Plastic Omnium - 2018 Registration Document

4 2018 CONSOLIDATED FINANCIAL STATEMENTS Consolidated financial statements at December 31, 2018 www.plasticomnium.com PLASTIC OMNIUM 2018 REGISTRATION DOCUMENT 226 These costs are recognized as fixed assets in progress during the development phase and amortized on a straight-line basis over the estimated duration ● of the series production, generally three years for exterior parts, five years for fuel systems and the Modules activity. These fixed assets are subject to annual impairment tests and when there are indications of impairment loss at the start of the series life. ● The valuation of capital assets related to development costs is considered a key audit matter due to judgments to be made by Management to ● determine: the costs to be incurred in the development phase; ● the recoverable value of these assets, based on forecasts of future sales volumes. ● OUR RESPONSE Our work consisted in: acknowledging the process of identifying capitalized development costs; ● reviewing the estimated development costs incurred for the Automotive projects; ● reviewing the depreciation method used in light of changes in market conditions and performing arithmetical checks. ● We also considered the relevance of the impairment indicators used by the Group at the closing date and, when appropriate, we examined the impairment tests performed. ACCOUNTING TREATMENT FOR CHANGES IN SCOPE KEY AUDIT MATTER As stated in note 2.3.1 "Acquisition by the Group of Mahle-Behr's 33.3% equity stake in HBPO" of the notes to the consolidated financial statements: On March 1, 2018, Plastic Omnium Auto Exteriors SA and Mahle-Behr signed a "Sale and Purchase Agreement" ("SPA") whereby Mahle-Behr sold its ● 33.3% stake in HBPO, provided the Group obtained approval from the competition authorities. On June 26, 2018, the Group finalized this acquisition for a purchase price of €370 million. Following this acquisition, the Group now owns 66.67% of HBPO and Hella 33.33%. Following exchanges with the partner and taking into account the integration procedures achieved in the weeks following the acquisition, the Plastic ● Omnium Group concluded that it exercised control over HBPO. This transaction resulted in (i) a fair value revaluation of the previously held securities generating a capital gain of €255 million in profit and (ii) posting at ● fair value of HBPO's assets acquired and liabilities assumed and provisional goodwill of €525 million. The Group had a period of twelve months from the date of acquisition to adjust the value of HBPO's acquired assets and liabilities. As indicated in note 2.6.1 "Sale of the Environment business" of the notes to the consolidated financial statements, a "sale purchase agreement" was ● signed on October 26, 2018 between the Plastic Omnium Group and the consortium Latour Capital/Bpifrance (French public investment bank)". The "Net profit after tax of discontinued operations" presented in the consolidated income statement of €1.5 million includes: in accordance with IFRS 5, the activity of the "Environment" Division net of inter-company transactions with the Group, from January 1 to December 18, ● 2018 for +€11.964 million; and the net tax loss on the sale of this business for -€10.47 million. ● These changes in scope and accounting treatment are a key audit matter due to their significance, complexity and judgments that Management has had to exercise. OUR RESPONSE The work we did consisted mainly of: reviewing the shareholders' pact and HBPO's terms of consolidation and reviewing the Group's analysis of control against IFRS 10 criteria for HBPO ● control; reviewing the methodology used to identify the assets acquired and liabilities assumed and their valuation at fair value, including our valuation experts in ● our audit team, reviewing the assumptions used to value the fair value of customer contracts and the HBPO brand and the fair value of previously held securities. ● As part of the disposal of the Environment Division, we examined the accounting entries for the disposal of the scope of consolidation and the disposal profit.