SOMFY - Annual financial report 2018

07 CONSOLIDATED FINANCIAL STATEMENTS

Furthermore, no impairment was necessary in relation to assets with an unspecified life and the use of which is independent from other assets. Sensitivity analysis The Group conducted sensitivity analyses on the results of impairment tests using different assumptions for EBITDA ratio and discount rate. Analyses of the sensitivity to assumptions considered individually, including changes deemed reasonably possible in these assumptions, have highlighted scenarios where the recoverable value would fall below the book value of assets subject to the tests, therefore requiring additional impairment of the latter: the total impairment of the BFT goodwill at the end of 2018 was – €12.9 million. A two percentage point-increase in the discount rate would result in an additional impairment of €5.0 million. A four percentage point-decrease of the EBITDA to sales ratio in the normative flow used in the calculation of the terminal value would require additional impairment of €1.9 million; a seven percentage point-increase in the discount rate could – result in a €0.1 million impairment of iHome’s goodwill. A ten percentage point-decrease of the EBITDA to sales ratio in the normative flow used in the calculation of the terminal value would have required a writedown of €0.2 million. Intangible assets acquired by the Group are recognised at historical cost, after deduction of accumulated amortisation and potential writedown. Intangible assets primarily comprise: SOFTWARE Internally-developed software is recognised on the balance sheet when the following two conditions are met simultaneously: it is probable that the future economic benefits attributable – to the software will flow to the company; and its cost or value can be measured reliably. – Conditions defined by IAS 38 in terms of development cost capitalisation must also be met (including project technical feasibility, intention to complete the software and availability of resources). The Group owns two major types of software: software subject to a five-stage development project and – rolled out in several countries is amortised on a straight-line basis over ten years. The five stages characterising the implementation of this type of IT projects are as follows: the “initiation” stage, ending in a decision to carry out or ● not an IT solution research to meet a specific issue; the “assessment” stage, ending in the choice of a solution, ● often the selection of a licence; the “study” and “realisation” stages, resulting in a ● decision to implement the rollout of the solution; the “implementation” stage, ending in the transfer of the ● application to support services. This is the software rollout. This software is particularly related to the rollout of IT systems. OTHER INTANGIBLE ASSETS NOTE 5.2

Development expenses incurred during the “study” and “realisation” stages may be capitalised if all criteria defined by IAS 38 are complied with. ready-to-use software, that is software whose operation by – the Group is not subject to a five-stage project. It is amortised on a straight-line basis over four years. PATENTS Only acquired patents and related filing expenses are capitalised. Patents are amortised on a straight-line basis over their legal protection period. Costs of renewal of patents are included in costs for the year. DEVELOPMENT COSTS Development costs are recognised as balance sheet assets when all criteria defined by IAS 38 are met: project technical feasibility; – intention to complete the intangible asset so that it is – available for use or sale; ability to use or sell the intangible asset; – generation of future economic benefits; – availability of resources; – ability to reliably measure the expenditure attributable to – the intangible asset during its development. Only development costs generated by projects dedicated to the development of new products and conducted in five stages are capitalised, as follows: the “assessment” stage, consisting in the production of – assessment elements enabling the Group to make the decision to launch the project or not; the “pre-study” stage, whose objective is to select technical – solutions, validate product feasibility and the marketing strategy to place the product on the market; the “study” stage, which enables to set the definition of the – product, as well as industrial and marketing resources; the “realisation” stage, which consists in qualifying the – product, establishing industrial resources in production facilities, as well as marketing resources. This stage also defines project closing criteria; the “launch” stage, featuring product manufacturing and the – qualification of industrial and marketing resources. The first two stages, entitled “assessment” and “pre-study” are research phases. Expenses incurred are thus recognised as costs for the financial year. Development expenses incurred during the “study” and “realisation” stages may be capitalised if all criteria defined by IAS 38 are complied with. Capitalised development costs are amortised on a straight-line basis, depending on the useful life of the asset from the date of its commissioning (four to ten years, depending on the type of product developed). The value of projects in progress is recognised as an intangible asset in progress, until the “launch” stage, which marks the beginning of project rollout. No residual value is recognised at Group level to determine the basis for amortisation of intangible assets. Subsequent expenditures are generally recognised as expenses for the financial year.

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SOMFY – ANNUAL FINANCIAL REPORT 2018