2.1 Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) as adopted within the European Union and also comply with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code.
The accounting policies based on IFRS have been applied consistently for the years presented in these consolidated financial statements. There were no changes in the accounting policies applied compared to the previous year, except as described in note 2.7.1.
2.2 Basis of Measurement
The IFRS financial statements have been prepared under the historical cost convention, except for derivatives, share-based payment plans, contingent considerations, certain non-current assets and post-employment benefits.
In preparing these consolidated financial statements, management has made judgements and estimates that affect the application of the Group's accounting policies and the reported amounts of assets, equity, liabilities, commitments, income and expenses.
Implications of COVID-19 on the Group
The global spread of the COVID-19 pandemic during 2020 resulted in challenges for the optical retail industry, in particular in the first half of the year due to a significant number of temporary store closures in many markets, restrictions with regards to openings hours and the performance of essential in-store services in many other regions, as well as a significant reduction in traffic due to consumer uncertainty. GrandVision formed an internal taskforce to continuously monitor and proactively manage risks relating to COVID-19 throughout its business, as well as to ensure that publicly available advice was followed and that appropriate safety measures were quickly implemented for the employees and customers. Business continuity plans of the Group and focus on operational excellence, building on a strong foundation of its long-term strategic initiatives, enabled GrandVision to limit the effects of the pandemic and continue to meet and serve the needs of the customers.
The impact of the COVID-19 pandemic has been markedly different in the first half of the year versus the second half of 2020. In the first half of 2020, and in particular as of March 2020, many of GrandVision's stores were fully closed or only partially open, as GrandVision complied with governmental measures and health authority recommendations around the world. Consequentially, GrandVision was impacted by various degrees of sales limitations and a significant reduction in traffic. As the situation continued to develop rapidly, GrandVision faced a negative revenue impact of -27.2% against the previous year in the first half year of 2020.
In the first half of the year, and as soon as the potential impact of the COVID-19 pandemic became apparent, GrandVision focused on its people, customers and stakeholders as well as the financial health of the company. In this period, GrandVision swiftly implemented hygiene and safety protocols and equipped stores with distance separations and protective equipment, such as face masks and hygiene gels. In addition, the Group accelerated investments in customer facing tools such as optical e-commerce functionalities to enable the customers to interact even better with GrandVision local online and offline retail brands. GrandVision invested in automated eye measurement equipment which, together with distance dividers, allowed eye tests at recommended distances.
By the end of June, the majority of the countries of the Group started to relax COVID-19 measures and restrictions, allowing GrandVision to gradually re-open the store network. With the measures and investments taken in the first half of the year, GrandVision was able to operate safely with 1.5-2-meter social distancing. By June 2020, GrandVision had returned to full operation, particularly in most of the markets in Europe. In Latin America, where countries had been impacted by COVID-19 later than Europe and North America, stores faced a longer period of store closures or were operating with limited opening hours.
Throughout the COVID-19 pandemic, GrandVision continued to make good progress on the implementation of the omnichannel capabilities across the Group. This has helped to better address, serve and retain the customers and resulted in a strong increase in digitally influenced store sales, mainly driven by online appointment booking and e-vouchers, as well as direct e-commerce sales.
The response to the COVID-19 pandemic in the first half of 2020 enabled GrandVision to strongly benefit once the store network re-opened from June 2020 onwards. Despite continued depressed levels of customer traffic, high customer conversion and favorable product mix resulted in a strong recovery of revenue and profitability in the second half of 2020. However, towards the end of the year, the second wave impact resulted in a slowdown of the recovery achieved in the third and fourth quarters of 2020.
During the pandemic, GrandVision worked with key stakeholders such as landlords and banks to mitigate the impact of the crisis whilst engaging in dialogue and using governmental measures offered to help mitigate the impact of the pandemic. GrandVision received support from many of the landlords through agreed rent reductions, details of which are included in the section on leases in this report. Banks supported GrandVision throughout the pandemic by providing a waiver of the bank’s covenants for the duration of 2020 whilst gradually resuming in 2021. A sub-set of the banks agreed to provide GrandVision with an additional Liquidity Facility (RLF) commitment of €400 million for the duration of one year and with the option to prolong by another year, further evidencing the confidence in GrandVision. GrandVision participated in various governmental programs and measures offered. This included furlough schemes and postponement of tax and/or social taxes payments. Further details on the impact of such arrangements are included in the section on Financial Risk Management in note 3, and further details are provided in notes 7 and 12 in this report.
