1. Basis of preparation

This information was prepared in accordance with European Regulation (EC) 1606/2002 on the application of international accounting standards dated July 19, 2002. The Group’s consolidated financial statements for the year ended December 31, 2019 were prepared in accordance with IFRS (International Financial Reporting Standards) as published by the International Accounting Standards Board (IASB), and endorsed by the European Union.

The accounting standards applied in the consolidated financial statements for the year ended December 31, 2019 are consistent with those used to prepare the consolidated financial statements for the year ended December 31, 2018, except for the adoption of new Standards effective as of January 1, 2019, that are discussed hereafter. Aside from Interest Rate Benchmark Reform, the Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Standards, interpretations and amendments applicable for the first time in 2019

As of January 1, 2019, the Group applied, for the first time, IFRS 16 Leases, the amendments to IAS 12 Income Taxes as part of the annual improvements to IFRS standards 2015–2017 cycle, and IFRIC 23 Uncertainty Over Income Tax Treatment. Several other amendments and interpretations apply for the first time in 2019 (including Interest Rate Benchmark Reform, which amends IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, and IFRS 7 Financial Instruments: Disclosures) but do not have a more than insignificant impact on the consolidated financial statements of the Group.

IFRS 16 Leases

As from January 1, 2019, the Group no longer applies IAS 17 Leases, IFRC 4 Determining whether an Arrangement contains a Lease, SIC‑15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving a Legal Form of a Lease. IFRS 16 is applicable for annual periods beginning on or after January 1, 2019. IFRS 16 sets out the principles for the recognition, measurement, presentation, and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model, similar to the accounting for finance leases under IAS 17. At the commencement date of a lease, lessees recognize a lease liability (i.e. a liability to make lease payments), and a right-of-use asset (i.e. an asset representing the right to use the underlying asset over the lease term).

The Group’s leased assets relate mainly to buildings, transportation equipment, and industrial equipment.

The right-of-use assets are presented separately in the consolidated statement of financial position, and the lease liabilities are presented as part of financial debt.

On January 1, 2019, the Group:

• adopted IFRS 16, using the modified retrospective approach and did not restate comparative information. The Group did publish pro forma comparative information outside its IFRS financial statements, that was included in the fourth quarter 2018 Financial Report;
• measured the lease liability for leases previously classified as operating leases at the present value of the remaining lease payments, discounted using the respective Group entity’s incremental borrowing rate as of January 1, 2019. The lease liability amounted to € 433 million, as further detailed in the table below. The weighted average incremental borrowing rate was 3.73%;
• measured the right-of-use assets for leases previously classified as an operating lease at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the consolidated statement of financial position at December 31, 2018. The right-of-use assets amounted to € 428 million;
• used the practical expedient available on transition to IFRS 16 related to onerous contracts, adjusting the right-of-use assets at January 1, 2019 by the amount of any provision for onerous leases recognized in the consolidated statement of financial position immediately before January 1, 2019. Such positively impacted the retained earnings as of January 1, 2019 by € 8 million.

This table summarizes the impacts of the application of IFRS 16 on the consolidated statement of financial position at transition date:

Right-of-use assets and lease liabilities amounted to € 425 million before the following reclassifications:

• prepaid lease payments, previously included in "Loans & other assets" (€ 10 million) and "Other receivables" (€ 1 million), increased "Right-of-use assets" by € 11 million ;
• provisions for onerous leases, previously recognized in "Other provisions", decreased "Right-of-use assets" by € (8) million (€ (16) million in "Other provisions" and € 8 million in "Total equity");
• accrued lease payments, previously included in "Trade payables", increased financial debt by € 8 million.

These amounts are the opening balances as of January 1, 2019.

On January 1, 2019, following the adoption of IFRS 16, both "Assets held for sale", and "Liabilities associated with assets held for sale" increased by € 19 million for the right-of use assets and lease liabilities related to Polyamides.

The following reconciliation to the opening balance for the lease liabilities as at January 1, 2019 is based on the operating lease obligations as at December 31, 2018:

“Other” mainly includes onerous lease contracts, previously recognized in “Other provisions” for € 16 million, and accrued lease payments, previously included in “Trade payables” for € 8 million.

As a result of the adoption of IFRS 16, for the financial year 2019, depreciation and finance expense increased by € 113 million and € 23 million, respectively, and operating expenses decreased by € (133) million. In addition, the operating cash flows increased by € 133 million, against a decrease of financing cash flows.

Amendments to IAS 12 Income Taxes as part of the annual improvements to IFRS standards 2015–2017 cycle

As from January 1, 2019, the Group applies the amendments to IAS 12, that apply to the income tax consequences of dividends recognized on or after the beginning of the earliest comparative period, i.e. January 1, 2018.

In 2018, the income tax consequences of the coupons on perpetual hybrid bonds classified as equity were recognized in equity. As a result of the adoption of the amendment, those income tax consequences will be recognized in profit or loss.

In the consolidated statement of cash flows, increase in “Profit for the year” is offset by lower “Income tax expenses”.

In the consolidated statement of changes in equity, increase in “Profit for the year” is offset by lower “Other” changes in “Retained Earnings”.

IFRIC 23 Uncertainty over Income Tax Treatment

The interpretation addresses the financial reporting of the impacts of uncertainties surrounding income taxes in the scope of IAS 12 Income Taxes and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements related to interest and penalties associated with uncertain tax treatments. The interpretation specifically clarifies the following:

• whether an entity considers uncertain tax treatments separately or together with one or more other uncertain tax treatments is based on what approach better predicts the resolution of the uncertainty;
• an entity is to assume that a taxation authority with the right to examine any amounts reported to it will examine those amounts and will have full knowledge of all relevant information when doing so;
• an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates considering whether it is probable that the relevant authority will accept each tax treatment, or group of tax treatments, that it used or it plans to use in its income tax filing; and
• an entity reassess its judgments and estimates if facts and circumstances change.

The interpretation is effective for annual reporting periods beginning on or after January 1, 2019, but certain transition reliefs are available. The Group applies the interpretation since its effective date, yet did not identify a more than insignificant measurement impact on its consolidated financial statements. Uncertain tax liabilities in the amount of € 40 million, formerly included under provisions, have been reclassified to other non-current liabilities.

Other standards, interpretations and amendments applicable for the first time in 2019 do not have a material impact on the Group’s consolidated financial statements.

Standards, interpretations and amendments applicable for the first time in 2020

Standards, interpretations and amendments applicable for the first time in 2020 are not expected to have a more than insignificant impact on the Group’s consolidated financial statements.

Standards, interpretations and amendments applicable for the first time after 2020

Standards, interpretations and amendments applicable for the first time after 2020 are not expected to have a more than insignificant impact on the Group’s consolidated financial statements.