KERING CASE

1. Understanding financial statements

1.1 Who are the statutory auditors of KERING? Explain why KERING decided to use
two audit firms.
The statutory auditors are PwC and Deloitte.
Reasons to use two audit firms:
- Independence and objectivity (increase the trust of investors)
- Diversification (unique perspective)
- Reduction of conflicts of interest
- To ensure regulatory compliance

1.2 Have the financial statements been approved by the Board of Directors?
Yes the Board of Directors approved the consolidated financial statements as of december
31, 2022 and authorised the publication.

1.3 What are the accounting standards followed by KERING?

The consolidated financial statements were prepared in accordance with applicable
international financial reporting standards (IFRSS).
The amendments and interpretations entered into force since january 1, 2022
- Amendment to IAS 37
- Amendment to IAS 16
- Amendment to IFRS 3
- Annual improvements to IRFSs 2018-2020

1.4 What is the financial position of KERING in 2021 and 2022?

The group has a very sound financial position
- Estados financieros
- Liquidity: The group is not exposed to any liquidity risk.
- Endeudamiento
- Rentabilidad
- Crecimiento
- Eficiencia operativa
- Flujos de efectivo
- Ratios financieros
- Eventos recientes
- Perspectivas futuras
1.5 What is the nominal amount of trade receivables and accrued income in 2022?
Knowing that most of the sales of KERING are generated through its own stores (no
sale on credit), what does this amount represent?
Trade receivables and accrued income: 1207 (in € millions) [1270-27 (allowances)]
Esta cantidad representa principalmente los ingresos acumulados pendientes de
reconocimiento y otros tipos de ingresos acumulados que la empresa espera recibir en el
futuro.
1.6 What is the total amount of borrowings of KERING at the end of 2022?
At the end of 2022 the total amount of borrowings was 6642 millions

1.7 What is the “bottom line” telling you?

En general, los activos de la empresa aumentaron en comparación con el año anterior. Esto
sugiere un crecimiento y una expansión de los recursos y activos de la empresa durante ese
período.
2.The comprehensive income
2.1 What about comprehensive income? How do you analyse the difference between
net income and comprehensive income? What are the items recognized in equity
(other comprehensive income)?

Net income is the actual profit or gain that a company makes in a particular period.
Comprehensive income is the sum of that net income plus the value of yet unrealized profits
(or losses) in the same period.

Other changes in Equity –“Dirty Surplus”

Reminder: Net income + Other changes in equity = Comprehensive income
Other changes in equity:
> Pension accounting: actuarial gains and losses on defined benefit plans
> Unrealized gains and losses on re-measuring financial instruments
> Gains and losses arising from translating the financial statements of a foreign operation
> Effective portion of gains and losses in a cash flow hedge
> Changes in revaluation surplus

Equity = Owners’ interest in a company

>The statement of changes in equity reconciles the balance of equity at the beginning of the
year with the balance of equity at the end of the year by showing:
Equity at the beginning
+ The comprehensive income (realised and unrealized gains and losses)
+Contributions from the shareholders (direct investment)
-Distributions to the shareholders (restitution of investment)
=Equity at the end

2.2 What is the change in the accounting value of the group between 2021 and 2022?
The accounting value is the equity. Assets- liabilities
The change between 2021 and 2022 is 1047 positive, it has increased from one year to
another.
Ponerlo en porcentaje: 7,62%
2.3 What is the change in the accounting value of the group due to transactions/
operations?

The accounting value if the group due to transaction/operations-> he answer is the net
income (3718)
2.4 What are the distributions to the owners during the year 2022?

2.5 What are the contributions from the owners during the year 2022?

La mayoría de sus crecimiento viene de su actividad porque como podemos ver la

adquisicions son negativas.
Contributions Distribution
38 1030
+346 1650
+45 375
Positive Negative

2.6 Can you reconcile all these amounts

Equity 01/01/22 13715
Net income 3718
Other comprehensive income (24)
= Comprehensive income
+contributions 429
-distributions (3055)
= 14783

3. Segment reporting
3.1 What are the operating segments for Kering?
The operating segments are Gucci, Yves Saint Laurent, Bottega Veneta, Other Houses and
Kering Eyewear and Corporate.

