Chapters
Annual Report 2018

27. Provisions

Accounting Policy
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as interest expense.

Provisions are classified as current liabilities unless the Group has an unconditional right to postpone settlement for, or the provision is due to be settled at least 12 months after the balance sheet date.

Legal and regulatory provisions

Legal and regulatory provisions are recognized for possible claims mainly related to governmental institutions.

Warranty provisions

Provisions for rectifying and replacement defects are classified as warranty provisions. The provision is based on past experience and future expectations of warranty claims. Warranty costs are recognized in the consolidated Income Statement under cost of sales and directly related costs.

Employee-related provisions

Employee-related provisions are mainly related to jubilee and termination benefits. Jubilee benefits are paid to employees upon completion of a certain number of years of service. Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits.

Other provisions

Other provisions are mainly related to restructuring provisions.

Restructuring provisions comprise lease termination penalties, future lease payments for closed stores and offices, and costs related to returning a store or office to its original state.

Bank borrowings to franchisees of the Group are often secured by a guarantee given by the Group to the landlord. The guarantees given are secured by the activities, store rental contracts, the inventories and store furniture of the franchisees. When a cash outflow is likely, a provision is recognized, being the present value of the expected cash outflow. If a cash outflow is not likely, the guarantee is included in the contingent liabilities.

Significant Accounting Estimates and Judgments

The recognition of provisions requires estimates and judgment regarding the timing and the amount of outflow of resources. The main estimates relate to the probability ('more likely than not') of the outflow of resources. If the outflow of resources is 'more likely than not' a best estimate of the outflow is recognized. Otherwise, it is disclosed as a contingency.

If a provision is recognized, it is measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The expected expenditures are uncertain future cash flows for which management uses its knowledge, experience and judgment to determine if a corresponding provision should be recognized.

Movements in provisions are as follows:

in thousands of EUR

Legal and
regulatory

Warranty

Employee-
related

Share based
payments

Other

Total

At 1 January 2017

21,805

8,121

6,585

216

1,648

38,375

Movements in 2017

Addition to provision

2,798

3,090

3,342

76

1,974

11,280

Reversal of provision

- 1,209

-

- 1,019

-

- 432

- 2,660

Utilized during the year

- 2,914

- 2,420

- 1,105

- 292

- 293

- 7,024

Other movements

- 1,452

-

1,452

-

-

-

Exchange differences

- 351

- 7

- 224

-

- 147

- 729

At 31 December 2017

18,677

8,784

9,031

-

2,750

39,242

Non-current

12,298

5,197

4,501

-

692

22,688

Current

6,379

3,587

4,530

-

2,058

16,554

At 31 December 2017

18,677

8,784

9,031

-

2,750

39,242

At 1 January 2018

18,677

8,784

9,031

-

2,750

39,242

Movements in 2018

Addition to provision

2,266

2,773

3,477

760

761

10,037

Reversal of provision

- 563

- 4,954

- 1,049

-

- 773

- 7,339

Utilized during the year

- 1,411

- 2,875

- 2,081

-

- 863

- 7,230

Exchange differences

- 455

- 1

- 446

26

10

- 866

At 31 December 2018

18,514

3,727

8,932

786

1,885

33,844

Non-current

11,397

330

4,019

786

471

17,003

Current

7,117

3,397

4,913

-

1,414

16,841

At 31 December 2018

18,514

3,727

8,932

786

1,885

33,844

Legal and regulatory

In June 2009, the French Competition Authority (“FCA”) investigated certain optical suppliers and optical retailers, including GrandVision, active in the branded sunglasses and branded frames sector in France, investigating whether these parties entered into vertical restraints in relation to the distribution of branded sunglasses and branded frames. In May 2015, the Group received a statement of objections (‘notification de griefs’) from the FCA. The Group responded to this statement of objections and booked an adequate provision determined by an assessment of the probability and amount of potential liability. The Group received an official report (“Rapport”) from the FCA on 22 July 2016, reconfirming the accusation and confirming GrandVision’s assumptions of the probability and amount of the potential liability. The Group timely responded to this report on 26 October 2016. On 15 December 2016 a hearing was held before the FCA during which all parties were given the opportunity to defend their case. The FCA had not yet made its decision following this hearing. As the Group expects that the procedure will continue beyond the initial anticipated period, the provision is presented within non-current provisions.

Secondly, the provision relates mainly to the Group's ongoing tax risk management process in which it determines potential fiscal claims on VAT and other taxes in various countries. The additions in 2018 and 2017 mainly relate to VAT and other tax risks in Germany and Austria.

Warranty

The reversals in 2018 relate mainly to Germany & Austria resulting from periodic reassessment of estimates.

Employee-related

The additions in 2018 relate mainly to severance costs of certain employees as part of restructuring activities.

Share-based payment plans

Refer to note 26.