Amundi : 15 - 2025 Consolidated financial statements

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CONSOLIDATED FINANCIAL STATEMENTS OF THE AMUNDI GROUP FOR THE YEAR ENDED 31 DECEMBER 2025 ▌ 6.1 GENERAL FRAMEWORK 326 ▌ 6.2 CONSOLIDATED FINANCIAL STATEMENTS 327 6.2.1 Income statement 327 6.2.2 Net income and gains and losses recognised through other comprehensive income 328 Assets 329 Liabilities 329 Statement of changes in shareholders' equity 330 Cash flow statement 332 ▌ 6.3 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 333 ▌ 6.4 STATUTORY AUDITORS' REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS 389 6 CONSOLIDATED FINANCIAL STATEMENTS OF THE AMUNDI GROUP FOR THE YEAR ENDED 31 DECEMBER 2025 General framework ‌The consolidated financial statements consist of the general framework, the consolidated financial statements and the notes to the financial statements. General framework The Amundi Group ("Amundi") is a group of companies whose primary business is managing assets on behalf of third parties. Amundi is the consolidating entity of the Amundi Group of companies. It is a French Public Limited Company (Société Anonyme) with a Board of Directors (registered under number 314 222 902 in the Trade and Companies Register of Paris, France) with share capital of €515,965,815.00 comprising 206,386,326 shares with a nominal value of €2.50 each. The Company's registered office is located at 91- 93 boulevard Pasteur, 75015 Paris, France. Amundi shares are traded on Euronext Paris. Amundi is governed by the stock market regulations in effect, notably with respect to its obligation to inform the public. Amundi is a credit institution with approval from the Autorité de contrôle prudentiel et de résolution (ACPR) under number 19530. Group companies that perform asset management activities have obtained the necessary approvals from the supervisory authorities they report to in France and other countries. As at 31 December 2025, Amundi was 66.67%-owned by Crédit Agricole S.A., while other Crédit Agricole group companies owned 1.67%. Amundi is fully consolidated in the financial statements of Crédit Agricole S.A. and of Crédit Agricole group. ‌Consolidated financial statements‌ Income statement (in € thousands) Notes 2025 2024 Revenue from commissions and other income from client activities (a) 6,400,280 6,192,802 Commissions and other expenses from client activities (b) (3,200,926) (2,956,985) Net gains or losses on financial instruments at fair value through profit or loss on client activities (c) 83,136 125,490 Interest and similar income (d) 166,647 168,039 Interest and similar expenses (e) (156,188) (173,710) Net gains or losses on financial instruments at fair value through profit or loss (f) 78,291 94,781 Net gains or losses on financial assets at fair value through other comprehensive income (g) 4,184 9,787 Income from other activities (i) 66,552 64,906 Expenses from other activities (j) (100,300) (119,256) Net revenues from commissions and other client activities (a) + (b) + (c) 4.1 3,282,490 3,361,307 Net financial income (d) + (e) + (f) + (g) 4.2 92,934 98,897 Other net income (i) + (j) 4.3 (33,748) (54,351) NET REVENUES 3,341,676 3,405,853 General operating expenses 4.4 (1,895,395) (1,851,595) GROSS OPERATING INCOME 1,446,281 1,554,258 Cost of risk 4.5 (8,709) (9,832) Share of net income of equity-accounted entities 201,260 123,345 Net gains or losses on other assets 4.6 402,371 107 Change in value of goodwill - - INCOME BEFORE TAX 2,041,203 1,667,879 Income tax charge 4.7 (451,966) (365,549) NET INCOME FOR THE FINANCIAL YEAR 1,589,238 1,302,330 Non-controlling interests 3,004 2,791 NET INCOME - GROUP SHARE 1,592,242 1,305,122 The calculation of earnings per share is detailed in Note 5.15.3. ‌Net income and gains and losses recognised through other comprehensive income (in € thousands) Notes 2025 2024 Net income 1,589,238 1,302,330 6,504 602 5.5 47,690 97,820 Pre-tax gains and losses recognised through other comprehensive income (not-recyclable), excluding equity-accounted entities 54,194 98,422 Pre-tax gains and losses recognised through other comprehensive income (not-recyclable) of equity-accounted entities Taxes on gains and losses recognised through other comprehensive income (not-recyclable), excluding equity-accounted entities (2,171) (416) Taxes on gains and losses recognised through other comprehensive income (not-recyclable) of equity-accounted entities Net gains and losses recognised through other comprehensive income and non-recyclable as income at a later date 52,023 98,006 (66,502) 4,669 (61,833) (1,010) (154,877) 52,151 (3,255) - 48,896 841 17,213 5.5 Pre-tax gains and losses recognised through other comprehensive income (recyclable), excluding equity-accounted entities (a) + (b) + (c) Taxes on gains and losses recognised through other comprehensive income (recyclable), excluding equity-accounted entities Pre-tax gains and losses recognised through other comprehensive income (recyclable) of equity-accounted entities Taxes on gains and losses recognised through other comprehensive income (recyclable) of equity accounted entities Net gains and losses recognised through other comprehensive income and recyclable as income at a later date (217,719) 66,949 NET GAINS AND LOSSES RECOGNISED THROUGH OTHER COMPREHENSIVE INCOME (165,696) 164,955 TOTAL NET INCOME INCLUDING NET GAINS AND LOSSES RECOGNISED THROUGH OTHER COMPREHENSIVE INCOME 1,423,541 1,467,286 of which, Group share 1,429,919 1,468,525 of which, non-controlling interests (6,378) (1,238) Actuarial gains and losses on post-employment benefits Gains and losses on financial liabilities attributable to changes in own credit risk Gains and losses on equity instruments recognised through other comprehensive income (not-recyclable) Gains and losses on non-current assets held for sale Translation gains and losses (a) Gains and losses on available-for-sale assets (b) Gains and losses on debt instruments recognised through other comprehensive income (recyclable to profit or loss) (b) Gains and losses on hedging derivatives (c) ‌Assets (in € thousands) Notes 31/12/2025 31/12/2024 Cash and central banks 5.1 1,897,931 1,368,925 Financial assets at fair value through profit and loss 5.2 22,600,448 22,942,656 Financial assets at fair value through other comprehensive income 5.5 1,927,132 1,557,515 Financial assets at amortised cost 5.6 1,108,233 1,152,504 Current and deferred tax assets 5.9 242,741 235,286 Accruals and sundry assets 5.10 2,201,494 2,180,988 Non-current assets held for sale - 929,164 Investments in equity-accounted entities 5.11 1,542,536 617,402 Property, plant and equipment 5.12 297,155 331,428 Intangible assets 5.12 365,390 414,329 Goodwill 5.13 6,560,618 6,572,191 ‌TOTAL ASSETS 38,743,678 38,302,388 Liabilities (In thousands of euros) Notes 31/12/2025 31/12/2024 Financial liabilities at fair value through profit or loss 5.3 19,896,258 20,000,925 Financial liabilities at amortised cost 5.7 1,418,058 1,725,741 Current and deferred tax liabilities 5.9 236,205 282,867 Accruals, deferred income and sundry liabilities 5.10 4,066,144 3,655,696 Non-current liabilities held for sale - 194,794 Provisions 5.14 119,530 81,248 Subordinated debt 5.8 306,106 306,091 Total debt 26,042,300 26,247,362 Equity, Group share 12,655,315 12,002,584 Share capital and reserves 5.15 3,086,051 3,024,339 Consolidated reserves 8,006,685 7,540,462 Gains and losses recognised through other comprehensive income (29,662) 132,662 Net income for the period 1,592,242 1,305,122 Non-controlling interests 46,063 52,442 Total equity 12,701,378 12,055,026 TOTAL LIABILITIES 38,743,678 38,302,388 ‌Statement of changes in shareholders' equity Group share Equity Group share Share capital and reserves Gains and losses recognised through other comprehensive income Net income (in € thousands) Share capital Consolidated premiums and reserves related to capital Disposal of treasury holdings Total capital and consolidate d reserves Through Through other other comprehen- comprehensive income sive (not- income recyclable) (recyclable) EQUITY AS AT 1 JANUARY 2024 511,619 10,954,606 ( 66,432 ) 11,399,792 (3,765) (26,977) - 11,369,051 Capital increase 1,929 34,132 - 36,061 36,061 Changes in treasury holdings (18,962) (53,134) (72,096) (72,096) Dividends paid in 2024 (835,425) (835,425) (835,425) Impact of acquisitions and disposals of subsidiary shares without loss of control - Changes related to share-based payments 32,133 32,133 32,133 Changes related to transactions with shareholders 1,929 (788,122) (53,134) (839,327) - - - (839,327) Changes in gains and losses recognised through other comprehensive income 4,167 4,167 98,006 48,184 150,357 Share of changes in equity of equity-accounted entities 17,213 17,213 2024 