3.2 Is it possible to check the three different criteria to identify the reportable
segments?
NO, no podemos ver los assets.
- Has at least 10% of external and internal sales of all the operating segments
- Has at least 10% of operating profit/loss of all the operating segments
- Has at least 10% of total assets of all the operating segments

3.3 Does Kering use the aggregation of operating segments?

Not in the case of Gucci, Yves Saint Laurent, Bottega Veneta, but yes in the other houses
because it sum up other houses with similar criteria of similarity, and economical
characteristics, products/services, production processes, customers…

Operating segments are aggregated together (two or more into a single one) for disclosure
purpose: the criterion of similarity is applied or similarity of economic characteristics,
products/services, production processes, customers.
Is aggregated geographically by regions: Asia-Pacific (excluding Japan), Western Europe,
North America, Japan, and Rest of the world.

3.4 Do the different operating segments satisfy the criterion of 10% sales of the
combined sales of all the operating segments?
AUNQUE NO CUMPLA NINGUNA SI QUE SE PUEDE CONSIDERAR IMPORTANTE SI
EL MANAGER LO CONSIDERA
GUCCI
(10487/ 20351)*100= 51,53%
SI
YVES SAINT LAURENT
(3300/20351)*100=16,22%
SI
BOTTEGA VENETA
(1740/20351)*100=8,55%
NO
OTHER HOUSES
(3874/20351)*100=19,04%
SI
KERING EYEWEAR AND CORPORATE
(1139/20351)*100=5,6%
NO

3.5 Do the different operating segments satisfy the criterion of 10% operating profit of
the combined operating profit of all the operating segments?
GUCCI
(3732/ 5589)*100= 66,77%
SI
YVES SAINT LAURENT
(1019/ 5589)*100= 18,23%
SI
BOTTEGA VENETA
(366/ 5589)*100= 6,55%
NO
OTHER HOUSES
(558/ 5589)*100= 9,98%
SI

KERING EYEWEAR AND CORPORATE

((88)/ 5589)*100= -1,57%
NO
NO SE TIENE EN CUENTA EL NEGATIVO, ABSOLUTE VALUE
Ha dicho algo importante de lo que de que si pone un pais solo es porque es muy
importante no?
3.6 What is the revenue of Bottega Veneta in 2022? What is the operating income of
Gucci in 2022? What is the revenue of Yves Saint Laurent in 2021? What is the
revenue earned by Kering in Japan in 2022? In 2021?

Bottega Veneta revenue 2022= 1740

Gucci operating income 2022= 3732
Saint laurent revenue 2021= 2521
Revenue earned Kering in japan in 2022 and 2021= 1244 (2022)/ 1059 (2021)
4. Minority passive and active investments

4.1. What is the easiest way to find out if KERING has a portfolio of
financial instruments at FVOCI?

In the statement of comprehensive income

Change in financial assets measured at fair value 2022: -225 2021: 83

If they held for trading. If so, it will have a portfolio of financial instruments at
FVTPL, and if not, it will depend on the option elected by the company at their
acquisition.

- FVTPL = Financial assets measured at fair value through profit and

loss

- FVOCI = Financial assets measured at fair value through other

comprehensive income

And as we can see here, all the financial assets are measured at fair value
through other comprehensive income, so yes they have a portfolio of financial
instruments at FVOCI. Also Note 33.15.3 “Financial assets measured at fair
value in equity through other comprehensive income” (page 60)

1.2 Consolidated statement of comprehensive income

4.2. What is the value for each type of financial asset seen in class
(excluding derivatives) on December 31, 2022, for KERING? What is the
appropriate accounting treatment for each class?

- Associates (equity method) = 49

- Minority passive investment
(FVOCI) = 408 + 205

(FVTPL) = 9 + 7

Non-current financial assets in 2022 is 855 millones de euros and in 2021, 1054
millones de euros. (note 14)

We can find this information in the Balance Sheet.

The accounting treatment is fair value.

Accounting Treatment is the set of rules used to determine how financial

transactions should be handled and reported in the company’s books and
accounts.
There are two main accounting methods: cash accounting and accrual
accounting:

- Cash accounting reports revenues and expenses as they are received

and paid through cash inflows and outflows.

