Report on the financial statements 2016

Our opinion

In our opinion:

  • the consolidated financial statements give a true and fair view of the financial position of GrandVision N.V. as at 31 December 2016 and of its result and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code;
  • the parent company financial statements give a true and fair view of the financial position of GrandVision N.V. as at 31 December 2016 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
What we have audited

We have audited the accompanying financial statements 2016 of GrandVision N.V., Haarlemmermeer (‘the Company’). The financial statements include the consolidated financial statements of GrandVision N.V. and its subsidiaries (together: ‘the Group’) and the parent company financial statements.

The consolidated financial statements comprise:

  • the consolidated Balance Sheet as at 31 December 2016;
  • the following statements for 2016: the consolidated Income Statement and the consolidated Statements of Other Comprehensive Income, the Statement of Changes in Shareholders’ Equity and Cash Flows; and
  • the notes, comprising a summary of significant accounting policies and other explanatory information.

The parent company financial statements comprise:

  • the parent company Balance Sheet as at 31 December 2016;
  • the parent company Income Statement for the year then ended;
  • the notes, comprising a summary of the accounting policies and other explanatory information.

The financial reporting framework that has been applied in the preparation of the financial statements is EU-IFRS and the relevant provisions of Part 9 of Book 2 of the Dutch Civil Code for the consolidated financial statements and Part 9 of Book 2 of the Dutch Civil Code for the parent company financial statements.

The basis for our opinion

We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the 'Our responsibilities for the audit of the financial statements' of our report.

We are independent of GrandVision N.V. in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij assuranceopdrachten’ (ViO) and other relevant independence requirements in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA).

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Our audit approach

Overview and context

GrandVision N.V. is a global (optical) retail company. The Group comprises several components and therefore we considered our group audit scope and approach as set out in the scope of our group audit section. We paid specific attention to the areas of focus driven by the operations of the Company, as set out below.

We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the management board made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.

In section 4 of the notes to the consolidated financial statements the Company describes the areas of estimates and judgment in applying accounting policies and the key sources of estimation uncertainty. All these areas require significant management judgment, of which we consider the valuation of goodwill, uncertain tax and legal positions and intangible assets as part of acquisitions to be key audit matters as set out in the key audit matter section of this report.

As in all of our audits, we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the management board that may represent a risk of material misstatement due to fraud.

We ensured that the audit teams both at group and at component levels included the appropriate skills and competences which are needed for the audit of a global (optical) retail company. We therefore included specialists in the areas of IT, valuations, taxes and actuarial expertise in our team.

The outlines of our audit approach were as follows:

Materiality

Overall materiality: €17.4 million which represents 5% of profit before tax.

Audit scope

We conducted audit work in 15 locations covering 18 countries.

Site visits were conducted by the group audit team to seven locations: Apollo (Germany), Vision Express (United Kingdom), GrandVision Benelux (The Netherlands), GrandVision France, Synoptik (Denmark), GrandVision Italy and For Eyes (United States).

Audit coverage: 84% of consolidated revenue and 85% of consolidated total assets.

Key audit matters

Assessment of goodwill valuation

Accounting for uncertain tax and legal positions

Assessment of the valuation of intangible assets as part of the final purchase price allocation of For Eyes

Materiality

The scope of our audit is influenced by the application of materiality which is further explained in the section 'Our responsibility for the audit of the financial statements'.

We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and to evaluate the effect of identified misstatements on our opinion.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall group materiality

€17.4 million (2015: €16.7 million).

How we determined it

5% of profit before tax (2015: 5% of profit before tax).

Rationale for benchmark applied

We have applied this benchmark, a generally accepted auditing practice, based on our analysis of the common information needs of users of the financial statements. On this basis we believe that profit before tax is an important metric for the financial performance of the Company.

Component materiality

To each component in our audit scope we, based on our judgement, allocate materiality that is less than our overall group materiality. The range of materiality allocated across components was between € 0.5 million and € 10 million.

We also take misstatements and/or possible misstatements into account that, in our judgement, are material for qualitative reasons.

We agreed with the Supervisory Board that we would report to them misstatements identified during our audit above € 250,000 (2015: € 250,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

The scope of our group audit

GrandVision N.V. is the parent company of a group of entities. The financial information of this Group is included in the consolidated financial statements of GrandVision N.V.

