Chapters
Annual Report 2018

Report on the financial statements 2018

Our opinion

In our opinion:

  • GrandVision N.V.’s Consolidated Financial Statements give a true and fair view of the financial position of the Group as at 31 December 2018, and of its result and its 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;
  • GrandVision N.V.’s Parent Company Financial Statements give a true and fair view of the financial position of the Company as at 31 December 2018 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 2018 of GrandVision N.V., Haarlemmermeer (‘the Company’). The financial statements include the Consolidated Financial Statements of GrandVision N.V. and its subsidiaries (‘the Group’) and the Parent Company Financial Statements.

The Consolidated Financial Statements comprise:

  • the Consolidated Balance Sheet as at 31 December 2018;
  • the following statements for 2018: the Consolidated Income Statement and the Consolidated Statement of Other Comprehensive Income, the statements of Changes in Shareholders’ Equity and Cash Flows; and
  • the notes, comprising the significant accounting policies and other explanatory information.

The Parent Company Financial Statements comprise:

  • the Balance Sheet (Before Appropriation of Result) as at 31 December 2018;
  • the Income Statement for the year then ended; and
  • the notes, comprising a summary of the accounting policies and other explanatory information.

The financial reporting framework 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. We have further described our responsibilities under those standards in the section ‘Our responsibilities for the audit of the financial statements’ of our report.

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

Independence

We are independent of GrandVision N.V. in accordance with the European Regulation on specific requirements regarding statutory audit of public-interest entities, the ‘Wet toezicht accountantsorganisaties’ (Wta, Audit firms supervision act), the ‘Verordening inzake de onafhankelijkheid van accountants bij assuranceopdrachten’ (ViO – Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence requirements in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA – Code of Ethics for Professional Accountants, a regulation with respect to rules of professional conduct).

Our audit approach

Overview and context

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

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where the Management Board made important judgements, for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.

In section 2.8 of the notes to the Consolidated Financial Statements the Company describes the areas of judgement in applying accounting policies and the key sources of estimation uncertainty. Given the significant estimation uncertainty and the related higher inherent risks of material misstatement in the valuation of goodwill and uncertain tax and legal positions, we considered these to be key audit matters as set out in the section ‘Key audit matters’ of this report. A new key audit matter this year is the Company’s disclosure of the estimated impact of IFRS 16 Leases on January 1, 2019. This disclosure of the impact of IFRS 16 requires judgement and management estimates regarding the impact of IFRS 16 on the 2019 financial statements.

Another area of focus, that was not considered a key audit matter, was the risk of fraud in revenue recognition. 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 at both group and component level 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, taxes and accounting and experts in the area valuation as well as actuarial experts in our team.

The outline of our audit approach was as follows:

Materiality

Overall materiality: €15.9 million

Audit scope

We conducted audit work in 26 locations covering 27 countries.

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

Audit coverage: 97% of consolidated revenue, 93% of consolidated total assets and 99% of consolidated profit before tax.

Key audit matters

Assessment of goodwill valuation

Accounting for uncertain tax and legal positions

Disclosure of the expected impact of IFRS 16

Materiality

The scope of our audit is influenced by the application of materiality, which is further explained in the section ‘Our responsibilities for the audit of the financial statements’.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the financial statements as a whole as set out in the table below. 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, both individually and in aggregate, on the financial statements as a whole and on our opinion.

Overall group materiality

€15.9 million (2017: €17.5 million).

Basis for determining materiality

We used our professional judgment to determine overall materiality. As a basis for our judgment we used 5% of profit before tax (which is consistent with prior year).

Rationale for benchmark applied

We used profit before tax as the primary 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, allocated materiality that is less than our overall group materiality. The range of materiality allocated across components was between €0.5 million and €7.5 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 (2017: €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.

We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an opinion on the Financial Statements as a whole, taking into account the management structure of the Group, the nature of operations of its components, the accounting processes and controls, and the markets in which the components of the Group operate. In establishing the overall group audit strategy and plan, we determined the type of work required to be performed at component level by the group engagement team and by each component auditor.