- Accrual accounting reports them as they are earned and incurred

through sales and purchases on credit and by using accounts
receivable & accounts payable.

4.3. What is the change in fair value of the financial instruments

recognized through other components of income of KERING on December
31, 2022?

Is a loss because it decreases the income it decreases the tax (That mean
you saved tax so you should take into account the effect as a whole)

We can find this information in the consolidated statement of comprehensive

income. The change in fair value on 2022 is:

- Change in Foreign currency cash flows: -68

- Change in other comprehensive income (loss) of equity accounted

companies: -

- Change in financial assets measured at fair value: - 272

4.4. What is the impact on the income statement of KERING in 2022 of the
financial instruments?

Financial instruments are contracts for assets that have a monetary value.
 They can be divided into three different classes:

- Cash instruments

- Derivative instruments

- Foreign exchange instruments

Mirar los financial result que está en lo de continuing operations. Hay que ir a
las notas (7) . Net gains (losses) on financial assets
4.5. Does KERING have any associate investment? What is the accounting
treatment for associates?

The associate is “the group”.

The accounting treatment for associates is the equity method.

Para poder justificar = Tenemos que mirar en las notas 33.2.2 Associate
donde te pone exactamente el método que usan.

2021 2022
 Associates 31 49

+ Share of associates income

- Distribution of dividends from associates
+ New associates
- Sold associates

4.6. How do you explain the variation of the investment in associates

accounts in the balance sheet from 2021 to 2022?

Equity attributable to minority interests: in 2022 is 785 and in 2021 is 389

5. Controlling interest
5.1 What is the first indication that KERING is consolidating entities in its
financial statements?
EN NOTAS:

17.4 Consolidating company: Kering prepares the consolidated financial

statements and is controlled by Artemis, which holds 42.01% of its capital and
59.3% of its voting rights. Artémis is wholly owned by Financière Pinault.

5.2 What is the amount of in the balance sheet of Kering as of December

31st, 2022? What can we conclude from the presence of this position?
 Creo que habla de goodwill por la pregunta siguiente:

- Goodwill es un activo intangible que generalmente representa el valor de la

reputación, la marca y otros activos intangibles de una empresa. En este caso,
hemos observado un aumento significativo en el Goodwill en comparación con
el año anterior. A fecha 31 de diciembre de 2021, el Goodwill era de €2,891
millones, pero a fecha 31 de diciembre de 2022, ha aumentado a €4,053
millones

Podemos concluir:

1. Crecimiento de la marca y activos intangibles.

2. Posible impacto en el valor de la empresa:
3. Necesidad de seguimiento

5.3 If no goodwill would be present, does this mean that KERING has no
subsidiaries?

No, does not necessarily mean that the company has no subsidiaries. Goodwill
represents the excess of the purchase price over the fair value of the net assets
acquired when a company acquires another company or subsidiary.

If there is no goodwill reported in Kering's financial statements, it could mean

several things:
1. No Recent Acquisitions

2. Impairment: It's also possible that any previously recognized goodwill has
been impaired or written down to its fair value due to changes in the value of
the acquired assets or other factors. In this case, the goodwill may still exist, but
its value has been adjusted.

3. Other Accounting Methods

5.4 Did Kering acquire any new subsidiary in 2022?

Hay que mirar la nota 1 de significant events, ahi pone que ha adquirido la
marca Maui Jim.

5.5 Does KERING own 100% of all of its subsidiaries?

Para responder a la pregunta sobre si Kering posee el 100% de todas sus
subsidiarias, puedes observar las subsidiarias enumeradas en la sección "A –
Subsidiaries" de la tabla. Según la información proporcionada, las subsidiarias
listadas en esta sección tienen un valor "Net" igual o muy cercano al valor
"Gross," lo que sugiere que Kering posee el 100% de estas subsidiarias. Por lo
tanto, en el caso de las subsidiarias mencionadas en esta sección, Kering posee
el 100% de ellas.
COMO TIENE MINORITY INTEREST LA RESPUESTA ES NO

5.6 Note 30 (p. 376) lists the consolidated companies with its ownership
interest. On page 380, how do you explain that the equity method was
applied to UNCA in 2021, despite a percentage of interest of 50%?
 A percentage of interest of 50% typically indicates that a company has a
significant ownership stake in another company. When a company owns 50%
of another company's shares, it has the potential for significant influence over
the second company's operations and financial decisions.

