Notes to the consolidated financial statements
For the financial year ended 31 December 2017
1. General information
Accell Group N.V. (“Accell Group”) in Heerenveen, the Netherlands, is the holding company of a group of legal entities. An overview of the data required pursuant to articles 2:379 and 2:414 of the Netherlands Civil Code is enclosed in note 11 Subsidiaries of the financial statements. Accell Group with its group of companies is internationally active in the design, development, production, marketing and sales of innovative and high-quality bicycles, bicycle parts and accessories.
2. Basis of preparation
A. Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRSs) and with Section 2:362(9) of the Netherlands Civil Code.
The consolidated financial statements were authorized for issue by the Board of Directors on 9 March 2018.
B. Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for the following items, which are measured on an alternative basis on each reporting date:
- derivative financial instruments measured at fair value: measured at fair value through other comprehensive income: measurement at fair value;
- the net defined benefit obligation (asset): measured at the fair value of plan assets, less the present value of the defined benefit obligation.
C. Functional and presentation currency
These consolidated financial statements are presented in euro, which is Accell Group’s functional currency.
D. Use of estimates
In preparing these consolidated financial statements, Accell Group has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized prospectively.
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending 31 December 2017 is included in the following notes:
- Note 17 – measurement of defined benefit obligations: key actuarial assumptions;
- Note 19 – recognition of deferred tax assets: availability of future taxable profit against which tax losses carried forward can be used;
- Notes 9 and 10 – impairment test: key assumptions underlying recoverable amounts, including the recoverability of development costs;
- Note 20 – recognition and measurement of provisions: key assumptions about the likelihood and magnitude of an outflow of resources.
Measurement of fair values
A number of Accell Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or a liability, Accell Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. Accell Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
- Note 18 – share-based payment arrangements;
- Note 22 – financial instruments - fair values and risk management.
E. Changes in accounting policies
There were no changes in accounting policies, effective from 1 January 2017, that materially impact Accell Group.
3. Significant accounting policies
Accell Group has consistently applied the following accounting policies to all periods presented in these consolidated financial statements.
A. Basis of consolidation
Accell Group accounts for business combinations using the acquisition method when control is transferred to Accell Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.
Any contingent consideration payable is measured at fair value at the acquisition date. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.
Subsidiaries are entities controlled by Accell Group. Accell Group controls an entity when it 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. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
Loss of control
When Accell Group loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any non-controlling interests and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
Interests in equity-accounted investees
Accell Group's interests in equity-accounted investees comprise interests in associates and a joint venture.
Associates are those entities in which Accell Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which Accell Group has joint control, whereby Accell Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and the joint venture are accounted for using the equity method. They are recognized initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include Accell Group’s share of the profit or loss and OCI of equity-accounted investees, until the date on which significant influence or joint control ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of Accell Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
Revenue from the sale of goods is recognized when the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. Revenue is measured net of returns, trade discounts and volume rebates.
The timing of the transfer of risks and rewards varies depending on the individual terms of the sales agreement. For sales of bicycles, parts and accessories, usually transfer occurs when the product is delivered to the customer’s warehouse; however, for some international shipments the transfer occurs on loading the goods onto the relevant carrier at the port. Generally, for such products the customer has no right of return.
C. Finance income and finance costs
The Group’s finance income and finance costs include:
- interest income;
- interest expense;
- bank fees;
- dividend income;
- the foreign currency gain or loss on financial assets and financial liabilities;
- the gain on the remeasurement to fair value of any pre-existing interest in an acquiree in a business combination;
- (reversal of) impairment losses recognized on financial assets (other than trade receivables).
Interest income or expense is recognized using the effective interest method. Dividend income is recognized in profit or loss on the date that Accell Group’s right to receive payment is established.
D. Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of group companies at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are not translated again at a later stage.
Foreign currency differences are generally recognized in profit or loss. However, foreign currency differences arising from the translation of qualifying cash flow hedges to the extent the hedges are effective are recognized in OCI.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into euro at exchange rates at the reporting date. The income and expenses of foreign operations are translated into euro at the exchange rates at the dates of the transactions.
Foreign currency differences are recognized in OCI and accumulated in the translation reserve, except to the extent that the translation difference is allocated to non-controlling interests.
When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If Accell Group disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When Accell Group disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.