income 1,305,122 1,305,122 Comprehensive income as at - 4,167 - 4,167 98,006 65,397 1,305,122 1,468,525 31 December 2024 Other changes 168 - 168 168 EQUITY AS AT 31 DECEMBER 2024 513,548 10,170,819 (119,566) 10,564,800 94,241 38,420 1,305,122 12,002,584 Allocation of 2024 net income 1,305,122 1,305,122 (1,305,122) - EQUITY AS AT 1 JANUARY 2025 513,548 11,475,940 (119,566) 11,869,922 94,241 38,420 - 12,002,584 Capital increase 2,418 40,723 43,140 43,140 Changes in treasury holdings (16,599) 18,816 2,217 2,217 Dividends paid in 2025 (866,262) (866,262) (866,262) Impact of acquisitions and disposals of subsidiary shares without loss of control - Changes related to share-based payments 25,117 25,117 25,117 Changes related to transactions with shareholders 2,418 (817,022) 18,816 (795,788) - - - (795,788) Changes in gains and losses recognised through other comprehensive income 19,516 19,516 52,023 (59,470) 12,069 Share of changes in equity of equity-accounted entities (154,876) (154,876) 2025 income 1,592,242 1,592,242 Comprehensive income as at - - - - 52,023 (214,346) 1,592,242 1,429,919 31 December 2025 Other changes (917) (917) - - - (917) EQUITY AS AT 31 DECEMBER 2025 515,966 10,677,518 ( 100,750 ) 11,092,733 146,264 (175,925) 1,592,242 12,655,314 Non-controlling interests Consolidated equity Capital consolidated reserves and net income Gains and losses recognised through other comprehensive income Through other Through other comprehen- comprehen- sive income sive income (not-recyclable) (recyclable) Non-controlling interests (in € thousands) EQUITY AS AT 1 JANUARY 2024 53,130 (0) 550 53,680 11,422,732 Capital increase 36,061 Changes in treasury holdings (72,096) Dividends paid in 2024 (835,425) Impact of acquisitions and disposals of subsidiary shares without loss of control - Changes related to share-based payments 32,133 Changes related to transactions with shareholders - - - - (839,327) Changes in gains and losses recognised through other comprehensive income 1,552 1,552 151,909 Share of changes in equity of equity-accounted entities 17,213 2024 income (2,791) - (2,791) 1,302,331 Comprehensive income as at 31 December 2024 (2,791) - 1,552 (1,238) 1,467,286 Other changes 0 0 168 EQUITY AS AT 31 DECEMBER 2024 50,340 (0) 2,102 52,442 12,055,026 Allocation of 2024 net income - - - - - EQUITY AS AT 1 JANUARY 2025 50,340 (0) 2,102 52,442 12,055,026 Capital increase 43,140 Changes in treasury holdings 2,217 Dividends paid in 2025 (866,262) Impact of acquisitions and disposals of subsidiary shares without loss of control - Changes related to share-based payments 25,117 Changes related to transactions with shareholders - - - - (795,788) Changes in gains and losses recognised through other comprehensive income (3,374) (3,374) 8,695 Share of changes in equity of equity-accounted entities (154,876) 2025 income (3,004) (3,004) 1,589,238 Comprehensive income as at 31 December 2025 (3,004) - (3,374) (6,378) 1,423,541 Other changes (1) (1) (918) EQUITY AS AT 31 DECEMBER 2025 47,335 (0) (1,271) 46,063 12,701,378 ‌Cash flow statement The Group's cash flow statement is presented below using the indirect method. Cash flows in the financial year are shown by type: operating activities, investment activities and financing activities. Operating activities are activities carried out on behalf of third parties which are selected mainly by fee and commission cash flows, and activities on its own behalf (investments and related financing, intermediation of swaps between funds and markets, etc.). Tax inflows and outflows are included in full within operating activities. Investment activities include acquisitions and disposals of investments in consolidated and non-consolidated companies, along with purchases of property, plant and equipment and intangible assets. Non-consolidated equity securities included in this section are accounted for as "Financial assets at fair value through profit or loss" or "Financial assets at fair value through other comprehensive income (not recyclable to profit or loss)". Financing activities cover all transactions relating to equity (issues and buybacks of shares or other equity instruments, dividend payments, etc.) and long-term borrowings. Net cash includes cash, receivables and amounts due with central banks, debit and credit balances in bank current accounts and demand loans with credit institutions, and overnight accounts and loans. (in € thousands) Notes 2025 2024 INCOME BEFORE TAX 2,041,203 1,667,879 Net depreciation and amortisation and provisions in relation to property, plant and equipment and intangible assets 4.4 110,251 97,431 Goodwill impairment Net impairment and provisions 43,199 (18,334) Share of net income of equity-accounted entities (201,260) (123,345) Net income from investment activities (425,780) (51) Net income from financing activities 18,652 19,867 Other movements 30,957 34,050 Total non-monetary items included in net income before tax and other adjustments (423,982) 9,619 Flows related to transactions with credit institutions (1) (184,311) 216,235 Flows relating to other transactions affecting financial assets or liabilities (2) 242,265 (456,289) Flows relating to transactions affecting non-financial assets or liabilities (3) 435,932 482,380 Dividends from equity-accounted entities 5.11 216,375 20,794 Tax paid 4.7 (506,318) (350,286) Net decrease (increase) in assets and liabilities from operating activities 203,944 (87,166) Net flows in cash flow from operating activities (a) 1,821,165 1,590,332 Changes in participating interests (350,634) (324,938) Changes in property, plant and equipment and intangible assets (93,569) (68,646) Net cash flow from investing activities (b) (4) (444,202) (393,585) Cash flow from or intended for shareholders (822,610) (871,319) Other net cash flows from financing activities (54,774) (60,144) Net cash flow from financing transactions (c) (5) (877,385) (931,463) Impact of exchange rate changes and other changes on cash (d) (17,159) 10,157 CHANGES IN NET CASH (6 + b + c + d) 482,419 275,441 Cash at beginning of the period 2,221,005 1,945,565 Net cash balance and central banks 1,368,925 523,199 Net demand loans and deposits with credit institutions 852,080 1,422,366 Cash at end of the period 2,703,425 2,221,005 Net cash balance and central banks 1,897,931 1,368,925 Net demand loans and deposits with credit institutions 805,494 852,080 CHANGES IN NET CASH 482,419 275,441 Cash flows related to transactions with credit institutions correspond to term loans and borrowings. Transactions contracted as part of Amundi's operational activity, mainly with the Crédit Agricole group. Cash flows from transactions affecting financial assets and liabilities include investments in and divestments from the investment portfolio. Flows of non-financial assets and liabilities include margin calls on collateralised derivatives; these amounts fluctuate in line with the fair value of the underlying derivatives. Cash flows related to investment transactions include the impact of the acquisition of a stake in ICG (see "Period highlights" section). Cash flows from financing transactions include the impact of the payment of dividends to shareholders in respect of 2024. They also include flows relating to the decrease in lease liabilities recognised in connection with the application of IFRS 16. ‌Notes to the consolidated financial statements Detailed summary of the Notes NOTE 1 PRINCIPLES AND METHODS 335 NOTE 6 EMPLOYEE BENEFITS AND OTHER 1.1 Applicable standards and comparability 335 COMPENSATION 371 1.2 Presentation format of the financial statements 336 6.1 Headcount 371 1.3 Accounting principles and methods 336 6.2 Breakdown of employee expenses 371 1.4 Consolidation principles and methods 351 6.3 Post-employment benefits, defined contribution plans 371 NOTE 2 FINANCIAL MANAGEMENT, RISK 6.4 Post-employment benefits, defined benefit EXPOSURE AND HEDGING POLICY 354 plans 372 2.1 Capital management and regulatory ratios 354 6.5 Share-based payments 374 6.6 Executive compensation 375 NOTE 3 CONTRACTUAL MATURITY OF AMUNDI FINANCIAL ASSETS AND LIABILITIES 355 NOTE 7 FAIR VALUE OF FINANCIAL INSTRUMENTS 375 NOTE 4 NOTES ON NET INCOME AND GAINS AND LOSSES RECOGNISED THROUGH OTHER 7.1 7.2 7.3 Derivatives Other financial assets and liabilities Financial assets at fair value on the 375 375 General operating expenses 357 Cost of risk 357 Net gains or losses on other assets 359 Income tax 359 Change in gains and losses recognised through other comprehensive income 360 376 COMPREHENSIVE INCOME 356 balance sheet 4.1 Net asset management revenues 356 7.4 Financial liabilities at fair value on the 4.2 Net financial income 356 balance sheet 4.3 Other net income 356 7.5 Fair value of financial assets and liabilities 378 measured at