Report on the financial statements 2014

Our opinion

In our opinion:

  • the consolidated financial statements give a true and fair view of the financial position of GrandVision N.V. as at 31 December 2014 and of its result and 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;
  • the parent company financial statements give a true and fair view of the financial position of GrandVision N.V. as at 31 December 2014 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 financial statements 2014 of GrandVision N.V., Haarlemmermeer (‘the company’ or ‘GrandVision’). The financial statements include the consolidated financial statements and the parent company financial statements. The consolidated financial statements comprise:

  • the consolidated balance sheet as at 31 December 2014;
  • the following statements for 2014: the consolidated income statement and the consolidated statements of other comprehensive income, the consolidated changes in shareholders’ equity and the consolidated cash flow statement; and
  • the notes, comprising a summary of significant accounting policies and other explanatory information.

The parent company financial statements comprise:

  • the parent company balance sheet as at 31 December 2014;
  • the parent company 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 that has been 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. Our responsibilities under those standards are further described in the “Our responsibilities for the audit of the financial statements” section of our report.

We are independent of GrandVision N.V. in accordance with the “Verordening inzake de onafhanke- lijkheid van accountants bij assurance-opdrachten” (ViO) and other relevant independence requirements in the Netherlands. Furthermore, we have complied with the “Verordening gedrags- en beroepsregels accountants” (VGBA).

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

Our audit approach

Overview

We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the Management Board made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. 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.

Materiality

Overall materiality: €12.5 million which represents 5% of profit before tax.

Audit scope

We conducted audit work in 18 locations, covering 93% of consolidated revenue and almost 100% of earnings before tax.
We paid particular attention to the material acquisitions that took place in Italy, Turkey, China, Peru, the United Kingdom and Colombia.
Site visits were conducted by the group audit team to six countries – Apollo (Germany), Vision Express (United Kingdom), GrandVision Benelux (the Netherlands), GrandVision (France), Synoptik (Denmark) and Instru Opttikka (Finland).

Key audit matters

Impairment assessment of goodwill
Accounting for acquisitions
Liability for long-term incentive plans

Materiality

The scope of our audit is influenced by the application of materiality. Our audit opinion aims on providing reasonable assurance about whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of identified misstatements on our opinion.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall group materiality

€12.5 million (2013: €11.5 million)

How we determined it

5% of profit before tax.

Rationale for benchmark applied

We have applied this 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.

We also take misstatements and/or possible misstatements into account that, in our judgment, 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 (2013: €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 head of a group of entities. The financial information of this group is included in the consolidated financial statements of GrandVision N.V.

Considering our ultimate responsibility for the opinion on the company’s consolidated financial statements we are responsible for the direction, supervision and performance of the group audit. In this context, we have determined the nature and extent of the audit procedures for components of the group to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole. Determining factors are the geographic structure of the group, the significance and/or risk profile of group entities or activities, the accounting processes and controls, and the industry in which the group operates. On this basis, we selected group entities for which an audit or review of financial information or specific balances was considered necessary.

We conducted full scope audit work in 18 locations. The group audit focused on the significant components Apollo (Germany and Austria), GrandVision (France), GrandVision Benelux (the Netherlands and Belgium), Synoptik (Denmark, Norway and Sweden), Vision Express (United Kingdom) and Fototica (Brazil). In our view, due to their significance and/or risk characteristics, each of these components required an audit of their complete financial information.

For all holding entities, the group engagement team performed the work. For all other components that are in scope of the group audit we used component auditors from other PwC network firms who are familiar with the local laws and regulations to perform this audit work.

Where the work was performed by component auditors, we determined the level of involvement we needed to have in the related audit work to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the group financial statements as a whole. The group engagement team visited Apollo (Germany), Vision Express (United Kingdom), GrandVision Benelux (the Netherlands), GrandVision (France), Synoptik (Denmark) given the relative size of the entities. In addition the group engagement team visits other operating companies on an annual rotation basis. In 2014 the group engagement team visited Instru Optiikka Oy (Finland).

The group consolidation, financial statement disclosures and a number of complex items are audited by the group engagement team at the company’s head office. These include, the accounting of the long term incentive plan, the tax position and derivative financial instruments including hedge accounting.

By performing the procedures above at components, combined with additional procedures at group level, we have obtained sufficient and appropriate audit evidence regarding the financial information of the group 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 judgment, were of most significance in the audit of the financial statements. We have communicated the key audit matters to the Supervisory Board, but they are not a comprehensive reflection of all matters that were identified by our audit and that we discussed. We described the key audit matters and included a summary of the audit procedures we performed on those matters. The key audit matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon. We do not provide a separate opinion on these matters.

Key audit matter

How our audit addressed the matter

Impairment assessment of goodwill

Refer to note 4.2, 14 and 16 of the financial statements for the accounting policies and underlying assumptions.