If the unwinding of a monetary balance, which is either collectable from or payable to a foreign operation is neither planned nor probable in the foreseeable future, than the foreign currency differences of this monetary balance is considered part of the net investment in the foreign operation. Accordingly these currency differences are included in other comprehensive income and recorded in the translation reserve.
Hedge of a net investment in foreign operation
Accell Group applies no hedge accounting to foreign currency differences arising between the functional currency of the foreign operation and Accell Group’s functional currency (euro).
E. Employee benefits
Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if Accell Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Share-based payment transactions
The grant-date fair value of equity-settled share-based payment awards granted to employees is generally recognized as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.
Defined contribution plans
Obligations for contributions to defined contribution plans are expensed as the related service is provided. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.
Defined benefit plans
Accell Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for Accell Group, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.
Remeasurement of the net defined benefit liability, which comprise actuarial gains and losses and the return on plan assets (excluding interest), are recognized immediately in OCI. Accell Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. Accell Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.
Other long-term employee benefits
Accell Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise.
F. Income tax
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI.
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if certain criteria are met.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
- temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
- temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future;
- taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profits improves. Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which Accell Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if certain criteria are met.
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in first-out (fifo) principle. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.
H. Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss.
Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognized in profit or loss. Land is not depreciated.
The estimated useful lives of property, plant and equipment for current and comparative periods are as follows:
|Plant and equipment||3 - 12 year|
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
I. Intangible assets and goodwill
Recognition and measurement
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.
Trademarks, commonly arising on the acquisition of subsidiaries, are measured at cost less accumulated impairment losses. The acquired trademarks are positioned in the middle and upper segments and mostly have a long history and tradition in the local and international markets in which they operate. The trademarks have an indefinite useful life; based on an analysis of all the relevant factors there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for Accell Group.
Research and development
Expenditure on research activities is recognized in profit or loss as incurred. Development expenditure is capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and Accell Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognized in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortization and any accumulated impairment losses.
Other intangible assets
Other intangible assets, including customer relationships, patents and trademarks, that are acquired by Accell Group and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses.
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.
Amortization is calculated to write off the cost of intangible assets less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognized in profit or loss. Goodwill and trademarks are not amortized.
The estimated useful lives for current and comparative periods are as follows:
|Customer lists||10 - 20 year|
|Software||3 - 5 year|
|Development expenditure||3 - 5 year|
Amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
J. Financial instruments
Accell Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets and loans and receivables.
Accell Group classifies non-derivative financial liabilities into the following categories: financial liabilities at fair value through profit or loss and other financial liabilities.
Non-derivative financial assets and financial liabilities – recognition and derecognition
Accell Group initially recognizes loans and receivables and debt securities issued on the date when they are originated. All other financial assets and financial liabilities are initially recognized on the trade date when Accell Group becomes a party to the contractual provisions of the instrument.
Accell Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognized financial assets that is created or retained by Accell Group is recognized as a separate asset or liability.
Accell Group derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire.
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, Accell Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
Non-derivative financial assets – measurement
Financial assets at fair value through profit or loss
A financial asset is classified as at 'fair value through profit or loss' if it is classified as held for trading or is designated as such on initial recognition. Directly attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which takes into account any interest or dividend income, are recognized in profit or loss.
Held-to-maturity financial assets
These assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.
Loans and receivables
These assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.
Non-derivative financial liabilities – measurement
Non-derivative financial liabilities are initially recognized at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.
Derivative financial instruments and hedge accounting
Accell Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Derivatives are initially measured at fair value; any directly attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognized in profit or loss.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in OCI and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. The amount accumulated in equity is retained in OCI and reclassified to profit or loss in the same period or periods during which the hedged forecast cash flows affects profit or loss or the hedged item affects profit or loss.
If the forecast transaction is no longer expected to occur, the hedge no longer meets the criteria for hedge accounting, the hedging instrument expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the amount accumulated in equity is reclassified to profit or loss.
Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognized as a deduction from equity. Income tax relating to transaction costs of an equity transaction are accounted for in accordance with IAS 12.
Non-derivative financial assets
Financial assets not classified as at fair value through profit or loss, including an interest in an equity-accounted investee, are assessed at each reporting date to determine whether there is objective evidence of impairment.
Objective evidence that financial assets are impaired includes:
- default or delinquency by a debtor;
- restructuring of an amount due to Accell Group on terms that Accell Group would not consider otherwise;
- indications that a debtor or issuer will enter bankruptcy;
- adverse changes in the payment status of borrowers or issuers.