amortised cost 378 NOTE 8 NON-CONSOLIDATED STRUCTURED ENTITIES 379 Nature and extent of Amundi's involvement with the non-consolidated structured entities 379 NOTE 5 NOTES ON THE BALANCE SHEET 362 entities 380 5.1 Cash and central banks 362 NOTE 9 OTHER INFORMATION 381 Net revenues from sponsored structured Financial assets at fair value through profit or loss 362 Financial liabilities at fair value through profit or loss 363 Information on the netting of financial assets and liabilities 364 Financial assets at fair value through other comprehensive income 365 Financial assets at amortised cost 365 Financial liabilities at amortised cost 365 Subordinated debt 365 Current and deferred tax assets and liabilities 366 Accruals and sundry assets and liabilities 366 Joint ventures and associates 367 Property, plant and equipment and intangible assets 368 Goodwill 369 Provisions 369 Equity 370 Segment information 381 Related parties 381 Scope of consolidation and changes during the year 383 Non-consolidated participating interests 386 Off-balance sheet commitments 387 Leases 387 Statutory auditors' fees 388 NOTE 10 EVENTS AFTER THE YEAR-END 388 Period highlights The scope of consolidation and changes to it as at 31 December 2025 are presented in detail in Note 9.3. We note here the main transactions that were carried out in financial year 2025. Strategic partnership between Amundi and Victory Capital Following the signing of a definitive agreement reported on 9 July 2024, Amundi and Victory Capital announced that their transaction had completed on 1 April 2025. From that date, Amundi's activities in the United States were merged with Victory Capital. In exchange, and in accordance with the agreements, Amundi became a strategic shareholder of Victory Capital with a 26% stake. The transaction also resulted in the implementation of 15-year distribution and service agreements, which have been in effect since that date. As at 31 December 2025, Victory Capital was consolidated using the equity method. Victory Capital is a Nasdaq-listed asset manager that has experienced rapid growth. As at 31 December 2025, it reported assets under management of $317 billion. This partnership strengthens Amundi's presence in the United States through a broader investment and distribution platform in the country and enables its clients to access a wide range of US investment solutions. The impacts of this transaction are described in the note on changes in the consolidation scope. Optimisation plan Along with the publication of its quarterly results on 29 April 2025, Amundi announced the forthcoming implementation of an optimisation plan aimed at redirecting the Group's resources towards its main growth areas. The goal is to free up €40 million over a full year by optimising costs, which is to be reinvested in the Group's growth drivers. Implementation of the plan began in the second half of 2025 in the various countries of operation concerned and the corresponding costs were recognised in the financial statements for a total amount of €88 million at 31 December 2025. Capital increase reserved for Group employees On 15 September 2025, the Amundi Group announced the launch of a capital increase reserved for employees, which had been authorised in principle by the General Meeting of 27 May 2025. The subscription period for this capital increase reserved for employees ended on 26 September 2025. More than 2,500 employees from 15 countries subscribed for 967,064 new shares (0.5% of the capital) for a total amount of €43 million. The capital increase took place on 23 October 2025, and brought the number of shares comprising Amundi's share capital to 206,386,326 shares. As at 31 December 2025, Group employees held 2.4% of the share capital, compared with 2.1% previously. Strategic partnership between Amundi and ICG On 18 November 2025, Amundi announced the signing of a longterm strategic partnership with asset management company ICG. The agreement provides for exclusive distribution of solutions developed by ICG to Amundi's wealth management clients, for 10 years. ICG is listed on the London Stock Exchange and had assets under management of almost $127 billion as at 31 December 2025. It is one of Europe's leading private markets asset managers. This partnership will enable Amundi to draw on ICG's expertise with the aim of strengthening its development in private assets. As at 31 December 2025, Amundi held 4.6% of ICG's capital. At that date, the investment in ICG is recognised at fair value through profit or loss. Under this partnership, Amundi plans to acquire a total stake of 9.9% in ICG. Once all regulatory authorisations have been obtained and Amundi is represented by a non-executive director on ICG's board of directors, the investment will be accounted for using the equity method in Amundi's consolidated financial statements. ‌Note 1 PRINCIPLES AND METHODS ‌ Applicable standards and comparability Unless otherwise stated, all amounts indicated in this financial report are expressed in thousands of euros. Rounding to the nearest thousand euros may, in some cases, lead to very slight discrepancies in the totals and sub-totals shown in the tables. These consolidated financial statements were prepared in accordance with IAS/IFRS standards and the IFRIC interpretations applicable as at 31 December 2025, as adopted by the European Union. The reference framework is available from the European Commission website at: https://ec.europa.eu/info/business-economy-euro/company-reporting-and-auditing/company-reporting/financial-reporting_en Standards applied as at 31 December 2025 The accounting principles and methods chosen by Amundi Group to prepare its consolidated financial statements as at 31 December 2025 are identical to those used for the preparation of the consolidated statements for the year ended 31 December 2024, with the exception of the following standards, amendments and interpretations newly applicable to the 2025 financial year: Standards, amendments and interpretations IAS 21/IFRS 1 Date of publication by the European Union 12 November 2024 Date of first mandatory application for open financial years from Potential significant effect for the group Lack of currency exchangeability (EU 2024/2862) 1 January 2025 No Standards and interpretations adopted by the EU but not yet applied by the Group IFRS 9/IFRS 7 - Classification and Measurement of Financial Instruments The amendments to IFRS 9 and IFRS 7, which were adopted on 27 May 2025 and are applicable to financial years beginning on or after 1 January 2026, clarify the classification of financial assets with conditional characteristics, such as ESG-related clauses, for the SPPI test. Although this amendment is retroactive, the Group does not expect instruments with ESG clauses that were already in existence prior to 1 January 2026 to fail the SPPI test. These amendments will require additional information on financial instruments with conditional characteristics from the date of application. Standards not yet adopted by the EU As at 31 December 2025, the Group has not applied the standards and interpretations published by the IASB and not yet adopted by the European Union. They will not become compulsory until the date set by the European Union and, therefore, the Group has not adopted them as at 31 December 2025. IFRS 18 - Presentation and Disclosure in Financial Statements IFRS 18 Presentation and Disclosure in Financial Statements, which was published in April 2024, will replace IAS 1 "Presentation of Financial Statements" and apply to annual periods beginning on or after 1 January 2027, subject to adoption by the European Union. The Group will not apply this new standard early. IFRS 18 will impose a new structure for the income statement and mandatory subtotals with the classification of income and expenses in the income statement in three categories: "operating", "investment" and "financing". IFRS 18 will also require a description in the notes of the performance measures defined by management and used in public disclosures outside the IFRS financial statements. It also includes new requirements for the aggregation and disaggregation of financial information based on the identified roles of the main financial statements and notes. Analysis and preparation work for the implementation of these changes within the Group is under way. ‌Presentation format of the financial statements Amundi presents its balance sheet in decreasing liquidity order. The assets and liabilities balance sheet is presented in Notes 6.2.3. and 6.2.4. The income statement is presented, by type, in Note 6.2.1. The main income statement aggregates are: ‌net income, including net revenues from commissions and other client activities (Note 1.3.6) and net financial