GrandVision management believes that the long-term commitment of €1,200 million under the Revolving Credit Facility (RCF), and the additional Liquidity Facility commitment of €400 million will be sufficient in the event of a prolonged COVID-19 pandemic. As of 30 December 2020, 73% of the RCF and 100% of the RLF were available. With the debt markets stabilizing, the interest on Commercial Paper returning to its normal level, and taking into account the available commitments, management believes that GrandVision is in a sound position from a financing point of view (see note 3 for more details).
Therefore, whilst uncertain, management does not believe, however, that the impact of the COVID-19 pandemic would have a material adverse effect on the Group's financial condition or liquidity.
2.3 Significant Accounting Policies
The Group’s significant accounting policies are included in the relevant individual notes to the consolidated financial statements, as well as the significant accounting estimates and judgments made, where applicable, as described in note 2.8.
Subsidiaries are those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. All intercompany transactions, balances and unrealized gains or losses on transactions between Group companies are eliminated.
2.5 Foreign Currency
2.5.1 Functional and Presentation Currency
Items in the consolidated financial statements of the various Group companies are measured in the currency of the primary economic environment in which each entity operates (the functional currency). The consolidated financial statements are presented in euros (€), this being GrandVision’s presentation currency. Amounts are shown in thousands of euros, unless stated otherwise.
2.5.2 Transactions, Balances and Translation
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation when items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, excluding foreign operations in hyperinflationary economies, are recognized in the consolidated Income Statement, except when deferred in the consolidated Other Comprehensive Income as qualifying cash flow hedges.
Foreign currency exchange gains and losses are presented in the consolidated Income Statement either in the operating result, if foreign currency transactions relate to operational activities, assets and liabilities, or within the financial result for non-operating financial assets and liabilities.
2.5.3 Foreign Subsidiaries
The assets and liabilities of foreign subsidiaries, including goodwill and fair value adjustments arising on consolidation, are translated into the presentation currency at the exchange rate applicable at the balance sheet date. The income and expenses of foreign subsidiaries are translated into the presentation currency at average exchange rates to approximate the exchange rates at the date of the transaction. Resulting exchange differences are recognized in the consolidated Other Comprehensive Income.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and are translated at the closing rate.
2.5.4 Hyperinflation Accounting
The Group applies hyperinflation accounting for its operations in Argentina. The effects of this hyperinflation accounting on the consolidated financial figures of the Group are limited, since the operations in Argentina represent a limited part of the total assets and the operating result of the Group.
The index used to apply hyperinflation accounting is the Retail Price Index published by the Government Board of the Argentine Federation of Professional Councils of Economic Sciences (FACPCE).
2.6 Principles for the consolidated Statement of Cash Flows
The consolidated statement of cash flows is compiled using the indirect method. The consolidated statement of cash flows distinguishes between cash flows from operating, investing and financing activities. For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, cash pool balances and bank overdrafts, as they are considered an integral part of the Group’s cash management. In the consolidated Balance Sheet, bank overdrafts and cash pool liabilities are included in borrowings in current liabilities.
Cash flows in foreign currencies are translated at the rate of the transaction date.
Interest paid and received is included under cash flow from financing activities . Cash flows arising from the acquisition or disposal of financial interests (subsidiaries and participating interests) are recognized as cash flows from investing activities, taking into account any cash and cash equivalents in these interests. Dividends paid out are recognized as cash flows from financing activities; dividends received are recognized as cash flows from investing activities. Repayments of lease liabilities and receipts from finance subleases including principal amount and interest are classified as cash flows from financing activities.
