued in 2019, gains and losses on disposals of the assets of the former Lagardère Active division and impairment losses recognised when measuring groups of assets classified as assets held for sale and associated liabilities (including Lagardère Studios and Lagardère Sports) take account of estimates, especially those relating to the final sale price as determined in light of earn-out clauses and vendor warranties for which provisions have been accrued.
Management reviews these estimates and assumptions at regular intervals, based on past experience and various other factors considered as reasonable, which form the basis of its assessment of the carrying amount of assets and liabilities. Actual amounts may differ from these estimates due to changes in assumptions or circumstances.
The accounting principles and valuation methods applied by the Group are described in full in note 3.

1.1 FIRST-TIME APPLICATION OF IFRS 16​
IFRS 16 is effective from 1 January 2019 and supersedes IAS 17 and the related interpretations. The Group elected to use the full retrospective approach for its transition to the new standard at 1 January 2019. Each comparative period presented has therefore been restated in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors.
As indicated in note 3.9, IFRS 16 eliminates the distinction between finance leases and operating leases. As a result, all lease contracts give rise to the recognition of a lease liability in the lessee’s balance sheet, representing the present value of lease payment commitments, notably including fixed lease payments and guaranteed minimum payments for Travel Retail. This lease liability is recognised against a right-of-use asset corresponding to the item under lease (retail premises, office buildings, etc.).
In the income statement, only the fixed rental expense, which includes at least the guaranteed minimum payments under concession agreements, is cancelled and replaced by straight-line depreciation and a decreasing interest expense. The resulting impact on profit is negative at the commencement of the lease and positive at the end of the lease. The cumulative impact over the lease term is zero in the income statement.
In the consolidated statement of cash flows, the fixed portion of lease payments, previously included in cash flow from operating activities, is presented as a decrease in lease liabilities and the associated interest expense within net cash from (used in) financing activities. The variable portion of lease payments continues to be recorded in cash flow from operating activities. IFRS 16 has no impact on the change in net cash and cash equivalents.

Revised definition of alternative performance indicators used by the Group
The application of IFRS 16 would automatically result in an increase in recurring operating profit of fully consolidated companies and free cash flow.
Specifically, in the Travel Retail business, rental payments made to concession grantors are either variable, fixed, or variable with a minimum guaranteed amount. Applying IFRS 16 to these contracts distorts the understanding of the division’s performance – since it only applies to the fixed portion of rental payments – and therefore the readability of the financial statements in monitoring operations. To ensure that the indicator remains relevant and reflects the economic substance of concession agreements, the Group has decided to neutralise the impact of IFRS 16 on recurring operating profit of fully consolidated companies as regards concession agreements only. Fixed rental expense representing the payment of lease liabilities (principal and interest) and the change in working capital related to lease liabilities is added back, while depreciation of the corresponding right-of-use asset is cancelled (see the revised definition in note 3.2). Adjusted profit attributable to owners of the Parent has been restated in the same manner.
The Group’s other leased assets are virtually all held under operating leases. Lease liabilities for these contracts and for concession agreements differ from bank or bond debt and will not therefore be included in the calculation of net debt.
Consequently, payments made to decrease the lease liability will be considered within operating and not financial items when calculating free cash flow.
The alternative performance indicators used by the Group need to remain in line with the business model and dynamic to enable the Group’s performance to be monitored and managed for the purposes of internal and financial reporting. The Group has therefore maintained its current indicators but has revised their definition in order to neutralise the pure accounting effects of IFRS 16, particularly in its Travel Retail business.
Note 3.2 sets out the revised definitions of the Group’s alternative performance indicators.

Impact on the restated 2018 financial statements
The impacts of the first-time application of IFRS 16 in the period are shown below:

Impact on the 2018 income statement​

(in millions of euros) 2018
reported		 Application of
IFRS 16		 Discontinued
operations(*)		 2018
restated
Revenue 7 258 - (390) 6 868
Other income from ordinary activities 83 - - 83
Total income from ordinary activities​ 7 341 - (390) 6 951
Purchases and changes in inventories (2 507) - (2) (2 509)
External charges (2 584) 534 181 (1 869)
Payroll costs (1 716) - 137 (1 579)
Depreciation and amortisation other than
on acquisition-related intangible assets		 (202) 2 45 (155)
Depreciation of right-of-use assets - (475) 11 (464)
Amortisation of acquisition-related intangible assets
and other acquisition-related expenses		 (75) - 3 (72)
Restructuring costs (79) - 8 (71)
Gains (losses) on:        
  • Disposals of assets
 205 - - 205
  • Lease modifications
 - (4) - (4)
  • Fair value adjustments due to changes in control
 - - - -
Impairment losses on goodwill, property, plant
and equipment and intangible assets		 (47) - 3 (44)
Other operating expenses (27) - (8) (35)
Other operating income 96 - 2 94
Income (loss) from equity-accounted companies 4 (1) - 3

 

(in millions of euros) 2018
reported		 Application of
IFRS 16		 Discontinued
operations(*)		 2018
restated
Profit (loss) before finance costs and tax 409 56 (14) 451
Financial income 20 - (6) 14
Financial expenses (79) - 8 (71)
Interest expense on lease liabilities - (77) 1 (76)