income; Accounting principles and methods general operating expenses (Note 4.4); cost of risk (Note 4.5); the share of net income of equity-accounted entities; net gains and losses on other assets (Note 4.6); income tax (Note 4.7). Use of assumptions and estimates for the preparation of the financial statements The preparation of the financial statements in accordance with the IFRS accounting standards implies that the Group carries out a number of estimates and retains certain assumptions it deems realistic and reasonable. The estimates relate to the identification of income and expenses and the valuation of assets and liabilities as well as the information in the notes to the financial statements. To make these estimates, Management applies its judgement based on the information available at the time the statements are prepared. Due to the uncertainties inherent in any valuation process, the Group revises its estimates based on information updated on a regular basis. It is therefore possible that the future results of the operations in question differ from the estimates. Future results can indeed be impacted by a number of different factors, notably (but not exclusively): the economic and political environment in certain business sectors and countries; the risks associated with financial markets, including changes in the domestic and international markets as well as fluctuations in interest rates, exchange rates, equities and credit spreads. In line with the sensitivity of managed assets to any variation in financial markets (equity, rates, etc.), this may have an impact on the Amundi Group's asset management revenues; changes in regulations and legislation; the risk of non-compliance with regulations and legislation. The significant estimates made by the Group to prepare the financial statements relate primarily to: assessment of the recoverable amount of goodwill and other intangible assets (see Note 1.4.6 and Note 5.13); the fair value measurement of financial instruments, including non-consolidated participating interests (see Notes 1.3.2 and 7); the valuation of companies (including share of net income) accounted for using the equity method; the valuation of provisions for guarantees granted to structured funds; the valuation of provisions for retirement obligations; the valuation of provisions for legal, tax, regulatory and noncompliance risks (please refer to Note 1.3.2.10 and Note 5.14). All these assessments are carried out on the basis of the information available on the date of establishing the financial statements. Financial instruments Definitions IAS 32 defines a financial instrument as any contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in another entity, i.e. any contract representing contractual rights or obligations to pay or receive liquid assets or other financial assets. Derivatives are financial assets and liabilities that derive their value from an underlying, which require little or no initial investment and which are settled at a future date. Financial assets and liabilities are recognised in the financial statements in accordance with the provisions of IFRS 9 as adopted by the European Union. IFRS 9 sets new principles governing the classification and measurement of financial instruments, impairment of credit risk and hedge accounting, excluding macro-hedging transactions. Please note, however, that Amundi has opted not to apply the general IFRS 9 hedging accounting model. Consequently, IAS 39 continues to be applied to all hedging relationships whilst awaiting future provisions for macro-hedging. Bases for measuring financial assets and liabilities Initial measurement Upon initial recognition, financial assets and liabilities are valued at fair value as defined by IFRS 13. Fair value as defined by IFRS 13 is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, on the primary or most advantageous market. Subsequent measurement After initial recognition, financial assets and liabilities are valued based on their classification, either at their amortised cost using the effective interest rate (EIR) method for debt instruments, or at their fair value as specified by IFRS 13. Derivatives are always measured at fair value. Amortised cost is the amount at which the financial asset or liability is measured upon initial recognition, including the transaction costs directly attributable to their acquisition or issue, less principal repayments, plus or minus accumulated amortisation, calculated using the effective interest rate (EIR) method for any difference (discount or premium) between the initial amount and the amount at maturity. In the case of a financial asset measured at amortised cost or at fair value through other comprehensive income (recyclable to profit or loss), the amount may be adjusted for impairment losses, if necessary. The EIR discounts expected future cash inflows and outflows over the expected life of the financial instrument in order to obtain the net book value of the financial asset or liability. Financial assets Classification and measurement of financial assets Non-derivative financial assets (debt or equity instruments) are classified in accounting categories in the financial statements that determine their accounting treatment and their subsequent measurement method. These financial assets are classified in one of the following three categories: financial assets at fair value through profit or loss; financial assets at amortised cost (debt instruments only); financial assets at fair value through other comprehensive income (recyclable for debt instruments, non-recyclable for equity instruments). Debt instruments The classification and measurement of debt instruments depends on two criteria, the management model and the analysis of contractual characteristics (unless the fair value option is used). The three management models The management model is representative of the financial asset management strategy followed by Amundi's management in order to meet its objectives. The management model is specified for an asset portfolio and does not constitute an intention, on a case-by-case basis, for an isolated financial asset. There are three separate management models: the "hold-to-collect" model, which aims to collect contractual cash flows over the life of the assets; this model does not necessarily mean that all assets are held to contractual maturity, but asset sales are strictly controlled; the "hold-to-collect-and-sell" model, which aims to collect cash flows over the life of the asset and to dispose of assets; under this model, the sale of financial assets and the receipt of cash are both essential; and the other/held-for-trading model, whose primary objective is asset disposal. This model mainly relates to portfolios that aim to collect cash flows via disposals, portfolios whose performance is measured on the basis of fair value and portfolios of financial assets held for trading. When the strategy pursued by the Management for managing financial assets does not match either the "hold-to-collect" model or the "hold-to-collect-and-sell" model, these financial assets are classified in an other/sell portfolio model. Contractual characteristics ("Solely Payments of Principal and Interest" or "SPPI" test) The "SPPI" test combines a series of criteria, examined on a cumulative basis, that make it possible to establish whether the contractual cash flows have the characteristics of a simple financing arrangement (payments of principal and interest on the principal outstanding). The test is satisfied when the financing arrangement gives rise solely to payments of principal and where the payment of interest received reflects the time value of money, the credit risk associated with the instrument, the other costs and risks of a traditional loan agreement as well as a reasonable margin, whether the interest rate is fixed or variable. Under a simple financing arrangement, the interest represents the cost of time elapsing, the price of credit and liquidity risk over the period and other components related to the asset's carrying cost (e.g. administrative costs, etc.). In some cases, this qualitative analysis is not conclusive and quantitative analysis (or a Benchmark test) is carried out. This additional analysis consists of comparing contractual cash flows for the asset under consideration and cash flows for a benchmark asset. If the difference between the financial asset's cash flows and those of the benchmark asset is deemed to be immaterial, the asset is deemed to be a simple financing arrangement. In addition, a specific analysis will be conducted if the financial asset was issued by special purpose entities establishing an order of payment priority between financial asset holders by bundling multiple