Euronext - 2019 Universal Registration Document

Operating and financial review

Overview

Contingent consideration and buy options resulting from business combinations The Group may structure its business combinations in a way that leads to recognition of contingent consideration to selling shareholders and/or buy options for equity held by non-controlling interests. Contingent consideration and buy options are recognized at fair value on acquisition date. When the contingent consideration or buy option meets the definition of a financial liability or financial instrument, it is subsequently re-measured to fair value at each reporting date. The determination of fair value is based on the expected level of EBITDA (1) over the last 12 months that precede the contractual date (in case of contingent consideration) or exercise date of the underlying call- and put options (in case of buy option). The Group monitors the expected EBITDA based on updated forecast information from the acquired companies involved. Purchase price allocation The cost of other intangible assets that are acquired in the course of business combinations, corresponds to their acquisition date fair values. Depending on the nature of the intangible asset, fair value is determined by application of: n market approach (by reference to comparable transactions); n income approach (Relief-from-Royalty- or Multi-period Excess Earnings Method); n cost approach. Assets with a finite useful life are amortized using the straight-line method over their expected useful life. Assets with an indefinite useful life are tested for impairment at least once a year. Revenue from contracts with customers The Group applied the following judgments that significantly affect the determination of the amount and timing of revenue from contracts with customers: (i) Identifying performance obligations and determining the timing of revenue recognition of Listing admission fees The Group provides services related to the initial (and subsequent) listing of securities on its markets and hereto directly related corporate action services, and ongoing services related to the continuous listing. The Group determined that the admission services around initial (and subsequent) admission and its directly related corporate action services do not transfer a good or service to the customer, but are considered activities that the Group needs to undertake to enable the customer to be listed. The Group concluded that these activities should be combined with the ongoing listing services and should be used as inputs to produce the combined output, which is the service of being listed. As the service of being listed is satisfied over a period of time, as the customer simultaneously receives and consumes the benefits from the service, the related revenues are therefore recognised over a period of time. The Group determined that the period of time that best reflects the satisfaction of listing admission services is the period over which the customer actually benefits from the admission. An average lifetime

of companies being listed on Euronext’s markets would serve as best proxy for the period that a listing customer benefits from an admission. Based on historic evidence, the Group has defined the following average lifetimes for the relevant groupings of listed securities: Equity admissions: 5 years Bond- and fund admissions: 3 years Equity subsequent admissions (“follow-on’s”): 3 years Revenue from the listing admission services is therefore recognised over those periods of time. (ii) Cost to obtain or fulfil a contract related to listing admission services The Group has considered the type of cost that is directly associated to a listing contract and that can be separately identifiable. Such cost would typically concern staff cost incurred by the Listings team involved in admission – and subsequent listing of an issuer. There is no correlation between number of listings and staff cost associated to the Listings team. The majority of the cost to obtain and fulfil the contract is incurred in the period before the actual admission. The remaining cost associated to an admission and subsequent listing that is recorded post-admission, and its impact on the Group’s income statement, would be marginal, therefore the Group has decided not to capitalize cost incurred to obtain – or fulfil listing contracts. (iii) Principal versus agent considerations On 14 October 2013, the Group entered into a clearing agreement with LCH SA in respect of the clearing of trades on our continental Europe derivatives markets (the “Derivatives Clearing Agreement”). Under the terms of this Derivatives Clearing Agreement Euronext agreed with LCH SA to share revenues and receives clearing fee revenues based on the number of trades on these markets cleared through LCH SA. In exchange for that, we have agreed to pay LCH SA a fixed fee plus a variable fee based on revenues. The definition of the accounting treatment of this agreement requires significant management judgment for the valuation and weighting of the indicators leading the principal versus agent accounting analysis. Based on all facts and circumstances around this arrangement, management has concluded that Euronext is “principal” in providing Derivatives clearing services to its trading members. Therefore Euronext recognizes (i) the clearing fees received are classified as post trade revenues, and (ii) the fixed and variable fees paid to LCH SA as other operational expenses. The Group uses a provision matrix to calculate ECLs for trade and contract receivables. To measure expected credit losses, trade and contract receivables have been grouped based on shared credit risk characteristics and the days past due. The historical loss rates are based on the payment profiles of the sales over a period of 24 months before reporting date and the corresponding historical credit losses experience within this period. The historical loss rates are adjusted to reflect current and forward-looking factors specific to the debtors and economic environment. Provision for expected credit losses of trade and contract receivables

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(1) As defined in section 7.1.1 as EBITDA 3 .

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2019 UNIVERSAL REGISTRATION DOCUMENT