For an investment in an equity security, objective evidence of impairment includes a significant or prolonged decline in its fair value below its cost.
Financial assets measured at amortized cost
Accell Group considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics. In assessing collective impairment, Accell Group uses historical information on the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends.
An impairment loss is calculated as the difference between an asset's carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account. When Accell Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, then the previously recognized impairment loss is reversed through profit or loss.
An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognized in profit or loss, and is reversed if there has been a favorable change in the estimates used to determine the recoverable amount.
At each reporting date, Accell Group reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and trademarks are tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units. Goodwill arising from a business combination is allocated to (groups of) cash generating units that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit.
An impairment loss is recognized if the carrying amount of an asset or cash generating unit exceeds its recoverable amount. Impairment losses are recognized in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the cash generating unit, and then to reduce the carrying amounts of the other assets in the cash generating unit on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.
M. Cash flow statement
Accell Group has centralized its cash management with the execution of payments in the operations by group companies. Accell Group consists of manufacturing entities, trading companies and hybrids, which for example all start building up inventories for the season at different moments in time resulting in a varying demand for liquidity. The centralized cash management aims to optimize the cash allocation within Accell Group, where excess cash in the one entity is made to use in the other entity.
The cash management includes cash pools, cash and bank overdrafts. The centralized cash management, including foreign exchange management, is executed with these instruments. Long-term bank loans and a revolving credit facility are held for financing purposes.
Cash pools are an important element of cash management. The cash pools are made available by banks that participate in the syndicate that provided the group financing. The cash pools consist of a large number of bank accounts with fluctuating balances per account. On a monthly basis it are different bank accounts that forms the credit balance (gross) and debit balance (gross) per cash pool. The net balance of a single cash pool, if overdrawn, reduces the available amount from the revolving credit facility, has the same conditions as the revolving credit facility and is repayable on demand. As a result the cash pools have a hybrid nature; on the one hand it is a cash management tool and on the other hand it has a bridging nature at specific times.
Besides the cash pools Accell Group has ‘standard’ bank accounts and bank overdrafts at its disposal; ‘standard’ means that these accounts are no part of a cash pool. These accounts however only represent a limited part of the net cash balance. One part of the bank accounts and bank overdrafts are with banks from the syndicate that provided the group financing; the other part is with local banks for specific purposes.
All together the cash pools, cash and bank overdrafts reflect Accell Group’s cash management and are the components of the item cash and bank overdrafts in the cash flow statement. Cash flows exclude movements between items that constitute the cash and bank overdrafts because these components are part of Accell Group’s cash management rather than part of its operating, investing and financing activities.
4. New and revised standards not yet adopted
A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2018, which Accell Group has not applied in preparing these consolidated financial statements:
IFRS 9 Financial Instruments
IFRS 9, was published in July 2014 and subsequently endorsed by the European Union on 9 November 2017. IFRS 9 includes revised guidance on classification and measurement of financial instruments, including a new expected credit loss impairment model for calculating impairment on financial assets, and new general hedge accounting requirements. This standards replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. Accell Group will implement IFRS 9 per 1 January 2018 using the modified retrospective approach, meaning that the 2017 comparative figures in the 2018 financial statements will not be restated. Any impact of IFRS 9 will be recognized directly in equity per 1 January 2018.
Accell Group assessed the impact of the new standard and concludes that the impact is immaterial:
- With regard to the revised classification and measurement principles, IFRS 9 contains three classification categories: ‘measured at amortized cost’, ‘fair value through other comprehensive income’ (FVOCI) and ‘fair value through profit and loss’ (FVPL). The standard eliminates the existing IAS 39 categories: ‘loans and receivables’, ‘held to maturity’ and ‘available-for-sale’. Accell Group has neither investments classified as ‘held to maturity’ nor assets currently classified as ‘available-for-sale’ and for the other categories IFRS 9 brings no change in measurement for Accell Group.
- With regard to the expected loss model on trade receivables Accell Group concludes that the impact on Accell Group’s future consolidated income statement is expected to be immaterial as the standard requires provisions to be recorded earlier and the initial impact of this timing difference is recorded in equity upon implementation. The initial impact recorded in equity per 1 January 2018 is also immaterial.