instruments together under contract and creating credit risk concentrations ("tranches"). Each tranche is given a level of subordination which specifies the order of distribution of the cash flows generated by the structured entity. In this event, the SPPI test requires an analysis of the contractual cash flow characteristics of the asset in question and of underlying assets according to the "look-through" approach and of the credit risk carried by the subscribed tranches compared with the credit risk for the underlying assets. Management models Hold-to-collect Hold-to-collect-and-sell Other/sell The debt instrument recognition method arising from qualification of the management model combined with the SPPI test can be presented in the form of the diagram below: Debt instruments SPPI test Satisfied Not satisfied Fair value through other comprehensive income (recyclable) Fair value through profit or loss Fair value through profit or loss Amortised cost Fair value through profit or loss Debt instruments at amortised cost Debt instruments are measured initially at fair value and subsequently at amortised cost if they are eligible for the "hold-to-collect" model and if they meet the "SPPI" test. They are recorded on the settlement/delivery date and their initial measurement also includes accrued interest and transaction costs. Amortisation of any premiums or discounts and transaction costs on loans and receivables and fixed-income securities is recognised in profit or loss using the effective interest rate method. This financial asset category is subject to impairment under the conditions described in the specific paragraph on "Provisions for credit risks". Debt instruments at fair value through other comprehensive income (recyclable) If debt instruments are eligible for the "hold-to-collect-and-sell" model and they meet the SPPI test, they are measured initially at fair value and subsequently at fair value through other comprehensive income (recyclable). They are recorded on the trading date and their initial measurement also includes accrued interest and transaction costs. Amortisation of any premiums or discounts and transaction costs on fixed-income securities is recognised in profit or loss using the effective interest rate (EIR) method. These financial assets are subsequently assessed at fair value and changes in fair value are recorded through other comprehensive income (recyclable) through outstanding assets (excluding accrued interest recognised in profit or loss using the effective interest rate method). In the event of sale, these changes are transferred to profit or loss. This financial instrument category is subject to adjustment for expected credit losses (ECL) under the conditions described in the specific paragraph on "Provisions for credit risks" (without affecting the fair value on the balance sheet). Debt instruments at fair value through profit or loss Debt instruments are assessed at fair value through profit or loss under the following circumstances: the instruments are classified in portfolios made of financial assets held for trading or whose main objective is disposal. Financial assets held for trading are assets acquired or generated by the Company primarily with the aim of disposal in the short term or which are included in a portfolio of financial instruments managed as a unit and with the purpose of making a profit from short-term price fluctuations or an arbitrage margin. Although contractual cash flows are received during the time that Amundi holds the assets, receipt of these contractual cash flows is ancillary rather than essential; debt instruments that do not meet the SPPI test criteria. This is particularly the case for UCIs (Undertakings for Collective Investment); financial instruments classified in portfolios for which the entity chooses measurement at fair value to lessen a difference in accounting treatment in the income statement. In this case, classification of fair value through profit or loss is designated as an option. Financial assets measured at fair value through profit or loss are initially recognised at fair value, excluding transaction costs (taken directly to profit or loss) and including accrued interest. They are subsequently measured at fair value and changes in fair value are recognised through profit or loss, in net revenues through outstanding assets. No impairments are recognised for this category of financial assets. Debt instruments measured at fair value through profit or loss as an option are recorded on the settlement/delivery date. Debt instruments measured at fair value through profit or loss that do not satisfy the SPPI test are recorded on the settlement/ delivery date. Equity instruments Equity instruments are, by default, recognised at fair value through profit or loss, apart from an irrevocable option of classification at fair value through other comprehensive income (not-recyclable), provided that such instruments are not held for trading purposes. Equity instruments at fair value through profit or loss Financial assets measured at fair value through profit or loss are initially recognised at fair value, excluding transaction costs (taken directly to profit or loss). They are recorded on the settlement/ delivery date (except equity instruments held for trading purposes, which are recorded on the trading date). They are subsequently measured at fair value and changes in fair value are recognised through profit or loss, under net revenues against outstanding assets. No impairments are recognised for this category of financial assets. Equity instruments at fair value through other comprehensive income (not-recyclable) (irrevocable option) The irrevocable option of recognising equity instruments at fair value through other comprehensive income (not-recyclable) is taken on a transactional level (line by line) and is applied from the date of initial recognition. These securities are recorded on the trading date. The initial fair value includes transaction costs. On subsequent measurements, changes in fair value are recognised through other comprehensive income (not-recyclable). In the event of disposal, these changes are not recycled through profit or loss, the gain or loss on the disposal is recognised through other comprehensive income. Only dividends are recognised through profit or loss. Derecognition of financial assets A financial asset (or group of financial assets) is fully or partially derecognised if: the contractual rights to the related cash flows expire; or are transferred or deemed to have expired or been transferred because they belong de facto to one or more beneficiaries and if almost all of the risks and benefits of ownership of the financial asset are transferred. In this case, any rights or obligations created or retained at the time of transfer are recognised separately as assets and liabilities. If the contractual rights to the cash flows are transferred, but only some of the risks and rewards of ownership as well as control are retained, Amundi will continue to recognise the financial asset to the extent of its involvement in the asset. Continuing involvement corresponds to the portion of the asset that continues to be exposed to changes in the value of the transferred asset. Financial assets renegotiated for commercial reasons in the absence of financial difficulties by the counterparty and with the aim of building or retaining a business relationship are derecognised on the renegotiation date. New loans to clients are recorded on that date at their fair value on the renegotiation date. Subsequent recognition is dependent on the management model and the SPPI test. Financial liabilities Classification and measurement of financial liabilities Balance sheet financial liabilities are classified in these two accounting categories: financial liabilities at fair value through profit or loss, either by type or designated as an option; financial liabilities at amortised cost. Financial liabilities at fair value through profit or loss by type Financial instruments issued primarily with a view to short-term buyback, instruments forming part of a portfolio of identified financial instruments which are managed as a unit and which show signs of having a recent short-term profit-taking profile, and derivatives (apart from some hedging derivatives) are measured at fair value by type. Changes in the fair value of this portfolio are recognised through profit or loss. Financial liabilities at fair value through profit or loss as an option Financial liabilities meeting one of the three cases provided by the standard may optionally be valued at fair value through profit or loss: hybrid issues including one or more separable embedded derivatives, lessening or elimination of the distortion