The Group focussed on the significant components: Apollo (Germany), Vision Express (United Kingdom), GrandVision Benelux (the Netherlands) and GrandVision France. These four components were subject to audits of their complete financial information as those are individually significant to the Group. Additionally, 11 components were selected for full scope audit procedures to achieve appropriate coverage on the consolidated financial statements.

In total, in performing these procedures, we achieved the following coverage on the financial line items:

Revenue

84%

Total assets

85%

Profit before tax

91%

None of the remaining locations represented more than 4% of total group revenue or total group assets. For those remaining components we performed, among other things, analytical procedures to corroborate our assessment that there were no significant risks of material misstatements within those locations.

For all Dutch holding entities, as included in note 39 of the consolidated financial statements, the group engagement team performed the audit work. For all other locations that are in scope of the group audit, we used component auditors who are familiar with the local laws and regulations to perform this audit work.

Where the work was performed by component auditors, we determined the level of involvement we needed to have in the related audit work to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole.

The group engagement team attended all meetings of the component teams with local and group management where the outcome of the component audit was discussed by visiting the component auditor or through conference calls. The group team engagement leader and the senior members of the group engagement team reviewed all reports regarding the audit approach and findings of the component auditors.

The group engagement team visited local management and the component auditors of Apollo (Germany), Vision Express (United Kingdom), GrandVision Benelux (the Netherlands) and GrandVision (France) given the relative size of the locations. For each of these locations we reviewed the audit files of the component auditors and determined the sufficiency and appropriateness of the work performed by component auditors. In addition the group engagement team visited local management and the component auditors Synoptik (Denmark), GrandVision Italy and For Eyes (United States).

The group consolidation, financial statement disclosures and a number of group specific items are audited by the group engagement team at the Company’s head office. These include, the accounting for the long term incentive plan and the tax position.

By performing the procedures above at components, combined with additional procedures at group level, we have obtained sufficient and appropriate audit evidence regarding the financial information of the Group as a whole to provide a basis for our opinion on the consolidated financial statements.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements. We have communicated the key audit matters to the Supervisory Board, but they are not a comprehensive reflection of all matters that were identified by our audit and that we discussed. We described the key audit matters and included a summary of the audit procedures we performed on those matters.

The key audit matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon. We do not provide a separate opinion on these matters or on specific elements of the financial statements. Any comments we make on the results of our procedures should be read in this context.

The key audit matters ‘Assessment of goodwill valuation’ and ‘Accounting for uncertain tax and legal positions’ are similar in nature to the key audit matters we reported in 2015 due to the nature of the Company’s business and its environment. Last year’s key audit matter on the ‘Accounting for acquisitions’ is specified to the 'Assessment of the valuation of intangible assets as part of the final purchase price allocation of For Eyes’ as the provisional purchase price allocation of 2015 has been finalized in 2016.

Key audit matter

How our audit addressed the matter

Assessment of goodwill valuation

Refer to note 2.14, 4.1, 14 and 16 of the financial statements for the accounting policies and underlying assumptions.

The goodwill on the balance sheet of GrandVision N.V. concerns €1,012 million. Of this, €411 million relates to the countries in segment ‘the G4’ and €380 million to ‘Other Europe’. The risk that we focused on in our audit is the risk of impairment of the remaining balance of €221 million relating to the ‘Americas & Asia’ segment. The measurement of the carrying amount including goodwill in this segment is based on the highest of the value in use (VIU) or the fair value less cost of disposal (FVLCOD). The most important VIU’s assumptions are the growth rates of revenue and anticipated profit improvements, which would not be appropriate if those rates and improvements are not achievable in the future. The FVLCOD’s key assumption is the used sales multiple. Given the high level of management judgement regarding those assumptions in the impairment assessment we considered this area to be important for our audit. In 2016 an impairment of € 2.3 million on goodwill was recognised, relating to Peru and Argentina.

