KERING CASE QUESTIONS

1. Understanding financial statements

1.1. Who are the statutory auditors of KERING? Explain why
KERING decided to use two audit firms.
PWC and Deloitte for the 2022. Because there are the two biggest
firms from the moment.
In France is mandatory to have 2 audit companies.

1.2. Have the financial statements been approved by Board of

Directors? (general information can we found at the introduction and
at the end)
Yes, because before being audited they have to be approved by the
board of directors and it says, “Financial statements audited,
certification in progress” Also, it says that the, the Board of Directors
approved the consolidated financial statements as of December 31,
2022 and authorized their publication.

1.3. What are the accounting standards followed by KERING?

(note 33 also in the introduction)
Pursuant to European Regulation No. 1606/2002 of July 19, 2002,
these consolidated financial statements were prepared in accordance
with applicable international financial reporting standards (IFRSs) as
endorsed by the European Union and mandatorily applicable as of the
reporting date.

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

The financial position is the difference between assets and liabilities.
2022→ assets= 33941, liabilities = 19158, equity = 14783
2021→ assets= 31068, liabilities = 17283, equity = 13736
The Group has a very sound financial position.
As we can see most of the assets come from the money spent in brands
and other intangible assets.
And all the money to buy assets comes from majority from non-current
assets and inn equity attributable to the group.
1.5. What is the nominal amount of trade receivables (cuenta a cobrar)
and accrued (acumulado) 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?
In case the client doesn’t pay us, we have to take into a account a
provision a the balance sheet. (note 16)
The nominal is without the allowances, so is 1,207 million euros.
As we can see in the CURRENT ASSETS the nominal amount of trade
receivable and accrued income is 1,180 million euros, which is 2%
more than 2021.
The accrued income represents the future benefit to the company in the
form of a future cash payout (pago en efectivo). And the trade
receivables represents the money of the company owns but it arise
(surgir) due to credit sales. So in this case the 1,180 1,207 million
euros represent the accrued income only.

1.6. What is the total amount of borrowings of KERING at the end of

2022?
The borrowings are represented at the liabilities.
The total amount of borrowings is 6,642 million euros. They are
divided into non-current borrowings which are 4,347 million euros and
current borrowings which are 2,295 million euros.

1.7. What is the “bottom line” telling you?

Bottom line = net income which is measure economic performance of
the company.
Kering Generated economic value 3,718 million euros during 2022.
2. The comprehensive income
2.1. What about comprehensive income? How do you analyze the
difference between net income and comprehensive income? What
are the items recognized in equity (other comprehensive income)?
The Comprehensive Income from 2022= 3,694 and in 2021=3,295
The difference is the other comprehensive income:
Net Income +/- other comprehensive Income = Comprehensive Income
The net income is the actual profit or gain that a company makes in a
particular period. (revenues- expenses)
The other comprehensive income (changes in equity) is unrealized
gains and losses due to value changes on the balance sheet.: something
related to the net income that has to be recognized somewhere.
The items recognized in equity are:
- Change in currency translation adjustments relating to consolidated
subsidiaries: when there is a transaction in another country.
- Change in foreign currency cash flow hedges: being covered in
case a transaction in a foreign country has some lost.
- Change in other comprehensive income (loss) of equityaccounted
companies.
- Change in provisions for pensions and other post-employment
benefits: for retired employees.
- Change in financial assets measured at fair value.
2.2. What is the change in the accounting value (equity= assets-
liabilities) of the group between 2021 and 2022?
The change in accounting value is an adjustment of the carrying
amount of an asset or liability, or related expense, resulting from
reassessing the expected future benefits and obligations associated
with that asset or liability.

In 2021= 31,068- (8,557+8,726+49) = 13,736

In 2022= 33,941- (10,652+8,506) = 14,783
So, the change between the years is 14,783- 13,736 =1,047
To calculate the decrease or increase is: the difference/1st year
1.047/13,736 = 7,62% the equity increases from 2021
2.3. What is the change in the accounting value of the group due to
transactions/ operations (net income)?
The change in the accounting value of the group to transactions is the
net income. We can find it on the statement of changes in equity.

The net income in 2022 is 3,718.

Its mainly the net income who explains the changes in equity.