of the accounting treatment, or groups of managed financial liabilities whose performance is measured at fair value. This option is irrevocable and is applied, on a mandatory basis, on the date of the instrument's initial recognition. On the occasion of subsequent measurements, these financial liabilities are measured at fair value through profit or loss for changes in fair value unrelated to own credit risk and through other comprehensive income for changes in value linked to own credit risk unless this makes the accounting mismatch worse. Financial liabilities measured at amortised cost Any other liabilities meeting the definition of a financial liability (apart from derivatives) are measured at amortised cost. These liabilities are initially recorded at fair value (including transaction income and costs) and subsequently at amortised cost using the effective interest rate method. Reclassification of financial liabilities The initial classification of financial liabilities is irrevocable. No subsequent reclassification is authorised. Distinction between liabilities and equity The distinction between debt instruments and equity instruments is based on an analysis of the substance of contractual arrangements. A financial liability is a debt instrument if it includes a contractual obligation: to return cash, other financial assets or a variable number of equity instruments to another entity; or to exchange financial assets and liabilities with another entity under potentially unfavourable conditions. An equity instrument is a non-repayable financial instrument that provides a discretionary return which highlights a residual interest in a company after deduction of all financial liabilities (net assets) and which is not qualified as a debt instrument. Provisions for credit risk Scope of application In accordance with IFRS 9, Amundi recognises impairments under "expected credit losses" (ECL) for outstanding assets on the following: financial assets that are debt instruments recognised at amortised cost or at fair value through other comprehensive income (recyclable) (loans and receivables, debt securities); guarantee commitments covered by IFRS 9 and which are not measured at fair value through profit or loss. Equity instruments (at fair value through profit or loss or at fair value in non-recyclable OCI) are not affected by impairment provisions. Counterparty risk is calculated for derivatives and other instruments at fair value through profit or loss which is not pursuant to the ECL model. Credit risk and provisioning stages Credit risk is defined as the risk of losses associated with the default of a counterparty leading to its inability to meet its commitments to the Group. The credit risk provisioning process distinguishes between three different stages (Buckets or Stages): Stage 1 (Bucket 1): from the initial recognition of the financial instrument (credit, debt security, guarantee, etc.), the entity recognises 12-month expected credit losses; Stage 2 (Bucket 2): if the credit quality deteriorates significantly for a given transaction or portfolio, the entity recognises the expected losses to maturity (lifetime ECL); Stage 3 (Bucket 3): when one or more default events occur in respect of the transaction or the counterparty and have a damaging effect on estimated future cash flows, the entity recognises objective evidence of impairment. Subsequently, if the conditions for classifying financial instruments in Bucket 3 are not met, the financial instruments are reclassified in Bucket 2, then in Bucket 1, depending on the subsequent improvement in credit risk quality. Buyback of treasury shares The treasury shares purchased by Amundi, including shares held for hedging the performance share allocation plans, do not fall within the definition of a financial asset and are recognised as a deduction from the equity. They do not have any impact on the income statement. Derecognition and modification of financial liabilities A financial liability is derecognised in full or in part: when it is extinguished; or when quantitative or qualitative analyses conclude that it has undergone a substantial change following restructuring. Substantial modification of an existing financial liability must be recorded as the extinction of the initial financial liability and the recognition of a new financial liability (novation). Any difference between the carrying amount of the liability that has been extinguished and the new liability will be recorded immediately in the income statement. If the financial liability has not been derecognised, the original effective interest rate continues. A discount/premium is immediately recognised through profit or loss on the date of the modification and is then spread at the original effective interest rate over the remaining life of the instrument. Definition of default The definition of default for the requirements of provisioning for ECLs is identical to that used in management and for calculating regulatory ratios. A debtor is thus considered to be in default when at least one of the following two conditions has been met: significant payment arrears generally in excess of ninety days unless special circumstances show that the arrears are due to reasons unrelated to the debtor's situation; Amundi deems it unlikely that the debtor will settle its credit obligations in full without recourse to measures such as the provision of surety. An outstanding asset in default (Bucket 3) is said to be impaired when one or more events have occurred that have a harmful effect on this financial asset's estimated future cash flows. Signs of a financial asset's impairment include observable data on the following events: major financial difficulties experienced by the issuer or the borrower; a breach of contract, such as failed or late payment; the granting of one or more favours by one or more lenders to the borrower for economic or contractual reasons relating to the borrower's financial difficulties that the lender(s) would not have envisaged under other circumstances; the increasing probability of the failure or financial restructuring of the borrower; the disappearance of an active market for the financial asset due to financial difficulties; the purchase or creation of a financial asset at a significant discount, which reflects the credit losses incurred. It is not necessarily possible to single out a particular event since the impairment of the financial asset may be the result of the combined effect of several events. The concept of expected credit loss (ECL) ECL is defined as the probability-weighted estimate of discounted credit loss (principal and interest). It is the actual value of the difference between contractual cash flows and expected cash flows (principal and interest). The ECL approach aims to allow expected credit losses to be recognised as early as possible. Governance and measurement of ECLs Governance of the system used to measure IFRS 9 parameters is based on the organisation put in place under the Basel framework. The Group's Risk Management Department is responsible for defining the methodological framework and oversight of the system of asset provisioning. The Group prioritises the internal rating system and current Basel processes when generating the IFRS 9 parameters needed to calculate ECLs. Assessment of the change in credit risk is based on an expected loss model and extrapolation based on reasonable scenarios. All available, relevant, reasonable and supportable information must be used, including forward-looking information. The calculation formula incorporates the parameters of probability of default, loss in the event of default and exposure at the time of default. These calculations are based on internal models applied within a regulatory framework where this exists, but with restatements to determine an economic ECL. IFRS 9 recommends a point-in-time analysis while taking account of historic loss data and forward-looking macroeconomic data, whilst the prudential viewpoint is analysed through the cycle for the probability of default and at the lowest point of the cycle (downturn) for losses in the event of default. This accounting approach also results in the recalculation of certain Basel parameters to neutralise internal recovery costs or the floors imposed by the regulator in the regulatory calculation of loss given default (LGD). ECL calculation methods must be assessed according to product type: financial instruments and off-balance sheet instruments. 