The group audit primarily focussed on the significant components: Apollo (Germany), Vision Express (the United Kingdom), GrandVision Benelux (the Netherlands) and GrandVision France. These four components were subject to audits of their complete financial information, as these components are individually financially significant to the Group. Additionally and as agreed with the Management Board and Supervisory Board, 22 components were selected for audits of complete financial information 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

97%

Total assets

93%

Profit before tax

99%

None of the remaining components represented more than 1% 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 components.

For all Dutch holding entities, as included in note 36 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 the audit work.

Where component auditors performed the work, we determined the level of involvement we needed to have in their audit work to be able to conclude whether we had obtained sufficient appropriate audit evidence as a basis for our opinion on the Financial Statements as a whole.

We issued instructions to the component audit teams in our audit scope. These instructions included amongst others our risk analysis, materiality and scope of the work. We explained to the component audit teams the structure of the Group, the main developments that are relevant for the component auditors, the risks identified, the materiality levels to be applied and our global audit approach. We had individual calls with each of the in-scope component audit teams throughout the year including upon conclusion of their work. The group engagement team attended the meetings of the component teams with local and group management in which the outcome of the component audit was discussed. During these meetings, we discussed the significant accounting and audit issues identified by the component auditors, the reports of the component auditors, the findings of their procedures and other matters, which could be of relevance for the Consolidated Financial Statements. The group engagement leader or 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 the component teams and local management of Apollo (Germany), Vision Express (the United Kingdom), GrandVision Benelux (the Netherlands) and GrandVision France given the relative size of the locations. For each of these locations we reviewed the selected working papers of the component auditors. In addition the group engagement team visited local management and component auditors of GrandVision Italy and For Eyes (United States).

The group engagement team performed the audit work on the group consolidation, financial statement disclosures and a number of complex items at the Company’s head office. These include the goodwill impairment test, the accounting for the long term incentive plan, tax position and the disclosure of the impact of IFRS 16.

By performing the procedures above at components, combined with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence on the Group’s financial information, 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. The key audit matters are not a comprehensive reflection of all matters identified by our audit and that we discussed. In this section, we described the key audit matters and included a summary of the audit procedures we performed on those matters.

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

Key audit matter

How our audit addressed the matter

Assessment of goodwill valuation


Refer to note 2.8 and 12 of the financial statements for the Management Board’s accounting policies and underlying assumptions.

The goodwill on the balance sheet of GrandVision N.V. concerns €1,052 million as at 31 December 2018. Of this, €427 million relates to the countries in ‘the G4’ segment, €463 million to ‘Other Europe’ and €162 million to ‘Americas and Asia’.

The measurement of the carrying amount of groups of CGUs 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 sensitive assumptions in the discounted cash flow are the revenue growth rates and anticipated profit improvements. The discounted cash flow is highly dependent on the future achievability of the assumed growth rates and improvements. Especially, for the Americas & Asia segment Management’s forecast is that the revenue growth rate for most countries exceeds the revenue growth rates as used in ‘the G4’ and ‘Other Europe’ segments.

For FVLCOD based on the sales multiple the key assumption is the sales multiple.

In 2018 an impairment of €19.3 million on goodwill was recognised, relating to the Italy which is part of the segment ‘Other Europe’.

Given the high level of management judgement regarding the aforementioned assumptions in the impairment assessment of goodwill, we considered this area to be important for our audit.

We evaluated the Management Board’s policies and procedures to determine future cash flow forecasts, the process by which they were drawn up and we also assessed design effectiveness of controls over the impairment process.

We evaluated the prior year’s forecast with the Group’s actual performance in 2018, given this would be an indicator of the quality of the Company’s forecasting process.

We especially focused our audit effort on the segments ‘Other Europe’ and ‘Americas and Asia’, in which some countries have shown impairment, were subject to economic challenges and/or had limited headroom in prior year(s).

We evaluated and challenged Management’s most sensitive cash flow assumptions, including but not limited to growth rates and compared them to long-term and strategic plans approved by the Supervisory Board.

Also, we assessed the reasonableness of Management’s valuation models used and verified the mathematical accuracy.

We involved valuation experts to evaluate the discount rates applied for each group of cash-generating units.
We compared the growth rates to the Management Board’s proven track record of improving performance by economies of scale and marketing.

