The Group’s investments in associates are accounted for under the equity method. An associate is a company over which the Group has significant influence but not control, this generally implies an ownership percentage of between 20% and 50% of the voting rights.
Investments in associates are recognized in the balance sheet at their acquisition cost and adjusted to reflect subsequent changes to the Group’s share in the net assets of the associate, in accordance with the equity method. The Group’s investment includes the amount of any goodwill, which is treated in accordance with the Group’s accounting policy in this area, as presented in Section 1.3 below. The income statement reflects the Group’s share of the associate’s net income after taxes for the period.
Partnerships recognized as joint‑ventures are recognized under the equity method to the extent that they only give rights to the net assets of the entity.
Transactions in foreign currencies are recognized at the exchange rate applicable on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate applicable at the reporting date. All differences arising are recognized in the income statement, except for differences on loans and borrowings that, in substance, form part of the net investment in a foreign entity. These differences are recognized in equity until such time as the net investment is disposed of, at which time they are recorded in the income statement.
The functional currency of each Group entity is the currency of the economic environment in which it operates. The financial statements of subsidiaries located outside the euro zone presented in local currencies are translated into euros, the reporting currency of the consolidated financial statements, in the following manner:
Goodwill and fair value adjustments of assets and liabilities recognized in the context of the acquisition of a foreign entity are expressed in the functional currency of the acquired company and translated at the exchange rate applying at the reporting date.
Transactions between consolidated subsidiaries are fully eliminated, as are the corresponding receivables and payables. Similarly, intercompany gains or losses on sales, internal dividends and provisions relating to subsidiaries are eliminated from consolidated results, except in the case of impairment loss.
Business combinations are treated in the following manner:
Acquisition costs are recognized as an expense when incurred and are recorded under “Other operating costs” in the consolidated income statement.
Any earn‑out payments on business combinations are recognized at fair value on the acquisition date. After the acquisition date, earn‑out payments are recognized at their fair value on the balance sheet date. As of the end of the period for allocating the acquisition price, which comes one year following the acquisition date at the latest, any change in this fair value is recorded in income. Within this allocation period, any changes in this fair value explicitly linked to events subsequent to the acquisition date are also recognized in income. Other changes are recognized as an offset to goodwill.
At the acquisition date, goodwill represents the difference between:
Although deferred tax assets were not recognized at the acquisition date because their recoverability was uncertain, any subsequent recognition or utilization of these deferred taxes after the allocation period will be recorded as an offset to income (i.e. with no impact on the amount recorded as goodwill).
