Chapters
Annual Report 2018

16. Trade and Other Receivables

Accounting Policy

Financial assets: Accounting policies applied until 31 December 2017

The Group has applied IFRS 9 retrospectively, but has elected not to restate comparative information. As a result, the comparative information provided continues to be accounted for in accordance with the Group’s previous accounting policy under IAS 39. Only the areas of the previous accounting policies under IAS 39 that were changed, are described below.

Until 31 December 2017, the Group classified its financial assets in the categories: at fair value through profit or loss, and loans and receivables. The classification depended on the purpose for which the financial assets were acquired.

The Group assessed at the end of each reporting period whether there was objective evidence that a financial asset or group of financial assets was impaired. A financial asset or a group of financial assets was impaired and impairment losses were incurred only if there was objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that the loss event had an impact on the estimated future cash flows of the financial asset or group of financial assets that could have been reliably estimated.

For the ‘loans and receivables’ category, the amount of the loss was measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. If, in a subsequent period, the amount of the impairment loss decreased and the decrease could be related objectively to an event occurring after the impairment was recognized, the reversal of the previously recognized impairment loss was recognized in the consolidated Income Statement.

Financial assets: Accounting policies applied from 1 January 2018

At initial recognition, financial assets are classified as either measured at amortized cost, fair value through other comprehensive income or fair value through profit or loss. The classification depends on the Group’s business model for managing the asset and the contractual cash flow characteristics of the asset. The Group doesn’t have any assets measured at fair value through other comprehensive income.

Financial assets are first recognized on the trade date, the date on which the Group commits to purchase the asset. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Upon derecognition any gains or loss are recognized in the consolidated Income Statement.

Financial assets at amortized cost

Financial assets at amortized cost are financial assets held within a business model aimed at holding the asset in order to collect contractual cash flows. The dates for these cash flows are determined in the contract and comprise solely payments of principle and interest. Assets measured at amortized cost are initially recognized at fair value plus any directly attributable transaction costs. For trade receivables the transaction price is deemed to their equal fair value. Subsequently, these assets are carried at amortized cost using the effective interest method less any allowance for expected credit losses.

Interest income on assets measured at amortized cost is recognized, using the effective interest method, in the consolidated Income Statement.

Financial assets at fair value through profit or loss

Assets that are not included in the financial assets at amortized cost or financial assets at fair value through other comprehensive income classes, are classified as fair value through profit or loss. These assets are initially measured and subsequently carried at fair value, with any related transaction costs expensed as incurred. Derivatives are also categorized as fair value through profit or loss unless they are designated as hedges. The Group owns certain limited shareholdings in buildings where it is operating stores. These shareholdings are accounted for against fair value, based on recent transactions. Changes in fair value are recorded in the consolidated Income Statement.

Impairment of financial assets

The Group assesses on a forward-looking basis the expected credit losses on debt instruments measured at amortized cost and at fair value through other comprehensive income. The resulting allowance is generally based on a 12-month expected credit loss. When credit risk on an asset increases significantly the calculation of the expected credit loss is based on the full lifetime of the financial asset.

The Group applies judgement in its assessments of credit risk and expected credit losses based on current and historical data as well as forward-looking estimates. Changes in the allowance are recorded in the consolidated Income Statement with a reduction to the carrying value of financial assets measured at amortized cost, as an expected credit loss allowance.

The Group applies the full lifetime credit loss method to trade and other receivables that have a maturity of one year or less. The Group applies the IFRS 9 simplified approach to measuring expected credit losses for trade receivables (i.e. provision matrix).

For other financial assets measured at amortized cost, the Group applies the general approach under IFRS 9. The Group considers the probability of default upon initial recognition of the asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period since the date of initial recognition, also considering forward-looking information. A significant increase in credit risk is presumed if a debtor is past due in making a contractual payment for a period outside of normal business practices. A default on a financial asset occurs when the counterparty fails to make contractual payments for a period significantly outside of normal business practices.

When using the general approach, for financial assets measured at amortized cost other than trade receivables with a low risk of default and a strong capacity to meet contractual cash flows, a 12 month expected credit loss provision is recognized. For financial assets measured at amortized cost other than trade receivables with a significant increase in credit risk and debtors that have defaulted, the expected credit loss provision is recognized based on lifetime expected credit losses. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate.

Financial assets measured at amortized cost are written off when there is no reasonable expectation of recovery. This is generally the case when the Group determines that the debtor doesn’t have any assets or other sources of income that could generate sufficient cash flows to repay the relevant amount.

Impairment losses on financial assets measured at amortized cost are included in the selling and marketing costs in the consolidated Income Statement. Subsequent recoveries of amounts previously written off are also credited against the same line item.