For certain countries within the segment ‘Americas and Asia’, the Management Board also prepared a FVLCOD valuation by applying a sales multiple. We evaluated the reasonableness of the applied sales multiple by comparing it with recent market transactions and listed peer companies.

For ‘Italy’ within the segment ‘Other Europe’, the Management Board prepared a FVLCOD by using the discounted cash flow method. Together with our valuation experts we assessed the key assumptions made in relation to revenue growth rates and anticipated profit improvements. Furthermore with assistance of our valuation experts we evaluated the methodology applied in Management’s calculation of the discount rate. We compared the discount rate used by Management to our independently calculated discount rate and found it to be within the acceptable range.

Our procedures also included the sensitivity of the assumptions made in determining FVLCOD by using the discounted cash flow method.

Based on our procedures, we consider Management’s key assumptions supported by available evidence. Also, we have evaluated the adequacy of the related disclosures.

Key audit matter

How our audit addressed the matter

Accounting for uncertain tax and legal positions

Refer to note 2.8, 10, 27 and 31.1 of 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 the balance sheet date, GrandVision N.V. is exposed to a number of ongoing disputes.

The disputes we focused on in our audit relate to a tax audit by the German Tax authorities (note 31.1) and an investigation by the French Competition Authority (note 27).

The accounting for these uncertain tax and legal positions comprise significant judgement by the Management Board mainly in the area of measurement and whether to disclose these uncertain positions as a contingent liability or to recognise a liability in the form of a provision. When appropriate, Management uses management’s experts to evaluate the uncertain tax and legal positions. Given the high level of Management judgement, we considered this area to be important for our audit.

We gained an understanding of the process Management followed to assess the impact of the tax and legal cases.

We assessed these tax and legal cases on an individual basis by evaluating the reports issued by the different authorities.

We especially focussed on the current facts and circumstances for the tax and legal cases, the arguments of the different authorities and the status of pending legal proceedings.

In addition, with subject matters specialists in the engagement audit team if appropriate, we evaluated the tax and legal opinions of management’s experts, which were obtained by GrandVision N.V. on the respective cases. We evaluated the competency and objectivity of management’s experts.

Furthermore, we focussed on the consistency in approach, similarities and differences within the group at GrandVision N.V. and outcome of comparable tax and legal cases.

Based on the above, we evaluated the reasonableness of Management’s assessment for the accounting of the uncertain tax and legal positions by considering amongst others the probability of cash outflows and subsequently assessed the appropriateness of respective disclosure as provision or contingency in the financial statements.

In addition, we found the related disclosures to be adequate.

Key audit matter

How our audit addressed the matter

Disclosure of the expected impact of IFRS 16

Refer to note 2.7.2 for the Management Board’s disclosures, judgement and estimates

IFRS 16, Leases becomes effective for annual reporting periods beginning on or after January 1, 2019. The application of this new standard as disclosed in note 2.7.2 is estimated to give rise to a right of use asset of €1.4 billion and a corresponding increase in lease liabilities of €1.4 billion for the Group.

We considered this to be a key audit matter because of the magnitude of the amounts involved, the implementation process required to identify and process all relevant data associated with these leases (including IT software and controls). In addition, Management’s judgement is applied in determining matters such as discount rates and lease terms as well as applying policy elections such as the transition approach.

Our procedures included evaluating the design effectiveness of Management’s controls around the implementation of IFRS 16 including completeness and accuracy of the contractual lease agreements recognized in the lease accounting system.

We reviewed accounting position papers prepared by the Group to determine whether this has been set up in accordance with the requirements of IFRS 16.

We challenged Management on their accounting policy choice judgements and they provided us with reasonable explanations and evidence supporting these judgements.

Furthermore, we challenged management’s assumptions used in determining the discount rates and lease terms. On a sample basis we agreed the key inputs to supporting documentation such as lease agreements. With the assistance of valuation experts we tested the discount rates applied by the Group. We also recalculated the right-of-use asset and lease liability calculated by the system for each material type lease contract.

We considered the disclosure on the implementation of IFRS 16, including the estimated impact on the Group financial statements at implementation date, to be adequate.