2.4. What are the distributions to the owners during the year 2022?
Distributions are made to business owners by taking cash out of the
business from retained profits or cash that investors put into the
business. It is in the statement of changes in equity.
Is the restitution of investment, and the distribution in 2022 is 1,650.
The distribution is the number in negative at the statement of changes
in equity. Impacts negatively: 1030+1650+375 = (3055)

2.5. What are the contributions from the owners during the year 2022?
Contributed capital, also known as paid-in capital, is the cash and other
assets that shareholders have given a company in exchange for stock.
Is the direct investment (acquisitions)
The contributions are 1,030 in 2022.
The contribution is the number in positive at the statement of changes
in equity. Impacts positive: 38+346+45 = 429

2.6. Can you reconcile all these amounts?

Yes,
The equity at the beginning of the year is 13,715
+ the net income is 3,718
+ other comprehensive income (24)
= Comprehensive income 3,694
+ Contributions 429
- Distributions (3,055)
14,783
3. Segment reporting
3.1. What are the operating segments for Kering?
Gucci, Yves Saint Laurent, Bottega Veneta, Other Houses, Kering
Eyewear and Corporate
3.2. Is it possible to check the three different criteria to identify the
reportable segments?
No, because there are not assets, so the three criteria cannot be clarified.
2022 Sales Operating
profit/loss
Gucci 10,487/ 20,351 3,732/
= 0,515 5,589=0,67
Yves saint 0,16 0,18
Laurent
Bottega Veneta 0,085 0,065
Other houses 0,19 0,099
Kering 0,055 -
Eyewear and
Corporate

2021 Sales Operating

profit/loss
Gucci 9,731/17,645 = 3,715/ 5,017=
0,55 0,74
Yves saint 0,143 0,143
Laurent
Bottega Veneta 0,085 0,057
Other houses 0,186 0,09
Kering 0,04 -
Eyewear and
Corporate

3.3. Does Kering use the aggregation of operating segments?

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.
They are more brands aggregated in “other houses.”
3.4. Do the different operating segments satisfy the criterion of 10%
sales of the combined sales of all the operating segments?
Gucci, Yves Saint Laurent, and other houses, satisfy the criteria.
Meanwhile, Bottega Veneta and Kering Eyewear and Corporate don’t
satisfy the criteria.
IF THEY APPEAR IN THE OPERATING SEGMENTS (and there is not
the three criteria) IS BECAUSE THE MANAGER CONSIDER THAT IS
IMPORTANT FOR THE SEGMENTS AND IS CONSIDER A
REPORTABLE SEGMENTS.
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, Yves Saint Laurent satisfy the criteria. Meanwhile, Bottega Veneta
and Kering Eyewear and Corporate and Other houses don’t satisfy the
criteria.
IF THEY APPEAR IN THE OPERATING SEGMENTS (and there ir not
the three criteria) IS BECAUSE THE MANAGER CONSIDER THAT IS
IMPORTANT FOR THE SEGMENTS AND IS CONSIDER A
REPORTABLE SEGMENTS.
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?
The revenue of Bottega Veneta in 2022 is 1,740 million of euros.
The operating income of Gucci in 2022 is 3,732 million of euros.
The Revenue of Yves Saint Laurent in 2021 is 2,521 million of euros.
The Revenue earned in Japan 2022 is 1, 244 and in 2021 is 1,059.
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 (page 3)
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, al the financial assets are measured at fair value
though 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)
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?
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.
Financial assets:
- Associates (equity method) = 49
- Minority passive investment → FVOCI = 408+205, FVTPL = 9+7

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?
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: -69
- Change in other comprehensive income (loss) of equity accounted
companies: -
- Change in financial assets measured at fair value: - 272 -225
We have to take into account the tax effects, because you are saving
money paying the taxes because is an expense
4.4. What is the impact on the income statement of KERING in 2022
of the financial instruments?
We can’t find this information in the income statement, so we will look it
up the financial results (note 7)
Is in Net gains (losses) on financial assets = -3
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

4.5. Does KERING have any associate investment? What is the

accounting treatment for associates?
Yes, because we can value the associate investment (asset)
We will fin this information on the balance sheet. (note 43)
The associate is “the group”.
The accounting treatment for associates is the equity method.
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

For the associates in 2021 is 31 and in 2022 is 49.

