MONCLER ANNUAL REPORT AT 31 DECEMBER 2020SEPARATE FINANCIAL STATEMENTS 155154

DERIVATIVE INSTRUMENTS

Consistent with the provisions of IFRS 9, derivative financial instruments may be accounted for using hedge accounting only when: the hedged items and the hedging instruments meet the

eligibility requirements; at the beginning of the hedging relationship, there is a

formal designation and documentation of the hedging re- lationship, of the Company s risk management objectives and the hedging strategy;

the hedging relationship meets all of the following effec- tiveness requirements: there is an economic relationship between the

hedged item and the hedging instrument; the effect of credit risk is not dominant with respect

to the changes associated with the hedged risk; the hedge ratio defined in the hedging relationship

is met, including through rebalancing actions, and is consistent with the risk management strategy adopt- ed by the Company.

FAIR VALUE HEDGE

A derivative instrument is designated as fair value hedge when it hedges the exposure to changes in fair value of a recog- nised asset or liability, that is attributable to a particular risk and could affect profit or loss. The gain or loss on the hedged item, attributable to the hedged risk, adjusts the carrying amount of the hedged item and is recognised in the consol- idated income statement.

CASH FLOW HEDGE

When a derivative financial instrument is designated as a hedging instrument for exposure to variability in cash flows, the effective portion of changes in fair value of the derivative financial instrument is recognised among the other compo- nents of the comprehensive income statement and stated in the cash flow hedge reserve. The effective portion of chang- es in fair value of the derivative financial instrument that is recognised in the other components of the comprehensive income statement is limited to the cumulative change in the fair value of the hedged instrument (at present value) since the inception of the hedge. The ineffective portion of changes in fair value of the derivative financial instrument is recognised immediately in the profit/(loss) for the period.

If the hedge ceases to meet the eligibility criteria or the hedging instrument is sold, matures or is exercised, hedge accounting ceases prospectively. When hedge accounting for cash flow hedges ceases, the accrued amount in the cash flow hedge reserve remains in equity until, in the case of a hedge of a transaction that results in the recognition of a non-financial asset or non-financial liability, it is included in the cost of the non-financial asset or non-financial liability on initial recogni- tion or, in the case of other cash flow hedges, it is reclassified in profit or loss for the period in the same period or periods in which the hedged expected future cash flows affects profit/ (loss) for the period.

If no more hedged future cash flows are expected, the amount shall be reclassified immediately from the cash flow hedge reserve and the reserve for hedging costs to profit/ (loss) for the period.

If hedge accounting cannot be applied, gains or losses aris-

ing from the fair value measurement of a derivative financial instrument are immediately recognised in income statement.

2.8. EMPLOYEE BENEFITS

Short-term employee benefits, such as wages, salaries, social security contributions, paid leave and annual leave due within twelve months of the statement of financial position date and all other fringe benefits are recognised in the year in which the service is rendered by the employee.

Benefits granted to employees which are payable on or after the termination of employment through defined benefit and contribution plans are recognised over the vesting period.

DEFINED BENEFIT SCHEMES

Defined benefit schemes are retirement plans determined based on employees remuneration and years of service.

The Company s obligation to contribute to employees benefit plans and the related current service cost is deter- mined by using an actuarial valuation defined as the projected unit credit method. The cumulative net amount of all actuarial gains and losses are recognised in equity within other com- prehensive income.

With reference to defined benefit plans, the increase in present value of the defined benefit obligation for employee service in prior periods (past service cost) is accounted as an expense on a straight-line basis over the average period until the benefits become vested.

The amount recognised as a liability under the defined benefit plans is the present value of the related obligation, taking into consideration expenses to be recognised in future periods for employee service in prior periods.

DEFINED CONTRIBUTION SCHEMES

Contribution made to a defined contribution plan is recog- nised as an expense in the income statement in the period in which the employees render the related service.

Up to 31 December 2006 Italian employees were eligible to defined benefit schemes referred as post-employment benefit ( TFR ). With the act n. 296 as of 27 December 2006 and sub- sequent decrees ( Pension Reform ) issued in early 2007, the rules and the treatment of TFR scheme were changed. Starting from contribution vested on or after 1 January 2007 and not yet paid at the reporting date, referring to entities with more than 50 employees, Italian post-employment benefits is recog- nised as a defined contribution plan. The contribution vested up to 31 December 2006 is still recognised as a defined benefit plan and accounted for using actuarial assumptions.