The table below shows trade and other receivables:

in thousands of EUR

Notes

31 December 2018

31 December 2017

Current

Non-current

Current

Non-current

Trade receivables

153,738

-

178,493

-

Less: provision for impairment of trade receivables

- 13,433

-

-11,247

-

Trade receivables – net

140,305

-

167,245

Receivables related to consumer insurances

47,678

-

37,639

-

Taxes and social security

30,752

-

34,133

-

Supplier and other receivables

33,355

11,348

34,888

6,568

Rental deposits

577

24,340

814

22,966

Receivables from related parties

33.1

1,710

-

5,356

-

Loans to management

33.2

-

1,562

-

1,530

Less: provision for impairment of other receivables

- 444

-

-255

-

Other financial assets measured at amortized cost - net

113,628

37,250

112,574

31,064

Financial assets measured at amortized cost - total

253,933

37,250

279,819

31,064

Financial assets at fair value through profit or loss

-

1,406

-

1,486

253,933

38,656

279,819

32,550

The carrying value less provision for impairment approximates the fair value of the assets. See notes 33.1 and 33.2 for more details on receivables from related parties and loans to management.

Impairment of Financial Assets

The Group has two types of financial assets that are subjective to the expected credit loss model:

  • Trade receivables
  • Other financial assets measured at amortized cost

Trade receivables

The Group applies the simplified approach to provide for expected credit losses prescribed by IFRS 9, which permits the use of a provision matrix to measure the lifetime expected losses.

To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on representative historical credit losses. The historical loss rates are adjusted to reflect current and forward-looking information affecting the ability of the customers to settle the receivables.

The expected credit loss provision for trade receivables as at 31 December 2018 is determined as follows:

in thousands of EUR

Expected loss rate (%)

Gross Amount

Provision

Not past due

1%

120,449

1,325

Past due up to 3 months

12%

12,324

1,419

Past due between 3 and 6 months

21%

7,311

1,531

Past due between 6 and 9 months

58%

4,682

2,707

Past due after 9 months

72%

8,972

6,451

9%

153,738

13,433

The application of the expected credit risk model under IFRS 9 did not result in an equity impact at 1 January 2018. The ageing analysis for the trade receivables and related provision for impairment as at 31 December 2017 as follows are comparative amounts under IAS 39:

in thousands of EUR

Gross Amount

Provision

Up to 3 months

161,834

1,260

Between 3 and 6 months

4,111

1,563

Between 6 and 9 months

3,782

1,715

Over 9 months

8,766

6,709

178,493

11,247

As of 31 December 2017, €52,313 of the net trade receivables were past due but not impaired. The past due period of these receivables with no recent history of default, varies from 1 month to more than 9 months.

Other financial assets measured at amortized cost

Other financial assets measured at amortized cost generally arise from transactions outside the usual operating activities of the Group and relate mainly to rental deposits, taxes and social security, other business receivables and loans to management. Business receivables include mainly receivables related to consumer insurance, representing commissions earned on consumer insurances sold and supplier receivables.

Management considers these exposures to have low credit risk since based on limited historical credit losses, these financial assets have low risk of default and also have a strong capacity to meet their contractual cash flow obligations in the near term. At reporting date, there is no significant increase of credit risk since initial recognition and as such the Group measured the expected credit loss provision at an amount equal to 12-month expected credit losses.

The low credit risk is also supported by the following:

  • Rental deposits are paid to the landlord as a security for non-payment and are generally used to settle rent or other service charges at the end of the lease term
  • For receivables related to taxes and social security, consumer insurances and suppliers, the Group has the ability to recover outstanding balances related to receivables through offsetting obligations towards the entities or government institutions involved
  • Loans to management are granted to senior managers of the Group and its subsidiaries as part of various share-based payment plans. The loans are secured by pledges on the shares held by management

No significant changes to estimation techniques or assumptions were made during the reporting period.

Movements on the provision for the impairment of trade receivables and other financial assets measured at amortized cost are as follows:

in thousands of EUR

Trade
receivables

Other
financial assets at
amortized cost

Trade
receivables

Other
financial assets at
amortized cost

2018

2017

At 1 January

11,247

255

9,826

249

Additions to provision for expected credit losses

6,013

190

7,744

20

Receivables written off during the year as uncollectible

- 2,967

-

-3,823

-14

Unused amounts reversed

- 1,157

-

-1,730

-

Exchange differences

296

- 1

-770

-

At 31 December

13,433

444

11,247

255

Net impairment losses recognized within selling and marketing costs in the consolidated Income Statement amount to €7,091 (2017: €5,020), of which €7,064 (2017: €4,935) relates to trade receivables.

The carrying amounts of the Group’s trade receivables, including provision, are denominated in various currencies which at year-end rate have the following values in €:

in thousands of EUR

31 December 2018

31 December 2017

Euro (EUR)

66,543

84,475

Brazilian Real (BRL)

6,047

14,614

British Pound Sterling (GBP)

12,769

13,700

Chilean Peso (CLP)

8,314

11,691

Danish Krone (DKK)

8,303

7,933

Turkish Lira (TRY)

7,463

7,666

Norwegian Krone (NOK)

7,046

6,702

Swedish Krona (SEK)

5,275

5,423

United States Dollar (USD)

6,166

3,837

Other

12,379

11,204

Total

140,305

167,245