12-month expected credit losses are a portion of the lifetime expected credit losses and represent the cash flow shortfalls caused by default within 12 months of the reporting date (or a shorter period if the financial instrument's lifetime is expected to be less than 12 months), weighted by the probability of default within the 12 months. Expected credit losses are discounted using the EIR determined at the financial instrument's initial recognition. ECL measurement methods take into account the assets assigned as collateral and other credit enhancements that are part of the contractual terms and that the entity does not recognise separately. The estimated cash flow shortfalls expected from a secured financial instrument reflects the amount and the timing for recovering the collateral. In accordance with IFRS 9, the recognition of guarantees and collateral does not affect the assessment of the significant deterioration in credit risk: this is based on changes in credit risk on the debtor without taking into account guarantees. The models and parameters used are back-tested at least once a year. Significant deterioration in credit risk On each closing date, all Group entities must assess the deterioration of the credit risk for each financial instrument since its initial recognition. This assessment of the change in credit risk leads entities to categorise their transactions by risk rating (Buckets). To assess significant deterioration, the Group operates a process based on two levels of analysis: an initial level depending on Group rules and relative and absolute criteria imposed on Group entities; a second level relating to the assessment, certified by an expert for local Forward Looking data, of the risk carried by each entity on its portfolios that may lead the Group to adjust its criteria for a downgrade to Bucket 2 (i.e. the move from 12-month ECL to lifetime ECL). All financial instruments, save for some exceptions, are monitored for significant deterioration. No contagion is required to switch financial instruments from the same outstanding from Bucket 1 to Bucket 2. Monitoring significant deterioration must take account of changes to the main debtor's credit risk, without taking account of the warranty. For outstanding assets comprising small loans and receivables with similar characteristics, the counterparty-by-counterparty review may be replaced by a statistical estimate of expected losses. To measure significant deterioration in credit risk since initial recognition, it is necessary to recover the initial internal rating and PD (probability of default). The date of origination is understood to be the trading date, when the entity becomes party to the contractual provisions of the financial instrument. For financing and guarantee commitments, the date of origination is understood to be the irrevocable commitment date. In accordance with current standards, Amundi has chosen to apply the "low credit risk" exemption to debt securities classified as "Investment Grade" (see IFRS 9.B5.5.23) and loan agreements whose probability of default is lower than a given threshold (i.e. 0.30%). In the absence of an internal rating, Amundi uses the absolute threshold of past due payments by more than 30 days as the ultimate threshold for significant deterioration and classification as Bucket 2. If the deterioration since the date of origination ceases to be recorded, the impairment may return to 12-month expected credit losses (Bucket 1). To compensate for the fact that some factors or signs of significant deterioration cannot be identified at the level of an individual financial instrument, the standard authorises the assessment of significant deterioration for portfolios, groups of portfolios or portions of portfolios of financial instruments. The construction of portfolios to assess deterioration on a collective basis may result in common characteristics such as: the type of instrument; the credit risk rating (including the internal Basel II rating for entities with an internal rating system); the type of collateral; the initial recognition date; the remaining term to maturity; the business sector; the geographical location of the borrower; the value of collateral relative to the financial asset, if it has an impact on the probability of a default occurring (for example, non-recourse loans in some jurisdictions or loan-to-value ratios). Groupings of financial instruments for the purpose of assessing changes in credit risk on a collective basis may change over time as new information becomes available. For securities, Amundi uses an approach that consists of applying an absolute level of credit risk in accordance with IFRS 9, beyond which exposures are classified in Bucket 2 and provisioned on the basis of lifetime ECL. Financial derivatives Classification and measurement Derivatives are financial assets or liabilities classified, by default, as derivative instruments held for trading, unless they can be classified as derivative hedging instruments. They are recorded in the balance sheet at their initial fair value on the trading date. They are subsequently measured at fair value. On every reporting date, any change in the fair value of derivatives on the balance sheet is recorded: in profit or loss for derivatives held-for-trading or as fair value hedges; in equity if these are derivatives used to hedge cash flows or a net investment in a foreign operation, for the effective portion of the hedge. Hedge accounting General framework In accordance with the Group's decision, Amundi does not apply the "Hedge accounting" section of IFRS 9 in line with the option given by the standard. All hedging relationships will continue to be documented in accordance with IAS 39 rules until, at the latest, the macro-hedging text is adopted by the European Union. The eligibility of financial instruments for hedge accounting under IAS 39 takes into consideration IFRS 9 principles governing the classification and measurement of financial instruments. Under IFRS 9, and in consideration of IAS 39 hedging principles, debt instruments at amortised cost and at fair value through other comprehensive income (recyclable) are eligible for fair value hedging and cash flow hedging. The following rules will apply for monitoring the significant deterioration of securities: securities rated "Investment Grade" as at the reporting date will be classified in Bucket 1 and provisioned on the basis of a 12-month ECL; securities rated "Non-Investment Grade" (NIG) as at the reporting date must be monitored for significant deterioration since the date of origination and be classified in Bucket 2 (lifetime ECL) in the event of a significant deterioration in credit risk. Relative deterioration must be assessed upstream of the occurrence of a proven default (Bucket 3). Non-recoverability When a receivable is deemed to be irrecoverable, i.e. there is no hope of recovering all, or part, of the receivable, the amount deemed to be irrecoverable must be derecognised and written off. Assessment of the time taken to write the receivable off is based on expert judgement. Each entity must set the write-off time with the Risk Management Department, depending on how much information it has on its business. Prior to any write-offs, Bucket 3 provisioning must be made (apart from financial assets at fair value through profit or loss). For loans at amortised cost or at fair value through other comprehensive income (recyclable), the amount written off is recorded under cost of risk for the principal and under net financial income for the interest. Documentation Hedging relationships must comply with the following principles: The aim of fair value hedges is to protect against exposure to changes in the fair value of a recognised asset or a liability or an unrecognised firm commitment, due to the risk(s) hedged and which may affect the net income (for example, hedging of all or some changes in fair value due to interest rate risk on a fixed-rate debt). Cash flow hedging is intended to provide protection from exposure to future changes in cash flows from a recognised asset or liability or a transaction that is considered to be highly likely, attributable to the risk(s) hedged and which could (in the case of a forecast transaction that has not yet been performed) affect the net income (for example, hedging of changes in all or some future interest payments on a floating-rate debt). Hedging of a net investment in a foreign operation is intended to provide protection from the risk of an adverse movement in fair value arising from the foreign exchange risks associated with a foreign investment in a currency other than the euro which is Amundi's reporting currency. Hedges must also meet the following criteria in order to be eligible for hedge accounting: the eligibility of the hedging instrument and the hedged instrument; there must be formal documentation from inception, including the individual identification and characteristics of the hedged item and of the hedging instrument, the