LISI GROUP - 2018 Financial report

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−− identification of the contract or contracts;
−− identification of the seller’s various contractual obligations
(performance obligation);
−− determination of the price of the transaction;
−− allocation of the price of the transaction to the various obligations
identified;
−− recognition of the sales revenue.
As most of the subsidiaries consolidated in the LISI Group are industrial
production sites, most of the sales revenue comes from the sale of
finished products. However, the Group has specifically identified two
typesoftransactiondistinctfromtheonereferredtopreviously:thefirst
is late penalties (on delivery, quality deterioration, etc.) reported against
sales revenue; the second relates to the invoicing of machine tooling
treated as additional services resulting in the recognition of a sales
revenue at the time of acceptance of the machine tooling and the initial
samples. These principleswhich complywith IFRS 15 did not result in any
change as regards the transition.
The Group has reviewed its sale agreements and concluded that there
was no need to modify the operative event of the sales revenue
recognition. The accounting principles and the main contracts were
analyzed in light of IFRS 15; the analysis showed that the application of
this standard has a non-significant impact on the Group’s financial
statements.
2.2.1.2 - New standards and interpretation for later application
approved by the European Union
No standard, interpretation or amendment to existing standards was
applied in anticipation in the financial statements at December 31, 2018.
The standards and interpretations published and approved by the
European Union, but whose application is not yet mandatory, are the
following:
a) InJanuary2016,the IASBpublishedstandard IFRS16,Leasecontracts.
This standard will lead companies leasing significant assets as part
of their activity to recognize an asset and a financial debt corresponding
to the lease commitment.
This standard is expected to enter into force for the financial years as
of January 1 2019. The LISI Group has chosen to apply the modified
retrospectivemodel.
The work to identify, analyze and make the data reliable for the leases
concerned is being finalized. The Group has identified several types of
leases that will be restated in accordance with IFRS 16.
AtDecember31,2018leaseswereidentifiedasinpreviousyearsaccording
to IAS 17 and IFRIC 24.
Capitalizationofrealestate leases: basedon the analysis completed, the
group identified leases within the meaning of the standard for buildings
leased for production activity and buildings leased for offices. The lease
term selected corresponds to the period which cannot be terminated,
alongwith any renewal optionswhich the group is reasonably certainwill
be exercised. The analysis of the contractual elements and the final
calculations will be completed in the first half of 2019.
Recognition of leases for other assets: Based on the analysis conducted
at this stage, the main leases identified are for vehicles and other rolling
stock. Analysis of leases of other assets will be finalized in the first half
of 2019. The period of capitalization of rent on leases corresponds to the
period initially envisaged in the agreement. The LISI Group has chosen
nottoseparatethecomponentsofserviceswithinthe lease(forexample,
thepartformaintenanceofvehicleleaseagreementswillnotberestated).
Bothcapitalizationexemptionsproposedbythestandard,i.e.agreements
lasting under 12 months and the leasing of goods with a low new value
(below €5,000) have been used.
The Group has also opted not to restate leases for intangible assets.
The discount rate used to value the rental debts is the reference rate
calculated by actuaries in line with the lease terms and the countries
concerned, plus a variable margin necessary to obtain finance on the
financial markets. The rate determined in this way makes it possible to
take account of the economic environment, the currency and the termof
the leases of the Group’s entities.
The application of this standardwill also result in a change in the way the
financial statements are presented as of 2019:
■■on the income statement: the rent expense recognized within the
EBITDA will, under IFRS 16, be recognized partly as depreciation
allowancewithintheEBITandpartlyas interestexpenses;thiswillhave
a favorable impact on EBITDA for the entire rent amount, partially
the EBIT;
■■in the cash flow statement: the payment of rents currently presented
in cash provided by or used for operations, will be presented under
IFRS16 for the part corresponding to interest expenses within cash
provided by or used by financing activities. The part corresponding to
depreciation will be restated for the cash flow capacity;
■■free cash flow will also be favorably impacted in the amount of the
portion recognized under depreciation.
To date, most of the numbering has been begun on the real estate rent
part, which accounts for most of the Group’s leases.
The Group has applied the transitional provisions provided for in IFRS 16.
C8 bi) which provides for the determination of the book value as if IFRS 16
had been applied from the date of effect of the lease agreement, but by
updating it using its marginal loan rate on the date of first application.
The estimation on this basis shows the following impacts at the start of
the 2019 financial year:
Net tangible fixed assets Increase 7 – 10%
Net debt Increase 15 – 21%
A 1 point rise or fall in the discount rate would have an impact on the
change in EFN and net tangible assets, based on the assumptions
selected for our initial estimates of under 1%.