MONCLER ANNUAL REPORT AT 31 DECEMBER 2020CONSOLIDATED FINANCIAL STATEMENTS 9796

TRADE RECEIVABLES, FINANCIAL ASSETS AND OTHER CURRENT AND NON-CURRENT RECEIVABLES

Trade and other receivables, generated when the Group pro- vides money, goods or services directly to a third party, are classified as current assets, except for items with maturity dates greater than twelve months after the reporting date.

Current and non-current financial assets, other current and non-current assets, trade receivables, excluding deriva- tives, with fixed maturity or determinable payment terms, are recognised at amortised cost calculated using the effective in- terest method. Notes receivable (due date greater than a year) with interest rate below that of the market rate are valued using the current market rate.

The financial assets listed above are valued based on the impairment model introduced by IFRS 9 or by adopting an ex- pected loss model, replacing the IAS 39 framework, which is typically based on the valuation of the incurred loss.

For trade receivables, the Group adopts the so-called sim- plified approach, which does not require the recognition of periodic changes in credit risk, but rather the accounting of an Expected Credit Loss («ECL») calculated over the entire life of the credit (so-called lifetime ECL).

In particular, the policy implemented by the Group pro- vides for the stratification of trade receivables based on the days past due and an assessment of the solvency of the coun- terparty and applies different write-down rates that reflect the relative expectations of recovery. The Group then applies an analytical valuation of impaired receivables based on a debtor s reliability and ability to pay the due amounts.

The value of receivables is shown in the statement of fi- nancial position net of the related bad debt provision. Write- downs, made in accordance with IFRS 9, are recognised in the consolidated income statement net of any positive effects as- sociated with reversals of impairment.

FINANCIAL LIABILITIES, TRADE PAYABLES AND OTHER CURRENT AND NON-CURRENT PAYABLES

Trade and other payables arise when the Group acquires mon- ey, goods or services directly from a supplier. They are includ- ed within current liabilities, except for items with maturity dates greater than twelve months after the reporting date.

Financial liabilities, excluding derivatives, are recognised initially at fair value which represents the amount at which the asset was bought in a current transaction between willing parties, and subsequently measured at amortised cost using the effective interest method. Financial liabilities that are des- ignated as hedged items are subject to the hedge accounting requirements.

DERIVATIVES 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

relationship, of the Group 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 Group.

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.

Following the hedging relationships put in place, reve- nues in foreign currencies are translated in the consolidated financial statements at the corresponding forward rate for the relative hedged volume.

2.11. EMPLOYEE BENEFITS

Short-term employee benefits, such as wages, salaries, social security contributions, paid leave and annual leave due within twelve months of the consolidated statement of financial po- sition 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 Group obligation to contribute to employees bene- fit plans and the related current service cost are determined 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.

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.

2.12. PROVISION FOR RISKS AND CHARGES

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic resources will be required to settle the obligation and where the amount of the obligation can be reliably estimated.

Restructuring provision is recognised when the Group has a detailed formal restructuring plan and the plan has been implemented or the restructuring plan has been publicly an- nounced. Identifiable future operating losses up to the date of a restructuring are not included in the provision. Changes in estimates are recognised in the income statement in the period in which they occur.

2.13. 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 employees 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 fulfil 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 difference between amounts at the grant date and the actual amounts will not have any impact on the Con- solidated 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.

2.14. 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).

Wholesale sales are recognised when goods are dis- patched to trade customers, reflecting the transfer of risks and rewards. The provision for returns and discounts is es- timated and accounted based on future expectation, taking into consideration historical return trends and is recorded as a variable component of the contractual consideration with the concurrent recognition of a liability for returns and of the corresponding asset in the statement of financial position.

Variable components of the consideration (for example, the effect of returns) are recognised in the financial state- ments only when it is highly probable that there will be no significant adjustment to the amount of revenue recognised in the future. Retail sales are recognised at the date of transactions with final customers.

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.

Upon receipt of an advance payment from a client, the Group recognises the amount of the advance payment for the obligation to transfer assets in the future under Other current liabilities and derecognises this liability by recognising the revenue when the assets are transferred.