- For the new hedging requirements of IFRS 9 Accell Group concludes that all current hedging relationships will continue to qualify as hedging relationships upon application of IFRS 9.
- Under the current standard, if a hedge of a forecast transaction later results in the recognition of a non-financial item, then an entity has an accounting policy choice to:
- treat the associated gains and losses that were accumulated in the cash flow hedge reserve as a basis adjustment; or
- retain these amounts in the reserve and reclassify them to profit and loss as the asset acquired or liability assumed affects profit and loss.
IFRS 15 Revenue from Contracts with Customers
In May 2014, the International Accounting Standards Board issued IFRS 15 ‘Revenue from Contracts with customers’, which was subsequently endorsed by the European Union on 22 September 2016. IFRS 15 establishes a framework for determining whether, how much and when revenue is recognized from contracts with customers. IFRS supersedes existing standards and interpretations related to revenue. Accell Group will apply the new standard as per 1 January 2018. For implementation the full retrospective method will be applied, meaning prior period financial information will be restated if impacted.
Accell Group assessed the impact of the new standard and concludes that the impact is immaterial:
- With respect to the recognition standards Accell Group concludes that the majority of its contracts are contracts with customers in which the sale of goods is generally expected to be the only performance obligation. The revenue recognition will still occur at a point in time when control of the asset is transferred to the customer, generally on delivery of the bicycles, parts and accessories, consistent with its current practice. With respect to its performance obligations, Accell Group considered its warranty obligations. Accell Group provides warranties for general repairs and does not provide extended warranties or maintenance services in its contracts with customers. As such, Accell Group concludes that such warranties are assurance-type warranties which will continue to be accounted for under IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’, consistent with its current practice. Therefore, Accell Group concludes that the recognition standard under IFRS 15 will have an immaterial impact on the consolidated financial statements.
- With respect to the measurement principles it is relevant that some contracts with customers provide customer programs and incentive offerings, including special pricing agreements, promotions, advertising allowances and other volume-based incentives. Currently, Accell Group recognizes revenue from the sale of bicycles, parts and accessories measured at the fair value of the consideration received or receivable, net of accruals for customer incentives and for sales and return (if the customer is provided the right of return). If revenue cannot be reliably measured, Accell Group defers revenue recognition until the uncertainty is resolved. Such provisions give rise to variable consideration under IFRS 15, and will be required to be estimated at contract inception. IFRS 15 requires the estimated variable consideration to be constrained to prevent over-recognition of revenue. Accell Group concludes it will continue to assess individual contracts to determine the estimated variable consideration and related constraint. The measurement principles under IFRS 15 will have an immaterial impact on the Company’s consolidated financial statements.
- IFRS 15 provides presentation and disclosure requirements, which are more detailed than under current standards.
Accell Group evaluated the available practical expedients of IFRS 15 and concludes that these options have no material impact on Accell Group’s revenue recognition. The practical expedients will therefore not be applied.
IFRS 16 Leases
IFRS 16 ‘Leases’ was published in January 2016 and subsequently endorsed by the European Union on 9 November 2017. IFRS 16 establishes a revised framework for determining whether a lease is recognized in the (consolidated) balance sheet. The standard replaces existing guidance on leases, including IAS 17. Accell Group will implement IFRS 16 per 1 January 2019 by applying the modified retrospective method, meaning that the 2018 comparative figures in the 2019 financial statements will not be restated to show the impact of IFRS 16. In selecting which practical expedients to apply Accell Group will focus on reducing the complexity of implementation.
Under the new standard lease contracts will be recognized on Accell Group’s balance sheet and subsequently depreciated on a straight line basis. The liability recognized on transition is measured based on the discounted future cash flows and the future interest will be recorded in interest expenses. Lease expenses currently recorded in the income statement will be therefore replaced by depreciation and interest expenses for all lease contracts within the scope of the standard.
The financial impact of the new standard on Accell Group will be material. As an indication a reference is made to note 24 Off-balance sheet commitments, which includes the operational lease commitments. Management does not expect the implementation of IFRS 16 to impact Accell Group’s ability to meet the bank covenants. The impact of IFRS 16 is excluded from the financial covenants.
Other standards and interpretations
Amended standards (IFRS 1, IFRS 2, IAS 28 and IAS 40) and new interpretations (IFRIC 22 and IFRIC 23) are not expected to have a significant impact on Accell Group’s financial statements.