Plastic Omnium - 2020 Universal Registration Document

CONSOLIDATED FINANCIAL STATEMENTS 2020 Consolidated financial statements at December 31, 2020 PLASTIC OMNIUM UNIVERSAL REGISTRATION DOCUMENT 2020 203 The Group applies the components approach to its property assets and major functional assemblies. Buildings 20 and 40 years Real estate fixtures 10 years Presses and transformation machines 7 – 10 years Machining, finishing and other equipment 3 – 10 years LEASE CONTRACTS 1.6.3.2 Since January 1, 2019, the Group has applied IFRS 16 “Leases” and has chosen to apply for the transition the simplified retrospective method providing for the application of the new accounting treatment to leases in force on January 1, 2019. As part of the implementation of this standard, the Group assesses whether a contract is a lease under IFRS 16 by assessing on the entry date of said contract, whether the latter relates to a specific asset, and whether the Group obtains almost all of the economic benefits linked to the use of the asset and the ability to control the use of this asset. The two capitalization exemptions proposed by the standard for contracts with an initial term of less than or equal to twelve months and goods of low unit value when new, which the Group has defined as being less than or equal to €5,000, have been used. The accounting treatment is as follows: recognition as property, plant and equipment of rights to use assets ● under leases that meet the capitalization criteria defined by IFRS 16; recognition of a financial debt in respect of the obligation to pay rent ● during the term of these contracts; recognition of a depreciation charge for the right to use the asset and a ● financial charge relating to interest on the rental debt which partially replaces the operating charge previously recorded in respect of the rental income. The amortization period of the right of use is determined on the basis of the duration of the contract, taking into account an option of renewal or termination when its exercise is reasonably certain; in the cash flow statement, debt repayment payments affect financing ● flows. The discount rate used to calculate the rental debt is determined, for each property, according to the marginal debt rate at the start date of the contract. This rate corresponds to the interest rate that the lessee would obtain, at the start of the lease, to finance the acquisition of the leased asset. This rate is obtained by adding the rate on government bonds with terms similar to the leased assets and the entity’s credit spread. The Group has adopted a tool allowing it to carry out, for each contract meeting the IFRS 16 capitalization criteria, an assessment of the rights of use and the related financial debt and of all the impacts on the income statement and balance sheet in accordance with IFRS 16. This tool is used by all consolidated companies. The amounts recognized as right of use assets and as financial debts mainly relate to property leases of industrial sites, storage and administrative premises; the remainder mainly corresponds to industrial equipment and vehicles. Impairment of goodwill, property, plant 1.6.4 and equipment and intangible assets IMPAIRMENT OF GOODWILL 1.6.4.1 Plastic Omnium Group goodwill is not amortized but is tested for impairment at least annually, at year-end, as well as during the current year when there is evidence of impairment. Impairment tests are carried out at the level of the cash-generating units (CGU) or groups of cash-generating units, which are: “Industries”; ● “Modules”. ● The net carrying amount of all assets (including goodwill), comprising each cash-generating unit, is compared to its recoverable amount, i.e. the higher of the fair value less disposal costs and the value in use determined using the discounted cash flow method. The cash flow forecast is based on the Group’s medium-term plans, which are prepared for the next five years, revised as necessary to reflect the most recent market conditions. Beyond this timeframe, a terminal value is calculated based on the capitalization of the projected cash flows for the last year covered by the business plan, using a long-term growth rate that reflects the outlook for the market. These cash flow projections are then discounted. The assumptions used to determine the discount rates take into account: an industry risk premium; ● an industry financing “spread” to value the cost of debt; ● the rates used by comparable companies in each segment. ● Sensitivity tests with an increase in the discount rate of 0.5% or a reduction of 0.5% in the long-term growth rate or a reduction of 0.5% in the operating margin rate are systematically carried out. In the current context, a 1-point sensitivity has also been achieved, without impact on the test results. IMPAIRMENT OF DEPRECIABLE PROPERTY, PLANT 1.6.4.2 AND EQUIPMENT AND INTANGIBLE ASSETS Depreciable property, plant and equipment and intangible assets are subject to impairment tests from the time they enter service in the context of signs of impairment such as recurring losses for an entity, decisions to stop commercializing production, or site closures. Intangible assets in progress are also subject to a value test annually at year-end. Investment property 1.6.5 The items in the “Investment property” section of the Group’s balance sheet assets are not included in ordinary operations. These assets, which belong to the Group, correspond to real estate: not occupied on the balance sheet date and whose use is unspecified; ● or held by the Group for their long-term appreciation and which are ● leased under operating leases.