We evaluated and challenged the Management Board’s future cash flow forecasts and the process by which they were drawn up and tested the underlying VIU calculations. We tested these values by comparing the prior year’s forecast with the company’s actual performance in 2016, given this would be an indicator of the quality of the Company’s forecasting process.
The key assumption in the ‘Americas & Asia’ forecast is that for most countries' revenue exceeds growth rates in the ‘G4’ and ‘Other Europe’ segments. We compared the growth rates to Management Board’s proven track record of improving performance by economies of scale and marketing. For the cash generating units within ‘Americas & Asia’, the Management Board also prepared a FVLCOD valuation by applying a multiple on average three years' sales. We evaluated the reasonableness of applied sales multiple by comparison with recent market transactions and listed peer companies.

Key audit matter

How our audit addressed the matter

Accounting for uncertain tax and legal positions

See note 4.4, 4.6, 29 and 35.1 to the financial statements for the Management Board’s disclosures of the related accounting policies, judgements and estimates

As a multinational company, GrandVision N.V. is present in many different tax and legal jurisdictions. At balance sheet date, GrandVision N.V. has different disputes. The disputes we focused on in our audit relate to tax audit by the German Tax authorities (note 35.1), the investigations by the French Competition Authority (note 29) and the claim from supplier Zeiss (note 35.1). The accounting for these uncertain tax and legal positions comprise significant judgement by the Management Board mainly in the area whether to only disclose these uncertain positions as a contingent liability or to recognise a liability as a provision. Given the high level of management judgement we considered this area to be important for our audit.

We evaluated these tax and legal cases on an individual basis by evaluating the reports issued by the different authorities and the claim received from Zeiss. We gained an understanding of the process management followed to assess the impact of the tax and legal cases. We especially focussed on the current facts and circumstances for these tax and legal cases, the arguments of the different authorities and status pending legal proceedings. In addition we have evaluated the tax and legal opinions of management’s experts which have been obtained by GrandVision N.V. on the respective cases. We evaluated the competency and objectivity of these management’s experts. Furthermore specific focus has been set on the consistency in approach, similarities and differences of the situation at GrandVision N.V. and comparable tax and legal cases. Based on the above we evaluated the reasonableness of management’s assessment for the accounting of this uncertain tax and legal positions. In addition we have tested the adequacy of the related disclosures.

Key audit matter

How our audit addressed the matter

Assessment of the valuation of intangible assets as part of the final purchase price allocation of For Eyes

See notes 2.3.2, 2.13 and 6 to the financial statements for the Management Board’s disclosures of the related accounting policies, judgements and estimates.

In 2016 GrandVision N.V. completed the accounting of the 2015-acquisition of the retail chain For Eyes. This resulted in a change in the value of recognized (intangible) assets and liabilities and a reduced purchase consideration.
The acquisition accounting for intangible assets comprise significant judgement of the Management Board mainly in relation to the valuation of trademarks and customer database. Given the high level of management judgement we considered this area to be important for our audit.

We tested the completed accounting of the acquisition of For Eyes. We tested the identification and valuation of the (in)tangible assets and liabilities assumed against available market data, in particular for the trademarks and customer databases. We tested that GrandVision N.V. applies a consistent and generally accepted valuation method for their fair value assessment. We evaluated the competency and objectivity of the external appraiser engaged by the Company.
We particularly focussed on changes compared with the provisional accounting of the acquisition. In addition we have tested the adequacy of the related disclosures.

Responsibilities of the Management Board and the Supervisory Board

The Management Board is responsible for:

  • the preparation and fair presentation of the financial statements in accordance with EU-IFRS and with Part 9 of Book 2 of the Dutch Civil Code; and for
  • such internal control as the Management Board determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

As part of the preparation of the financial statements, the Management Board is responsible for assessing the Company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the management board should prepare the financial statements using the going-concern basis of accounting unless the Management Board either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. The Management Board should disclose events and circumstances that may cast significant doubt on the Company’s ability to continue as a going concern in the financial statements.

The Supervisory Board is responsible for overseeing the Company’s financial reporting process.

Our responsibilities for the audit of the financial statements

Our responsibility is to plan and perform an audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence to provide a basis for our opinion. Our audit opinion aims to provide reasonable assurance about whether the financial statements are free from material misstatement. Reasonable assurance is a high but not absolute level of assurance which makes it possible that we may not detect all misstatements. Misstatements may arise due to fraud or error. They are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.

A more detailed description of our responsibilities is set out in the appendix to our report.