 

(in millions of euros) 2018
reported		 Application of
IFRS 16		 Discontinued
operations(*)		 2018
restated
Profit (loss) before tax 350 (21) (11) 318
Charge d’impôts (134) 4 6 (124)

 

(in millions of euros) 2018
reported		 Application of
IFRS 16		 Discontinued
operations(*)		 2018
restated
Profit (loss) from continuing operations 216 (17) (5) 194
Profit from discontinued operations - - 5 5


​

(in millions of euros) 31.12.2018
publié		 Application of
IFRS 16		 Discontinued
operations(*)		 2018
restated
Profit for the year 216 (17) - 199
Attributable to:        
Owners of the Parent 194 (17) - 177
Minority interests 22 - - 22

(*) Data for 2018 relating to Lagardère Sports was reclassified within discontinued operations in accordance with IFRS 5 (see note 4.3).

The €56 million increase in profit before finance costs and tax for full-year 2018 includes €40 million relating to concession agreements and €16 million relating to buildings and other leases. Interest expense on lease liabilities amounts to €77 million, including €58 million relating to concession agreements and €19 million relating to buildings and other leases.
Recurring operating profit of fully consolidated companies increased by €16 million in 2018.

Impact on the balance sheet at 1 January 2018

ASSETS (in millions of euros) 31 Dec. 2017
reported		 Application of
IFRS 9		 Application of
IFRS 16		 1 Jan. 2018
restated
Intangible assets 1 058 - - 1 058
Goodwill 1 809 - - 1 809
Right-of-use assets - - 2 378 2 378
Property, plant and equipment 733 - (9) 724
Investments in equity-accounted companies 123 - (2) 121
Other non-current assets 219 (9) - 210
Deferred tax assets 206 3 39 248

 

ASSETS (in millions of euros) 31 Dec. 2017
reported		 Application of
IFRS 9		 Application of
IFRS 16		 1 Jan. 2018
restated
Total non-current assets 4 148 (6) 2 406 6 548
Inventories 583 - - 583
Trade receivables 1 418 (2) (2) 1 414
Other current assets 943 - (9) 934
Cash and cash equivalents 546 - - 546

 

ASSETS (in millions of euros) 31 Dec. 2017
reported		 Application of
IFRS 9		 Application of
IFRS 16		 1 Jan. 2018
restated
Total current assets 3 490 (2) (11) 3 477

 

ASSETS (in millions of euros) 31 Dec. 2017
reported		 Application of
IFRS 9		 Application of
IFRS 16		 1 Jan. 2018
restated
Assets held for sale 6 - - 6

 

ASSETS (in millions of euros) 31 Dec. 2017
reported		 Application
d’IFRS 9		 Application of
IFRS 16		 1 Jan. 2018
restated
Total assets 7 644 (8) 2 395 10 031

 

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2017
reported		 Application of
IFRS 9		 Application of
IFRS 16		 1 Jan. 2018
restated
Share capital 800 - - 800
Reserves 809 (8) (102) 699
Profit attributable to owners of the Parent 176 - (12) 164

 

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2017
reported		 Application of
IFRS 9		 Application of
IFRS 16		 1 Jan. 2018
restated
Equity attributable to owners of the Parent 1 785 (8) (114) 1 663
Minority interests 139 - (2) 137

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2017
reported		 Application of
IFRS 9		 Application of
IFRS 16		 1 Jan. 2018
restated
Total equity 1 924 (8) (116) 1 800
Provisions for pensions and other post-employment
benefit obligations		 163 - - 163
Non-current provisions for contingencies and losses 220 - - 220
Non-current debt 1 560 - (5) 1 555
Non-current lease liabilities - - 2 115 2 115
Other non-current liabilities 120 - - 120
Deferred tax liabilities 234 - (3) 231

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2017
reported		 Application of
IFRS 9		 Application of
IFRS 16		 1 Jan. 2018
restated
Total non-current liabilities 2 297 - 2 107 4 404
Current provisions for contingencies and losses 147 - - 147
Current debt 375 - (5) 370
Current lease liabilities - - 431 431
Trade payables 1 386 - (22) 1 364
Other current liabilities 1 515 - - 1 515

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2017
reported		 Application of
IFRS 9		 Application of
IFRS 16		 1 Jan. 2018
restated
Total current liabilities 3 423 - 404 3 827

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2017
reported		 Application of
IFRS 9		 Application of
IFRS 16		 1 Jan. 2018
restated
Liabilities associated with assets held for sale - - - -

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2017
reported		 Application of
IFRS 9		 Application of
IFRS 16		 1 Jan. 2018
restated
Total equity and liabilities 7 644 (8) 2 395 10 031

Impact on the balance sheet at 31 December 2018

ASSETS (in millions of euros) 31 Dec. 2018
reported		 Application of
IFRS 16		 31 Dec. 2018
restated
Intangible assets 1 196 - 1 196
Goodwill 1 624 - 1 624
Right-of-use assets - 2 552 2 552
Property, plant and equipment 800 (6) 794
Investments in equity-accounted companies 73 (3) 70
Other non-current assets 196 - 196
Deferred tax assets 176 39 215

