105 COnSOLIdATed FInAnCIAL STATeMenTS104 COnSOLIdATed FInAnCIAL STATeMenTS MONCLER GROUP 2023

2.7 IMPAIRMENT OF NON-FINANCIAL ASSETS

At least once a year the Group verifies whether there is any indication that intangible assets with a definite useful life and property, plant and equipment have become impaired. If such evidence exists, the carrying amount of the assets is reduced to its recoverable amount.

Goodwill and assets with an indefinite useful life are not sub- ject to amortisation and are tested annually or more frequently for impairment, whenever events or changes in circumstance indicate that the carrying amount may not be recoverable.

When the recoverable amount for individual asset cannot be reliably estimated, the Group determines the recoverable amount of the cash-generating unit to which the asset belongs. The recov- erable amount is the higher of an asset s fair value less costs to sell and value-in-use. The Group determines the value in use as the present value of future cash flows expected to be derived from the asset or from the cash-generating unit, gross of tax effects, by ap- plying an appropriate discount rate that reflects market time value of money and the risks inherent to the asset. An impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount.

With the exception of impairment losses recognised on goodwill, when the circumstances that led to the loss no longer ex- ist, the carrying amount of the asset is increased to its recoverable amount and cannot exceed the carrying amount that would have been determined had there been no loss in value. The reversal of an impairment loss is recognised immediately in the consolidated in- come statement.

For impairment testing purposes, the goodwill and brand of Moncler and Stone Island are measured with respect to the group of CGUs that compose the entire business.

As of 2019, IFRS 16 requires the recognition of a right of use asset and a liability for the obligation to pay rent in the financial state- ments. Any impairment of the asset for the right of use must be cal- culated and recognised in accordance with the provisions of IAS 36.

For the purpose of the rights-of-use impairment test related to Moncler and Stone Island business, the following CGUs have been defined, which coincide with the organisational units responsible for monitoring individual markets ( Regions ):

eMeA Region; Americas Region; APAC Region; Japan Region; Korea Region.

The rights-of-use of each individual CGU is subject to impairment tests in the presence of triggering events (for the individual CGU) identified by a possible impairment and signalled by the following key performance indicators:

divestment plans; below expectation performance indicators; operational losses.

The impairment test is carried out with the following methods: calculation of the CGU s gross value in use, excluding that re-

lated to the lease liability from cash flows; calculation of the CGU s recoverable amount, by deducting the

carrying value of the lease liability from the gross value in use; comparison of the CGU s recoverable value with the carry-

ing value, the latter calculated net of the carrying value of the lease liability.

In calculating the value in use, the discount rate used is the WACC for the geographical area to which it belongs, the aggregate value of which determines the Group WACC.

2.8 LEASED ASSETS

On 13 January 2016, the IASB published the new standard IFRS 16 Leases, which replaces IAS 17. This standard was endorsed by the european Union, with its publication on 9 november 2017. IFRS 16

is effective for financial statements commencing on or after 1 Jan- uary 2019. The new standard eliminates the difference in the recog- nition of operating and finance leases, even despite elements that simplify its adoption, and introduces the concept of control in the definition of a lease. To determine whether a contract is a lease, IF- RS 16 establishes that the contract must convey the right to control the use of an identified asset for a given period of time.

At the lease commencement date, the Group recognises the right of use asset and lease liability. The right of use asset is initial- ly valued at cost, including the amount of the initial measurement of the lease liability, adjusted for the rent payments made on or before the commencement date, increased by the initial direct costs in- curred and an estimate of costs to be incurred by the lessee in dis- mantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condi- tion required by the terms and conditions of the lease, net of the re- ceived lease incentives.

The right of use asset is amortised on a straight-line basis from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group at the end of the lease term. In this case, the right of use asset will be amortised over the useful life of the underlying asset, deter- mined on the same basis as that of property and machinery. In addi- tion, the right of use asset is regularly decreased for any impairment losses and adjusted to reflect any changes deriving from subse- quent remeasurement of the lease liability.

The Group values the lease liability at the present value of the payments due for unpaid leases at the commencement date, dis- counting them using the interest rate implicit in the lease.

The payments due for the lease included in the measurement of the lease liability include:

fixed payments (including substantially fixed payments); payments due for lease which depend on an index or rate, initial-

ly measured using an index or rate on the commencement date; amounts that are expected to be paid as a residual value

guarantee; and the payments due for the lease in an optional renewal period if

the Group is reasonably certain to exercise the renewal option, and early termination cancellation penalties, unless the Group is reasonably certain not to terminate the lease in advance.

The lease liability is measured at amortised cost using the effective interest criterion and remeasured in the event of a change in the fu- ture payments due for the lease deriving from a change in the index or rate, in the event of a change in the amount that the Group ex- pects to pay as a guarantee on the residual value or when the Group changes its measurement with reference to the exercise or other- wise of a purchase, extension or cancellation option or in the event of revision of in-substance fixed payments due.

When the lease liability is remeasured, the lessee makes a corresponding change in right of use asset. If the right of use asset carrying value is reduced to zero, the lessee recognises the change in profit/(loss) for the year.

In the statement of financial position, the Group reports right of use assets that do not meet the definition of real estate invest- ments in the item Property, plant and equipment and lease liabilities in the item Borrowings.

The Group recognises the related payments due for leases as a cost on a straight-line basis over the lease term.

For contracts signed before 1 January 2019, the Group establish- es whether the agreement was or contained a lease by checking if:

fulfilment of the agreement depended on the use of one or more specific assets; and

the agreement transferred the right to use the asset.

Other assets subject to leases is classified as operating leases and is not recognised in the Group s statement of financial posi- tion. Payments relating to operating leases were recognised as a straight-line cost over the lease term, while incentives granted to the lessee were recognised as an integral part of the overall lease cost over the lease term.