SOMFY - Annual financial report 2018

07 CONSOLIDATED FINANCIAL STATEMENTS

“Leases” IFRS 16 IFRS 16 “Leases”, which replaces IAS 17 “Leases”, and its related interpretations, introduces a single model for the recognition of lease contracts by the lessee, which requires the recognition of the assets and liabilities for all lease contracts, except for those with a term of less than 12 months, or those where the value of the underlying asset is low, for which exemptions exist. The beneficiary of the contract must recognise a usage right in their balance sheet assets, in consideration for a financial debt in balance sheet liabilities, if the asset included in the lease contract is identifiable and they control the use of this asset. Furthermore, a portion the lease expense from these lease contracts must be recognised under depreciation charges in the operating result, while a portion must be recognised as financial expenses in the net financial result. The restatement of lease contracts will lead to an increase in operating result, financial expenses, non-current assets and financial liabilities. It is not expected to have any material impact on shareholders’ equity and net profit. Analysis of the impact of IFRS 16 “Leases” is ongoing within the Group. The Group’s lease agreements are relatively standard. The impact of this new standard will primarily concern the property lease contracts relating to Somfy’s various worldwide facilities and motor vehicle leases. The Group has a number of industrial or IT equipment leases of less significance. The Group continued its data-gathering process relating to its lease contracts, in order to analyse their components, and quantify the impact using a lease agreement processing software. Concerning property leases, the Group is working on defining key assumptions, such as the term of the contract within the framework of renewal or termination options and the definition of discount rates applicable to contracts. The Group will be applying this standard as from 1 January 2019. Concerning transitional provisions, the standard will be applied in a simplified retrospective manner. Somfy has opted to adopt the exemptions provided for short-term leases and low-value assets. According to initial estimates, the impact of applying the new standard will be approximately between €40 million and €50 million on non-current assets and on financial debt. The impact on opening shareholders’ equity at 1 January 2019 and on 2019 net profit is estimated not to be material . For information purposes, the amount of the leases still payable at 31 December 2018 was €54.7 million (note 12.1). CONSOLIDATION SCOPE NOTE 2 — CONSOLIDATION METHOD NOTE 2.1 EXCLUSIVE CONTROL Companies are fully consolidated when they are controlled by the Group. The concept of control means the power to govern the financial and operational policies of an affiliated company so as to benefit from its operations. Control is generally deemed to exist where the Group holds more than half of the controlled company’s voting rights. Financial statements of subsidiaries are included in the consolidated financial statements from the date of effective control transfer, until control ceases to exist.

Minority shareholders’ interests are included in the balance sheet under a separate headline called “non-controlling interests”. Non-controlling interests’ share of net profit is presented separately in the income statement as an allocation of profit for the period. JOINT CONTROL AND SIGNIFICANT INFLUENCE Companies over which the Group exercises control jointly with a limited number of partners based on a contractual agreement are consolidated using the equity method. Associates are companies over which the Group has significant influence on their financial and operating policies, but does not control them. Companies over which the Group has significant influence are consolidated using the equity method. Acquisition expenses are recorded in the cost of acquisition of the shares.

The consolidation scope is presented in note 15 to the consolidated financial statements.

FOREIGN EXCHANGE TRANSLATION NOTE 2.2

The consolidated financial statements at 31 December 2018 have been prepared in Euros, which is the parent company’s functional currency. Each Group entity determines its functional currency and items included in the financial statements of each of these entities are measured in this functional currency. RECOGNITION OF FOREIGN CURRENCY DENOMINATED TRANSACTIONS IN THE FINANCIAL STATEMENTS OF CONSOLIDATED COMPANIES All foreign currency denominated transactions are translated at the exchange rate applicable on the transaction date. Foreign currency denominated amounts included in the balance sheet are translated at the exchange rate applicable at year-end. Resulting translation differences are recorded in the income statement. TRANSLATION OF FOREIGN SUBSIDIARIES' FINANCIAL STATEMENTS The financial statements of Group companies which have a different functional currency to the parent company are translated into Euro, as follows: assets and liabilities are converted into Euros at the year-end – exchange rate; income and expenses are translated at the average exchange – rate for the period, provided significant variations in the exchange rates do not call this method into question; the resulting translation adjustments are recognised in items – of other comprehensive income with a corresponding entry in the translation reserve under shareholders’ equity. Unrealised exchange differences relating to monetary values that are an integral part of the net investment in foreign subsidiaries are recorded in the translation adjustment reserve in equity until the disposal of the investment, at which date they are taken to the income statement. At 31 December 2018, no Group subsidiary operated in countries whose economy is hyperinflationary, with the exception of Argentina. Given the size of the subsidiary in Argentina, the application of IAS 29 on hyperinflationary economies did not have a material impact on the Group’s financial statements.

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SOMFY – ANNUAL FINANCIAL REPORT 2018