Chapters
Annual Report 2018

6. Revenue

Accounting Policy
Revenue from contracts with customers is recognized in the period in which the performance obligation in the underlying contract has been satisfied. In most sales transactions this is at the point in time when control over a product or service has been transferred to the customer. Revenue is shown net of value-added tax, expected returns, rebates, discounts and amounts collected on behalf of third parties. Intercompany revenues within the Group are eliminated.

A contract with a customer may comprise of multiple distinct performance obligations. The total consideration under the contract is allocated to performance obligations based on stand-alone selling prices. The stand-alone selling price of products sold is determined on the basis of the retail price. For other performance obligations, experience is used to estimate stand-alone selling prices. The timing of revenue recognition depends on the type of performance obligation, as described below.

Optical product revenues are recognized when the product is sold to the customer and control over the product has been transferred to the customer in return for a (right to) payment. Revenue recognition generally coincides with the physical transfer of the product to the customer. Any prepayments by customers are short-term in nature and are not considered revenue but are accounted for as contract liabilities.

Income from optical products related services include extended (service-type) warranties and commissions on consumer insurances is recognized based upon the duration of the underlying contracts, over a period of between 12 or 24 months. Extended warranties are considered services to be rendered and therefore a distinct performance obligation and included under contract liabilities until revenue is recognized. The Group’s obligation to repair or replace faulty products under the standard warranty terms is recognized as a provision.

Rights issued under a customer loyalty program through vouchers for rebates on future purchases are considered a separate performance obligation and a contract liability is recognized as a reduction to revenue. The stand-alone selling price of the vouchers is estimated using past experience and the likelihood of redemption. Revenue allocated to the vouchers is recognized based on (anticipated) expiration and when the vouchers are redeemed, generally less than 12 months.

For sales to franchisees and wholesale partners, revenue is recognized upon delivery to the customer, when the risks of obsolescence and loss have been transferred to and the products have been accepted by the customer.

Franchise rights are accounted for as rights to access the franchisor’s intellectual property. Franchise royalties that are based on a percentage of sales are recognized at the time of the sale. Contributions from franchisees are generally recognized based upon the duration of the contractually agreed-upon term.

Revenue is reduced and a refund liability is recognized where the customer has a right to return a product in which the transaction price is refunded. A return asset is recognized and cost of sales is reduced where returns can be resold. Experience is used to estimate such returns at the time of sale.

Supplier allowances are only recognized as revenue if there is no direct relationship with a purchase transaction, otherwise the supplier allowance is deducted from cost of these purchases.

A receivable is recognized when all performance obligations in the contract have been satisfied and payment has become unconditional. No element of financing is deemed present as payment terms are consistent with market practice.

Disaggregation of revenue

Set out below is the disaggregation of the Group’s revenue from contracts with customers per reportable segment 2018 and 2017, respectively.

Franchise revenues include sales to franchisees and franchise royalties and contributions. Other merchandise revenues comprise mainly wholesale to trade partners. Other revenues comprise mainly supplier allowances.

in thousands of EUR

G4

Other Europe

Americas & Asia

Total

2018

Revenue from contracts with customers

Own store sales

1,913,768

1,111,103

440,583

3,465,454

Franchise revenues

213,099

14,224

4,866

232,189

Other merchandise revenues

163

15

11,769

11,947

2,127,030

1,125,342

457,218

3,709,590

Revenue from other sources

Other revenues

4,351

4,867

2,168

11,386

2,131,381

1,130,209

459,386

3,720,976

2017

Revenue from contracts with customers

Own store sales

1,773,250

972,321

457,848

3,203,419

Franchise revenues

195,855

13,244

4,467

213,566

Other merchandise revenues

788

12

15,310

16,110

1,969,893

985,577

477,625

3,433,095

Revenue from other sources

Other revenues

10,833

4,611

1,318

16,762

1,980,726

990,188

478,943

3,449,857

Contract liabilities

Contract liabilities relate to the Group's obligation to deliver future goods and services for contracts with its customers and mainly include prepayments made by customers, vouchers for rebates on future purchases given as part of an initial sales transaction and unfulfilled extended (service-type) warranties.

At 31 December 2018, an amount of €7.8 million (2017:€5.1 million) and €77.7 million (2017: €75.9 million) was recognized as non-current and current Contract liabilities respectively.

Revenue recognized during 2018 that was included in these contract liability balances at the beginning of the period amounts to €74.8 million (2017: €62.3 million). Contract liabilities increased in 2017 for an amount of €10.7 million resulting from the acquisition of Visilab and Tesco Opticians. This mainly related to customer prepayments and unfulfilled extended (service-type) warranties.

At 31 December 2018, an amount of of €30.3 million relates to the transaction price allocated to long-term contract liabilities of unfulfilled extended (service-type) warranties. It is expected that an amount of €22.7 million will be recognized as revenue during 2019 and an amount of €7.6 million in 2020. As permitted under the transitional provisions in IFRS 15, the transaction price allocated to unsatisfied performance obligations as of 31 December 2017 is not disclosed.

All other contract liabilities are for periods of one year or less. As permitted under IFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed.

Refund liabilities and return assets

The Group recognized a refund liability for the amount of consideration received related to when customer has a right to return product within a given period, for which the entity does not expect to be entitled for an amount of €596 (2017: €446). This is included in Trade and Other Payables.

The Group also recognized as a return asset, a right to the returned goods related to the refund liabilities of €55 (2017: €92). This is included in Other Current Assets.