2.9. SHARE-BASED PAYMENTS

The fair value at grant date of the incentives granted to em- ployees in the form of share-based payments that are equity settled is usually included in expenses, with a matching in-

crease in equity, over the period during which the employ- ees obtain the incentives rights. The amount recognised as an expense is adjusted to reflect the actual number of incen- tives for which the continued service conditions are met and the achievement of non-market conditions, so that the final amount recognised as an expense is based on the number of incentives that fulfill these conditions at the vesting date. In case the incentives granted as share-based payments whose conditions are not to be considered to maturity, the fair val- ue at the grant date of the share-based payment is measured to reflect such conditions. With reference to the non-vesting conditions, any differences between amounts at the grant date and the actual amounts will not have any impact on the financial statements.

The fair value of the amount payable to employees related to share appreciation rights, settled in cash, is recognised as an expense with a corresponding increase in liabilities over the period during which the employees unconditionally become entitled to receive the payment. The liability is measured at year-end and the settlement date based on the fair value of the share appreciation rights. Any changes in the fair value of the liability are recognised in profit or loss for the year.

2.10. PROVISIONS FOR RISKS AND CHARGES

Provisions for risks and charges are recognised when the Company has a present legal or constructive obligation as a result of past events, for which it is probable that an out- flow of resources will be required to settle the obligation and where the amount of the obligation can be reliably estimated. Changes in estimates are recognised in the income statement in the period in which they occur.

2.11. REVENUE RECOGNITION

Based on the five-step model introduced by IFRS 15, the Group recognises revenues after identifying the contracts with its clients and the related services to be provided (trans- fer of goods and/or services), determining the consideration which it believes it is entitled to in exchange for the provision of each of these services and assessing the manner in which these services are provided (at a given time or over time). Var- iable components of the consideration are recognised in the financial statements only when it is highly probable that there will be no significant adjustment to the amount of revenue recognised in the future.

Royalties received from licensee are accrued as earned on the basis of the terms of the relevant royalty agreement which is typically based on sales volumes.

2.12. BORROWING COSTS

Borrowing costs are recognised on an accrual basis taking into consideration interest accrued on the net carrying amount of financial assets and liabilities using the effective interest rate method.

2.13. TAXATION

Tax expense recognised in the consolidated income statement represents the aggregate amount related to current tax and deferred tax.

Current tax is determined in accordance with enforced rules established by local tax authorities. Current taxes are recognised in the consolidated income statement for the peri- od, except to the extent that the tax arises from transactions or events which are recognised directly either in equity or in other comprehensive income.

Deferred tax liabilities and assets are determined based on temporary taxable or deductible differences arising be- tween the tax bases of assets and liabilities and their carrying amounts in the Company s financial statements. Current and deferred tax assets and liabilities are offset when income tax- es are levied by the same tax authority and when there is a legally enforceable right to offset the amounts.

Deferred tax liabilities and assets are determined using tax rates that have been enacted by the reporting date and are expected to be enforced when the related deferred income tax asset is realised or the deferred tax liability is settled. De- ferred tax assets and liabilities are not discounted.

Deferred tax assets recognised on tax losses and on de- ductible differences are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

Tax liabilities include the estimate of risks associated with uncertainties on the tax treatments adopted for deter- mining income taxes in accordance with the new IFRIC 23. These uncertainties can arise from: i) unclear or complex tax rules; ii) changes in tax regulations or clarifications by tax authorities; iii) ongoing tax audits and/or disputes; iv) public information on ongoing tax assessments and/or disputes in- volving other entities.

2.14. FOREIGN CURRENCY

The amounts included in the financial statements of each Group company are prepared using the currency of the coun- try in which the company conducts its business.

FOREIGN CURRENCY TRANSACTIONS

Foreign currency transactions are recorded at the exchange rate in effect at the transaction date. The assets and liabili- ties denominated in foreign currencies at the reporting date are translated at the exchange rate prevailing at that date. Ex- change differences arising from the conversion or settlement of these items due to different rates used from the time of initial recognition are recorded in the income statement.