However, the application of the equity method doesn't solely depend on the
ownership percentage. It also takes into account other factors related to
influence and control. The equity method is generally applied when a company
has significant influence over another company but doesn't have full control or
doesn't consolidate the financial statements of the subsidiary.

In the case of UNCA (assuming this refers to a specific company or

subsidiary), even with a 50% ownership stake, other factors may have
influenced the decision to apply the equity method instead of full consolidation.

6. Intangible assets
6.1 What is most striking when you look at the assets of KERING?
When looking at the assets of KERING, one of the most striking aspects is the
significant increase in non-current assets from December 31, 2021, to December
31, 2022. Here are some key points to note:

In summary, the most striking aspect of KERING's assets is the significant

increase in non-current assets, especially in goodwill, brands, and lease right-of-
use assets, which may reflect the company's growth and acquisition strategies.

6.2 What is the accounting value of the portfolio of brands owned by Kering as of
December 31st, 2022? Is the Kering brand included in this value?

- A partir del 31 de diciembre de 2022, el valor neto de las marcas de Kering era de
€6,655 millones. Además, hubo €103 millones de gastos de amortización e deterioro
relacionados con las marcas.

- A partir del 31 de diciembre de 2021, el valor neto de las marcas de Kering era de
€6,406 millones. Hubo €103 millones de gastos de amortización y deterioro
relacionados con las marcas en ese año.
6.3 How are Brands accounted for?
Brand are accounted as an intangible asset
1. First value-> acquisition cost
2. No amortisation since indefinite useful life
3. Impairment teste each year

6.4 How are Other intangible assets accounted for?

1. First value at cost
2. Amortisation
3. Impairment test only if there are indicators

Aqui si que se amortiza

2. **Tratamiento Contable**:
- **Brands (marcas)**: Las marcas se consideran activos intangibles con vidas
útiles indefinidas en algunos casos. Esto significa que, en lugar de amortizarlas a lo
largo de un período específico, se someten a pruebas de deterioro periódicas. Si se
detecta una pérdida por deterioro, se ajusta su valor en el balance general.
 - **Other Intangible Assets (otros activos intangibles)**: Otros activos intangibles,
como derechos de autor, patentes y software, generalmente tienen vidas útiles
definidas y se amortizan a lo largo de su vida útil estimada. También están sujetos a
pruebas de deterioro si se observa alguna indicación de que su valor contable podría
ser mayor que su valor recuperable.

7. Impairment tests
7.1 How many references are made in the KERING financial statements related
to impairments?
It is mentioned 88
7.2 What is the total expense with impairments recognized by KERING in the
year ended December 31st, 2022?

7.3 Has the goodwill been impaired during the year 2022?
Impairment of goodwill typically refers to a reduction in the recorded value of
goodwill on the company's balance sheet due to a decrease in its perceived value or
potential for generating future cash flows. In this case, the impairment of €41 million,
which includes the impairment of goodwill, indicates that the company has recognized
a decline in the value of its goodwill during the year 2022.

7.4 Have the brands been impaired during the year 2022? What about the other
intangible assets? (Pagina 18 del PDF)

To determine whether the brands and other intangible assets have been impaired
during the year 2022, you can look at the changes in the carrying values of these
assets and the related amortization and impairment. The relevant information is
provided in the table you've provided:

1. Brands:
- Dec. 31, 2021: Net carrying value = €6,406 million
- Dec. 31, 2022: Net carrying value = €6,655 million

There is an increase in the net carrying value of brands from €6,406 million to
€6,655 million. This increase does not indicate impairment; in fact, it suggests an
appreciation or positive change rather than impairment.
2. Other Intangible Assets:
- Dec. 31, 2021: Net carrying value = €626 million
- Dec. 31, 2022: Net carrying value = €702 million

Similar to brands, there is an increase in the net carrying value of other intangible
assets from €626 million to €702 million. This increase does not necessarily indicate
impairment.

Based on the information provided, there is no evidence of impairment for both brands
and other intangible assets during the year 2022.