GrandVision has a total goodwill of €886 million. Of this, €420 million relates to the G4 and €369 million to Other Europe. The risk that we focused on in our audit is the risk of impairment of the remaining balance of €97 million relating to the Latin America & Asia segment. The value of the goodwill in this segment reflects the anticipated relative high growth rates of revenue and anticipated profit improvements, which would not be appropriate if those rates and improvements are not achievable in the future. Given the high level of management judgement in their impairment assessment we considered this area to be important for our audit.

We evaluated and challenged the Management Board’s future cash flow forecasts and the process by which they were drawn up, and tested the underlying value in use calculations. We compared the prior year’s forecast with the company’s actual performance in 2014 given this would be an indicator of the quality of the company’s forecasting process.

The key assumption in the Latin America & Asia forecast is that the revenue exceeds growth rates in G4 and Other Europe. We compared the growth rates to the proven track record of improving performance by economies of scale and marketing. For the cash generating units within Latin America & Asia, GrandVision also prepared a fair value less cost of disposal valuation by applying a multiple on the average sales of the last three years. We evaluated the reasonableness of this valuation by comparison with recent market transactions and listed peer companies. In addition we have tested the adequacy of the related disclosures.

Key audit matter

How our audit addressed the matter

Accounting for acquisitions

See notes 2.3.2 and 5 to the financial statements for the Management Board’s disclosures of the related accounting policies, judgements and estimates.

During 2014, GrandVision acquired several retail chains as well as individual stores for a total consideration of €257 million. The acquisition accounting for these transactions comprise significant judgement of the Management Board for purchase price allocation mainly in relation to the valuation of the intangible fixed assets such as, trademarks, customer databases and the remaining goodwill balance. In addition, contractual agreements per individual acquisition required specific attention concerning the application of the appropriate accounting treatment.

We tested the (preliminary) purchase price allocations in which we especially focused on the valuation of the intangible fixed assets such as trademarks and customer databases of the acquired companies. We tested that GrandVision applies a consistent and generally accepted valuation method for the trademarks and customer databases. We particularly focussed on the opening balances and related fair value adjustments. We evaluated the timing and appropriateness of the accounting treatment and the consideration of the acquisitions based on the contractual agreements per individual acquisition. With respect to our audit work on the goodwill valuation we refer to key audit matter “impairment assessment of goodwill”. In addition we have tested the adequacy of the related disclosures.

Key audit matter

How our audit addressed the matter

Liability for long term incentive plans

See note 2.21.3 and 28 to the financial statements for the Management Board's disclosures of the related accounting policies, judgements and estimates.

GrandVision has a long-term incentive plan for more than 120 employees. This long-term incentive plan is, for the majority, based on the change in market value of GrandVision’s shares. Historically the liability for this plan has been determined based on an internal fixed valuation measure. Due to the expected listing of GrandVision at balance sheet date, the liability for the plan now (largely) relates to the market value of GrandVision. The determination of the liability comprises significant management judgement, relating to the fair value of GrandVision of the, at balance sheet date, estimated probability of a successful listing and the achievement of certain service conditions.

The, at balance sheet date, expected listing of GrandVision triggered a change of accounting for the Long Term Incentive Plans as the settlement of the plans will be based on listed share price instead of the internal fixed valuation method. We audited the change of the qualification of the plans from IAS19R to IFRS2 and the correct application thereof.

The key assumptions for the liability comprise the fair value of GrandVision of the, at balance sheet date, estimated probability of a successful listing and the achievement of certain performance conditions. GrandVision used an external valuator to determine the enterprise value of GrandVision, and we have therefore tested the work of the valuator and management’s estimates and assessed them against information provided by the post balance sheet listing of GrandVision in 2015. In addition we assessed the independence and the competence of the external valuator. The probability at balance sheet date of a successful listing has been assessed by us by taking notice of minutes of meetings of the supervisory board including shareholder, banks and advisors. Furthermore, we have considered the achievement of performance conditions based on comparison with actual achieved targets, including operating results. In addition we tested the adequacy of the related disclosures.

Responsibilities of the Management Board and the Supervisory Board

The Management Board is responsible for:

  • the preparation and fair presentation of the financial statements in accordance with EU-IFRS and with Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the Management Board’s report in accordance with Part 9 of Book 2 of the Dutch Civil Code, and for
  • such internal control as the Management Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

As part of the preparation of the financial statements, the Management Board is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Management Board should prepare the financial statements using the going concern basis of accounting unless the Management Board either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. The Management Board should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.

The Supervisory Board is responsible for overseeing the company’s financial reporting process.

Our responsibilities for the audit of the financial statements

Our responsibility is to plan and perform an audit engagement to obtain sufficient and appropriate audit evidence to provide a basis for our opinion. Our audit has been performed with a high but not absolute level of assurance which makes it possible that we did not detect all frauds or errors.

A more detailed description of our responsibilities is set out in the appendix to our report.