LISI GROUP - 2017 Financial report

2.2.7.2 Research and development

Research costs incurred in order to develop scientific knowledge

and understanding, or to learn new techniques, are recognized as an

expense when they are incurred.

Under the IFRS framework, development costs (i.e., costs incurred by

applying the results of research to a plan or model in order to develop

new or substantially improved products and processes) are recorded

as fixed assets if the Group can demonstrate that future economic

benefits are probable. The LISI Group’s development costs primarily

relate mainly to products which are being developed through very

close collaboration with clients, rather than to improvements in

processes.

Most expenses incurred do not meet the criteria for capitalization as

intangible assets and are therefore recorded as expenses. The Group

carries out regular assessments of major projects in order to identify

any costs which could be capitalized.

2.2.7.3 Other intangible assets

Concessions, trademarks and software programs are recognized at

historic cost and are subject to a depreciation plan. Intangible fixed

assets acquired through a business combination are recognized

at their acquisition-date fair value. Intangible fixed assets with

finite useful lives are subject to depreciation over this period, while

intangible fixed assets with indefinite useful lives are subject to an

impairment test for every new balance sheet.

Depreciation is recognized as an expense using the straight-line

method over the estimated useful life of the intangible fixed assets

except when this is indefinite.

Estimated useful lives are as follows:

–

Trademarks: 10 years;

–

Software programs: 1 – 10 years.

2.2.8

Tangible assets

2.2.8.1 Assets owned by the LISI Group

Tangible fixed assets are recorded at diminished cost with

accumulated depreciations and impairments. The cost of an asset

produced by the Group for itself includes the costs of raw materials,

direct manpower, and an estimate, if applicable, of costs related to

the removal and dismantling of the asset and the repair of the site

at which it is located, along with an appropriate share of the general

production costs.

When the components of tangible fixed assets have different useful

lives, they are recorded as separate tangible fixed assets, as per the

components method.

2.2.8.2 Assets funded through finance leases

Leases which transfer virtually all the risks and benefits relating to

the ownership of an asset to the Group are considered as finance

leases. Assets funded through finance leases are recognized in the

assets side of the balance sheet at the fair value of the goods leased,

or the present value of the minimum lease payments if this is lower.

These assets are depreciated over the same period as goods of the

same type which are owned outright. The corresponding debt is

entered on the liabilities side of the balance sheet.

2.2.8.3 Subsequent expenditure

When calculating the book value of a tangible fixed asset, the Group

recognizes the cost of replacing a component of this tangible fixed

asset at the time when the cost is incurred, if it is likely that future

economic benefits associated with this asset will flow to the Group

and the cost can be reliably estimated. All ongoing servicing and

maintenance costs are recognized as an expense when they are

incurred.

2.2.8.4 Depreciation

Depreciation is recognized as an expense using the straight-line

method over the estimated useful life for each component of a

tangible fixed asset.

Land is not depreciated.

Estimated useful lives are as follows:

–

buildings: 20 – 40 years;

–

plant and machinery: 10 – 15 years;

–

fixtures and fittings: 5 – 15 years;

–

transport equipment: 5 years;

–

equipment and tools: 10 years;

–

office equipment: 5 years;

–

office furniture: 10 years;

–

IT hardware: 3 years.

2.2.8.5 Impairment of assets

Goodwill and intangible fixed assets of indefinite life-span are

submitted to an impairment test at each annual close (see note 2.2.7.1)

and each time events or market-changing modifications indicate a

risk of impairment. Other intangible assets fixed and tangible fixed

assets are also subject to such a test at any time when there is a risk

of loss of value.

The method used involves comparing the recoverable value of each

of the Group’s cash-generating units with the net book value of the

corresponding assets (including the goodwill).

The recoverable value is calculated for each asset individually,

unless the asset under consideration does not generate cash inflows

independently of the cash inflows generated by other assets or

groups of assets. In some cases, the recoverable value is calculated

for a group of assets.

Recoverable value is defined as: whichever is the higher out of the

realizable value (less the costs of disposal) and the value in use. The

latter is calculated by discounting future cash flows, using predicted

cash flows which are consistent with the most recent budget and

business plan approved by the Executive Committee and presented

LISI 2017 FINANCIAL REPORT

CONSOLIDATED FINANCIAL STATEMENTS