SOMFY_ANNUAL_FINANCIAL_REPORT_2017

07 CONSOLIDATED FINANCIAL STATEMENTS

process relating to its lease contracts, in order to analyse their components, and quantify the impact. At the same time, the Group is consulting various software publishers, in order to find a software package that processes lease contracts in accordance with IFRS 16. The transition processes have not yet been approved at this stage. The Group will be applying this standard as from 1 January 2019. For information purposes, the amount of the leases still payable at 31 December 2017 is €30.5 million (note 12.1) where operating lease contracts are concerned. The operating lease expense amounted to €18.8 million in the 2017 financial year. 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 consolidated financial statements at 31 December 2017 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. The consolidation scope is presented in note 15 to the consolidated financial statements. FOREIGN EXCHANGE TRANSLATION NOTE 2.2

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. No significant Group subsidiary operates in countries whose economy is hyperinflationary. When a company is incorporated in the consolidation scope, the identifiable assets, liabilities and contingent liabilities of the acquired entity are measured at fair value measured at the date of acquisition, except for non-current assets classified as assets held for sale, which are recognised at the fair value net of disposal costs. Goodwill is measured as the difference between total identifiable assets, liabilities and contingent liabilities of the acquired entity, individually estimated at fair value, and the transferred consideration (acquisition price) measured at fair value of the assets received. At the date of the acquisition and for each business combination, the Group can opt for the partial goodwill method (limited to the equity interest acquired by the Group) or for the full goodwill method. If it opts for the full goodwill method, minority interests are measured at fair value and the Group recognises goodwill on all identifiable assets and liabilities. Business combinations prior to 1 January 2010 have been treated in accordance with the partial goodwill method, which was the only method applicable until that date. In the case of a business combination achieved in stages, the previously held equity interest is remeasured at fair value at the acquisition date. The difference between the fair value and the net book value of this investment is recognised directly in operating profit. Restatements of asset and liability values relating to acquisitions recognised on a provisional basis (due to expertise work in progress or supplementary analyses) are recognised as retrospective restatements of goodwill if they occur within 12 months following the acquisition date. Beyond this deadline, the impacts of restatements are directly recognised in profit or loss for the financial year, except for error corrections. In addition, earnout payments are included in the acquisition cost at their fair value at the acquisition date and regardless of their probability. During the valuation period, subsequent adjustments are offset against goodwill where they relate to facts and circumstances that existed at the acquisition date. If not, and after the end of this period, adjustments to earnout payments are recognised directly in the income statement, unless the earnout payments are offset against an equity instrument.

BUSINESS COMBINATIONS NOTE 2.3

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SOMFY – ANNUAL FINANCIAL REPORT 2017