It is calculated by:
+ share of associates income
– distribution of dividends from associates (it will decrease)
+ new associates
– sold associates
5. Controlling interest
5.1 What is the first indication that KERING is consolidating entities in its
financial statements?
All the financial statements are called “consolidated …” and in the note 17.4 said
that is a consolidated company.
Also you can find the minority interest and the goodwill, that is only for
consolidated companies.
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,
Artemis is wholly owned by Finance Pinault.
5.2. What is the amount of goodwill in the balance sheet of Kering as of
December 31st, 2022? What can we conclude from the presence of this
position?
The goodwill in 2022 is 4053.
5.3 If no goodwill would be present, does this mean that KERING has no
subsidiaries?
A goodwill is an intangible asset that ads value to a company. Is the quantity a
company pays when a business is acquired and is the difference between the
book value and the price paid.
If is not represented means that is not time or merger (fusión) or acquisition,
because is not amortized.

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

If the goodwill is 0 means that it lost value

5.4 Did Kering acquire any new subsidiary in 2022?
Yes because there is a goodwill represented. Yes Maui Jim
5.5 Does KERING own 100% of all of its subsidiaries?
non-controlling interest = minority interest.

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.

NO, in the note 30 we can see how in come companies Kering has the 51%, and
also in the income statement there is the “minority interest”.

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%?
Disposal means sales.
If the investor is exercising a control on the management, operations, and
investing and financing decisions of the investee (generally more than 50% of
voting rights) is an associate.
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 (llamativo) when you look at the assets of
KERING?
Assets are found on the Balance sheet.
The goodwill and the brands and other intangible assets are have of the non-
current assets.
The brands and other intangible assets are the highest account on the non-current
assets.
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?
The accounting value (net) of brands is 6655 millions € in 2022.
Theres was 103 millions euros in amortization.
Value Net of the brands of Kering 6406 millions € in 2022. No, it’s all the brands
together
Tangible assets= depreciation
Intangible assets= amortization
6.3 How are Brands accounted for? (NOTE 33.11)
Brand are accounted as an intangible asset.
1. Brands and other intangible assets are recognized at cost (fair value at the
acquisition time) less accumulated amortization and impairment.
2. Brands, which represent the majority of intangible assets within the
Group, are intangible assets with indefinite useful lives and are therefore
not amortized (because there is none indefinite useful life)
3. Tested as part of the impairment test carried out on CGUs. Where that test
indicates an impairment loss, brands are tested separately.

6.4 How are Other intangible assets accounted for?

 1. Brands and other intangible assets are recognized at cost (fair value at the
acquisition time) less accumulated amortization and impairment.
2. Other intangible assets are amortized over their useful lives
3. Tested for impairment when there is an indication that an impairment loss
has taken place.

7. Impairment tests
7.1 How many references are made in the KERING financial statements
related to impairments?
“impairments tests carried out did not identify any impairment loss to be
recognized in 2022.”
There is a note (Note 10) only for goodwill and impairment test.
The impairments are NOT show in the financial statements. But in every note of
every assets is show an impairment.
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 and other non-current assets = - 69 millions of
euros
* As part of the goodwill measurement process, an impairment test was carried
out as of December 31, 2022. In 2022, no impairment losses were recognized in
the income statement as a result of impairment tests.

7.4 Have the brands been impaired during the year 2022? What about the
other intangibles assets?
Brans and intangible assets are tested as part of the impairment test carried out on
CGUs.
“Impairment recognized in respect of brands and other intangible assets along
with property, plant and equipment may be reversed at a later date if there is an
indication that the impairment loss no longer exists. Impairment recognized in
respect of goodwill may not be reversed” (note 33.12)
NO IMPAIRMENT LOSSES FOR ANY
7.5 How did Kering run the impairment tests for these assets?
Impairment testing involves assessing the carrying value of assets, such as brands
and intangible assets, to determine whether they have suffered any impairment
loss.
The impairment test carried out on CGUs. Where that test indicates an
impairment loss, brands are tested separately. (note 33.12)
The Group tests the value of its assets for impairment by allocating them to cash-
generating units (CGUs). The impairment tests are performed each year, or
whenever events or circumstances indicate that an impairment loss is likely.
7.6 What are the cash generating units used by Kering in the impairment
testing?
A CGU is the smallest group of assets, including goodwill, that generates cash
inflows from continuing use that are largely independent of the cash inflows from
other assets or CGUs.

7.7 What is the growth rate used by Kering in 2022 in the impairment
testing for the Gucci cash generating unit?
 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).
An increase from 2021 to 2022.
“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?
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?
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?
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 unrecognized deferred
tax assets, mainly coming from “tax loss carryforwards”. What is it? What
does it mean that it is unrecognized? Why is it specified in the financial
statements?