SOMFY - Annual financial report 2019

07 CONSOLIDATED FINANCIAL STATEMENTS

The amount of research and development expenses recognised during the year was €96.3 million (net of capitalised production). There are no contractual commitments to purchase intangible assets. Net intangible assets recognised in the context of business combinations at 31 December 2019 comprised €0.2 million in customer relationships and €1.5 million in capitalised research and development expenses (€0.4 million and €2.4 million respectively at 31 December 2018).

PROPERTY, PLANT AND EQUIPMENT NOTE 5.3

Except for business combinations, PPE assets are recorded at their acquisition or production cost, which includes the purchase price and all costs necessary to make the assets operational. Current maintenance costs are recognised as expenses for the financial year. Straight-line depreciation is used based on the following average useful lives: buildings: 20 to 30 years; – machinery and tools: 5 to 10 years; – transport vehicles: 3 to 5 years; – office furniture and equipment: 5 to 10 years; – fittings and fixtures: 8 to 10 years. – Taking account of the nature of PPE held by the Group, no significant component was identified. Subsequent expenditures may be capitalised if they comply with asset recognition criteria, as defined by IAS 16, in particular if it is probable that the future economic benefits of the asset will flow to the company. These criteria are considered prior to incurring the cost. Asset residual values, useful lives and asset depreciation are reviewed, and amended if necessary, at the end of each year. PPE recoverable amounts are reviewed when events or changes in circumstances indicate that the book value may not be recovered. PPE are derecognised at disposal or when no future economic benefit is expected from their use or disposal. Any profit or loss resulting from the derecognition of an asset (measured as the difference between the net proceeds of the sale and the book value of the asset) is included in the income statement for the year in which the asset is derecognised. PRINCIPLES APPLICABLE TO LEASES FROM 1 JANUARY 2019 The Group mainly holds property leases relating to Somfy’s various worldwide facilities and motor vehicle leases. The Group has a number of industrial or IT equipment leases of less significance. Leases are recognised in the balance sheet with effect from their inception date at the present value of future payments (mainly fixed) based on the lessee’s marginal borrowing rate at the date of the lease agreement. This is the rate of interest the lessee would have to pay to borrow the funds needed to acquire the asset over a similar term and in a similar economic environment. Leases are recognised under “lease liabilities”, with a corresponding entry on the asset side under “rights of use in relation to leases”, with each item stated in the relevant category of underlying asset. PPE financed through leases are depreciated over the same periods as PPE acquired outright where the Group expects to gain ownership of the asset at the expiry of the contract. If not, the asset is depreciated on the basis of the shorter period of the asset useful life and the duration of the lease. In the income statement, depreciation is recognised within the operating margin and interest expenses in net financial income/(expense). The tax impact of this

consolidation adjustment is taken into account through the recognition of deferred taxes. The lease term is defined on a case-by-case basis and corresponds to the non-cancellable period of the lease taking into account any optional periods that are reasonably certain to be exercised. The right-of-use asset will in some cases be subject to adjustment when the lease liability is remeasured ( e.g. when there is a change of index or interest rate, the lease is extended or terminated or a substantially fixed lease payment is reviewed), and its value will be regularly revised down in the event of impairment losses. Leases corresponding to assets of low unit value (US$5,000 or less) and those whose term is short (12 months or less) are recognised directly in operating expenses. Leases relating to low-value assets mainly concern small items of IT equipment. PRINCIPLES APPLICABLE TO LEASES PRIOR TO 1 JANUARY 2019 Leases that transfer virtually all the risks and rewards incident to ownership to the lessee are classified as finance leases . These leases are classified as finance leases when the following major indicators are met (non-cumulative criteria and non-exhaustive list): transfer of asset ownership at expiry of the lease with – purchase option; the option exercise conditions are such as to make the – transfer of ownership highly likely at the expiration of the lease; the lease term is for the major part of the useful life of the – asset according to the lessee’s conditions of use; the present value of minimum lease payments is close to the – fair value of the leased asset at the conclusion of the contract. Assets financed within the framework of finance leases primarily include real estate. They are recorded, from inception of the contract, in property, plant and equipment at the lower of the fair value of leased assets and the present value of minimum payments in respect of the lease. Payments made in respect of the lease are broken down between finance charges and debt repayment, in order to obtain a constant periodic rate of interest on the outstanding liability. Finance charges are directly recognised in the income statement. PPE acquired through finance leases are depreciated over the same periods as described above where the Group expects to gain ownership of the asset at the expiry of the contract. If not, the asset is depreciated on the basis of the shorter period of the asset useful life and the duration of the lease. Leases classified as operating leases are not restated and lease payments are recognised as expenses for the financial year, spread if required on a straight-line basis.

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SOMFY – ANNUAL FINANCIAL REPORT 2019