7.5 How did Kering run the impairment tests for these assets?

7.6 What are the cash generating units used by Kering in the impairment
testing?
CGUs defined by the group represent the operating segments in wich the group’s
brand operate
The operating segments are Gucci, Yves Saint Laurent, Bottega Veneta, Other Houses
and Kering Eyewear and Corporate.

7.7 What is the growth rate used by Kering in 2022 in the impairment testing for
the Gucci cash generating unit?
- Goodwill: €1,652 million
- Perpetual growth rate: 3%
- Business plan time frame: 5 years

7.8 Did the discount rate used in the impairment tests increase or decrease in
2022 compared to 2021? What is the potential impact on the value in use
(increase or decrease).
Based on the image, the discount rate used in the impairment tests decreased in 2022
compared to 2021. Specifically, the discount rate for the Gucci CGU increased from
12.1% to 15.2%, and the discount rate for the Other CGUs increased from 9.9%-
12.7% to 11.8-15,2%.

A lower discount rate means that future cash flows are worth more in the
present, which can lead to an increase in the value in use of an asset. Therefore, the
potential impact of the increase in the discount rate in 2022 is an decrease in the value
in use of the company's cash-generating units.

“Since December 31, 2021, discount rates have increased sharply, significantly
reducing liabilities. This increase in rates is the main reason for the €35 million of
gains related to changes in financial assumptions.”
 8. Income taxes
8.1 What is the amount of the income tax expense in 2022? What is the amount
of income tax paid by Kering in 2022?

Amount of income tax expense: 48 in 2022 and 232 in 2021

The amount of income tax paid by Kering in 2022 is 25

8.2 What is the effective tax rate used by Kering in 2022?

8.3 What is the current income tax expense? What is the deferred income tax
expense/revenue? What can you conclude?
The current income tax expense is 48 and the deferred income tax expense is 177.
Primero de todo que es cada cosa:
Income tax expense: se refiere al gasto total por impuestos sobre la renta que una
empresa reconoce en su estado de resultados durante un período contable específico.
Deferred income tax: se refiere a los cambios en los pasivos o activos por impuestos
diferidos durante un periodo contable.
Claro, basándome en la respuesta proporcionada anteriormente, con un gasto actual
por impuestos sobre la renta de 48 y un gasto diferido por impuestos sobre la renta
de 177, se puede concluir que la empresa está reconociendo un monto
sustancialmente mayor de diferencias temporales que resultarán en beneficios
fiscales en el futuro. Esto sugiere una planificación fiscal efectiva y podría tener un
impacto positivo en la posición financiera de la empresa en los próximos períodos
contables.

8.4 What are the amounts of the total deferred tax assets and liabilities on 2022?
How about 2021? Have the net deferred tax assets increased or decreased?

The net deferred tax assets have increased( de -100 en 2021 a 68 en 2022). Esto
significa que la empresa espera obtener beneficios fiscales en el futuro debido a
diferencias temporales entre la contabilidad y la fiscalidad.

8.5 What is the main source for deferred taxes? How can you explain it?
8.6 Note 8.4 (p. 351) discloses more information on unrecognised deferred tax
assets, mainly coming from “tax loss carryforwards”. What is it? What does it
mean that it is unrecognised? Why is it specified in the financial statements?

Tax loss carryforwards: a provision allowing a taxpayer to move a tax loss to future
years to offset a profit.

What does it mean that it is unrecognised?

Las razones por las cuales estos activos no se reconocen pueden variar y generalmente
están vinculadas a la incertidumbre sobre si la empresa podrá generar suficientes
ingresos fiscales en el futuro para utilizar completamente estos beneficios fiscales. Por
ejemplo, si una empresa ha tenido pérdidas en el pasado, pero no está segura de si
generará suficientes ingresos en el futuro para utilizar estas pérdidas acumuladas, los
beneficios fiscales asociados con esas pérdidas pueden no ser reconocidos.

Why is it specified in the financial statements?

Esta información se especifica en los estados financieros para proporcionar
transparencia a los inversores y analistas sobre la existencia de estos beneficios
fiscales potenciales y para que puedan evaluar el impacto potencial en los resultados
financieros de la empresa en el futuro. Además, la revelación de la expiración de
pérdidas fiscales en términos de años también brinda información sobre la
temporalidad y posible utilización de estos beneficios fiscales.