2.7 Changes in Accounting Policies and Disclosures
2.7.1 New and Amended Standards and Interpretations Adopted by the Group
New and Amended Standards and Interpretations Adopted by the Group
A number of new or amended standards and interpretations became applicable for the current reporting period and the Group had to change its accounting policies as a result of adopting the following standards, where applicable:
- Amendments to IFRS 3 Business Combinations
- Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
- Amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures
- Amendments to References to the Conceptual Framework in IFRS
- Amendments to IFRS 16 Leases
Amendments to IFRS 3 Business Combinations
The amendments to IFRS 3 on the definition of a business were issued in 2018 and are effective for accounting periods beginning on or after 1 January 2020. The amendments clarify whether an acquired set of activities and assets is a business or not, which is a key consideration in determining whether a transaction is accounted for as a business combination or an asset acquisition. As from 2020, the Group applies these amendments. These amendments had no impact on the consolidated financial statements of the Group.
Amendments to IAS 1 and IAS 8: Definition of "Material"
The amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors on the definition of 'Material' were issued in 2018 and are effective for accounting periods beginning on or after 1 January 2020. The amendments were issued to align the definition of ‘material’ across the IFRS standards and to clarify certain aspects of the definition. As from 2020, the Group applies these amendments. These amendments had no impact on the consolidated financial statements of the Group.
Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform
The amendments to IFRS 9, IAS 39 and IFRS 7 - Interest Rate Benchmark Reform were issued in 2019 and are effective for accounting periods beginning on or after 1 January 2020. Many interest rate benchmarks such as LIBOR (the London Inter-Bank Offered Rate) are in the process of being replaced. There will be financial reporting implications to this reform, with some effects arising even before a particular interest rate benchmark has been replaced (pre-replacement issues).The amendments provides relief from certain hedge accounting requirements in order to avoid unnecessary discontinuation of existing hedge relationships during the period of uncertainty over interest rate benchmark reform. These amendments had no impact on the consolidated financial statements of the Group.
Amendments to References to the Conceptual Framework in IFRS
Amendments to References to the Conceptual Framework in IFRS were issued in 2018 and are effective for accounting periods beginning on or after 1 January 2020. The amendments were issued to align various standards to reflect the issue of the revised Conceptual Framework for Financial Reporting. In addition, the amendments clarify that the definitions of asset and liability applied in certain standards have not been revised, with the new definitions included in the new conceptual framework. These amendments had no impact on the consolidated financial statements of the Group.
Amendments to IFRS 16 Leases: COVID-19-Related Rent Concessions
The amendment to IFRS 16 - COVID-19-Related Rent Concessions was issued in 2020 and is effective for annual periods beginning on or after 1 June 2020. This amendment provides practical relief for lessees in accounting for rent concessions. As a practical expedient, a lessee may elect not to treat eligible COVID-19-related rent concession as a lease modification, and instead is permitted to account for it as if it was not lease modification. The Group has elected to adopt these changes early. The Group applied the practical expedient to all the rent concessions, which meet the criteria for the reporting periods starting 1 January 2020. The impact of the amendment and new accounting policies are disclosed in Leases (note 12).
2.7.2 New Standards, Amendments and Interpretations Issued But Not Effective for the Reported Period and Not Adopted Early
The following new standards and amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2021 and are not expected to have a significant impact on the Group's consolidated financial statements:
- IFRS 17 Insurance Contracts (issued on 18 May 2017), including Amendments to IFRS 17, IFRS 4 and deferral of IFRS 9 (issued on 25 June 2020);
- Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current and Classification of Liabilities as Current or Non-current - Deferral of Effective Date (issued on 23 January 2020 and 15 July 2020, respectively);
- Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets; Annual Improvements 2018-2020 (issued 14 May 2020);
- Amendments to IFRS 4 Insurance Contracts – deferral of IFRS19 (issued on 25 June 2020);
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 (issued on 27 August 2020).
2.8 Significant Accounting Estimates and Judgments
The estimates made and the related assumptions are based on historical experience and various other factors, including expectations of future events that are believed to be reasonable under the given circumstances. Estimates and underlying assumptions are subject to constant assessment. Changes in estimates and assumptions are recognized in the period in which the estimates are revised. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are described together with the applicable note, as follows:
Uncertain tax positions
Impairment test of Goodwill
Impairment test of Other Intangible assets
Consolidation of the Synoptik Group
Provisions and contingencies