 

ASSETS (in millions of euros) 31 Dec. 2018
reported		 Application of
IFRS 16		 31 Dec. 2018
restated
Total non-current assets 4 065 2 582 6 647
Inventories 566 - 566
Trade receivables 1 296 (2) 1 294
Other current assets 883 (11) 872
Cash and cash equivalents 710 - 710

 

ASSETS (in millions of euros) 31 Dec. 2018
reported		 Application of
IFRS 16		 31 Dec. 2018
restated
Total current assets 3 455 (13) 3 442


​

ASSETS (in millions of euros) 31 Dec. 2018
reported		 Application of
IFRS 16		 31.12.2018
retraité
Assets held for sale 699 2 701

 

ASSETS (in millions of euros) 31 Dec. 2018
reported		 Application of
IFRS 16		 31 Dec. 2018
restated
Total assets 8 219 2 571 10 790

 

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2018
reported		 Application of
IFRS 16		 31 Dec. 2018
restated
Share capital 800 - 800
Reserves 851 (114) 737
Profit attributable to owners of the Parent 194 (17) 177

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2018
reported		 Application of
IFRS 16		 31 Dec. 2018
restated
Equity attributable to owners of the Parent 1 845 (131) 1 714
Minority interests 156 (2) 154

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2018
reported		 Application of
IFRS 16		 31 Dec. 2018
restated
Total equity 2 001 (133) 1 868
Provisions for pensions and other post-employment
benefit obligations		 135 - 135
Non-current provisions for contingencies and losses 190 - 190
Non-current debt 1 024 (4) 1 020
Non-current lease liabilities - 2 283 2 283
Other non-current liabilities 237 - 237
Deferred tax liabilities 248 (4) 244

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2018
reported		 Application of
IFRS 16		 31 Dec. 2018
restated
Total non-current liabilities 1 834 2 275 4 109
Current provisions for contingencies and losses 146 - 146
Current debt 1 069 (4) 1 065
Current lease liabilities - 458 458
Trade payables 1 215 (27) 1 188
Other current liabilities 1 541 - 1 541

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2018
reported		 Application of
IFRS 16		 31 Dec. 2018
restated
Total current liabilities 3 971 427 4 398

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2018
reported		 Application of
IFRS 16		 31 Dec. 2018
restated
Liabilities associated with assets held for sale 413 2 415

 

EQUITY AND LIABILITIES (in millions of euros) 31 Dec. 2018
reported		 Application of
IFRS 16		 31 Dec. 2018
restated
Total equity and liabilities 8 219 2 571 10 790

Impact on the consolidated statement of cash flows for 2018

(in millions of euros) 2018
reported		 Application
of IFRS 16		 Discontinued
operations(*)		 31 Dec. 2018
restated
Profit for the year 216 (17) (5) 194
Income tax expense 134 (4) (6) 124
Finance costs, net 59 77 (3) 133

 

(in millions of euros) 2018
reported		 Application
of IFRS 16		 Discontinued
operations(*)		 2018
restated
Profit before finance costs and tax 409 56 (14) 451
Depreciation and amortisation expense 268 473 (59) 682
(Gains) losses on disposals of assets (205) 4 - (201)
(Income) loss from equity-accounted companies (4) 1 - (3)
Changes in working capital 55 (4) (35) 16
Other cash flows related to operating activities 37 - (6) 31

 

(in millions of euros) 2018
reported		 Application
of IFRS 16		 Discontinued
operations(*)		 2018
restated
Cash flow from operating activities 560 530 (114) 976
Income taxes paid (77) - 5 (72)

 

(in millions of euros) 2018
reported		 Application
of IFRS 16		 Discontinued
operations(*)		 2018
restated
Net cash from operating activities 483 530 (109) 904

 

(in millions of euros) 2018
reported		 Application
of IFRS 16		 Discontinued
operations(*)		 2018
restated
Net cash used in investing activities (204) - 51 (153)

 

(in millions of euros) 31.12.2018
publié		 Application
of IFRS 16		 Discontinued
operations(*)		 2018
restated
Net cash from operating and investing activities 279 530 (58) 751

 

(in millions of euros) 2018
reported		 Application
of IFRS 16		 Discontinued
operations(*)		 2018
restated
Net cash used in financing activities (59) (530) 18 (571)

 

(in millions of euros) 2018
reported		 Application
of IFRS 16		 Discontinued
operations(*)		 2018
restated
Total other movements (37) - - (37)
Net cash from (used in) discontinued operations - - 40 40
Change in cash and cash equivalents 183 - - 183

 

(in millions of euros) 2018
reported		 Application
of IFRS 16		 Discontinued
operations(*)		 2018
restated
Cash and cash equivalents at beginning of year 477 - - 477

 

(in millions of euros) 2018
reported		 Application
of IFRS 16		 Discontinued
operations(*)		 2018
restated
Cash and cash equivalents at end of year 660 - - 660

(*) Data for 2018 relating to Lagardère Sports was reclassified within discontinued operations in accordance with IFRS 5 (see note 4.3).