nature of the hedging relationship and the type of risk hedged; the effectiveness of the hedge must be demonstrated at inception and, retrospectively, by testing at each reporting date. For interest rate hedges for financial asset or liability portfolios, the Amundi Group favours documentation of fair value hedging as permitted under IAS 39 adopted by the European Union (carve out version). In particular: the Group documents these hedging relationships on the basis of the gross position of derivatives and hedged items; the effectiveness of these hedging relationships is evidenced by means of timelines. Measurement The change in value of the derivative at its fair value is recognised as follows: fair-value hedge: the change in value of the derivative is recognised in profit or loss symmetrically with the change in value of the hedged item in the amount of the hedged risk. Only the net amount of any ineffective portion of the hedge is recognised in profit or loss; cash flow hedge: the change in value of the derivative, excluding accrued and due interest, is recognised in the balance sheet through a specific account in gains and losses recognised through other comprehensive income (recyclable) for the effective portion, and any ineffective portion of the hedge is recognised in profit or loss. Any profits or losses on the derivative accrued through other comprehensive income are then recycled in profit or loss when the hedged cash flows occur; hedges of a net investment in a foreign operation: the change in value of the derivative is recognised in the balance sheet through the currency translation adjustments through other comprehensive income (recyclable) and any ineffective portion of the hedge is recognised in profit or loss. When the conditions for benefiting from hedge accounting are no longer met, the following accounting treatment must be applied prospectively: fair-value hedge: only the hedging instrument continues to be revalued through profit or loss. The hedged item is wholly recognised according to its classification. For debt instruments at fair value through other comprehensive income (recyclable), changes in fair value subsequent to the end of the hedging relationship are recorded, in full, in other comprehensive income. For hedged items valued at amortised cost which were interest rate hedges, the revaluation surplus is amortised over the remaining life of those hedged items; cash flow hedge: the hedging instrument is valued at fair value through profit or loss. The amounts accumulated in other comprehensive income under the effective portion of the hedge remain in OCI until the hedged element affects net income. For interest rate hedged items, net income is allocated through the payment of interest. The revaluation surplus is therefore amortised over the remaining life of those hedged items; hedging of a net investment in a foreign operation: the amounts accumulated in other comprehensive income in respect of the effective portion of the hedging remain in OCI while the net investment is held. The net income is recorded once the net investment in the foreign operation exits the reporting entities. Determining the fair value of financial instruments The fair value of financial instruments is determined by maximising the use of observable input data. It is presented using the hierarchy defined by IFRS 13. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, on the primary market or on the most advantageous market. Fair value applies individually to each financial asset and financial liability. As an exception, it may be estimated by portfolio if the management and risk monitoring strategy allow and if appropriately documented. Accordingly, certain fair value parameters are calculated on a net basis when a group of financial assets and financial liabilities is managed on the basis of its net exposure to market or credit risks. This is particularly the case for the calculation of CVA/DVA (Credit Valuation Adjustment) and DVA (Debit Valuation Adjustment). Amundi believes that quoted prices published in an active market are the best evidence of fair value. When such quoted prices are not available, fair value is established by using valuation techniques that maximise the use of relevant observable data and minimise the use of unobservable data. Fair value of structured issues In accordance with IFRS 13, Amundi values its structured issues by integrating the issue spread of the guarantor. Counterparty risk on derivative instruments In application of IFRS 13, Amundi incorporates into fair value the assessment of counterparty risk for derivative assets (CVA) and, using a symmetrical treatment, the non-performance risk for derivative liabilities (DVA or own credit risk). CVA makes it possible to determine expected counterparty losses from Amundi's perspective. DVA makes it possible to determine expected losses on Amundi from the counterparty's perspective. For derivatives carried out with market counterparties, the CVA/ DVA calculation is based on an estimate of expected losses given the probability of default and loss in the event of default. The methodology used maximises the use of observable market data. It is primarily based on market parameters such as registered and listed CDS (Credit Default Swap) or CDS Single Name or Index CDS in the absence of named counterparty CDS. Under certain circumstances, historical default parameters may also be used. No CVA/DVA is calculated either for derivatives contracted by Amundi or for funds, taking into account that there is no historical default data and the guarantee provided by Amundi to the funds. Fair value hierarchy The standard classifies fair value into three levels based on the observability of inputs used in valuation techniques. Level 1: fair value corresponding to quoted prices (unadjusted) in active markets Level 1 is composed of financial instruments that are directly quoted in active markets for identical assets and liabilities that Amundi can access at the measurement date. These are stocks and bonds listed on active markets, shares in investment funds listed on active markets and derivatives traded on organised markets, in particular futures. A market is deemed to be active if quoted prices are readily and regularly available from an exchange, broker, dealer, pricing service or regulatory agency, and the prices represent actual and regularly occurring market transactions under normal competitive conditions. For financial assets and liabilities with offsetting market risks, Amundi uses mid-prices as the basis for establishing the fair value of the positions. The current bid price is applied to assets held or liabilities to be issued (open long position) and the current asking price to assets to be acquired or liabilities held (open short position). Level 2: fair value measured using directly or indirectly observable inputs other than those in Level 1 This data is directly observable (i.e. prices) or indirectly observable (data derived from prices) and generally meets the following criteria: this is data not specific to the entity, which is publicly available/accessible and based on a market consensus. Level 2 consists of: stocks and bonds listed on an inactive market or unlisted on an active market, but for which fair value is established using a valuation methodology habitually used by market participants (such as the method of discounting future cash flows or the Black & Scholes method) and based on observable market data; instruments traded over the counter, whose fair value is measured with models using observable market data, i.e. data that can be obtained from several sources independent of internal sources on a regular basis. For example, the fair value of interest rate swaps is generally derived from the yield curves of interest rates based on market interest rates observed on the closing date. When the models used are consistent with standard models and on observable market parameters (such as yield curves or implied volatility ranges), the initial margin generated on the instruments valued in this way is recognised in profit or loss from inception. Level 3: fair value for which a significant number of the parameters used for determination are not based on observable criteria In the case of some complex instruments which are not traded in an active market, fair value measurement is based on valuation techniques that use assumptions not supported by data observable on the market for an identical instrument. These instruments are presented in Level 3. These are mainly complex rate products, equity derivatives and structured credit products whose valuation requires, for example, correlation or volatility parameters that cannot be directly compared to market data. The initial transaction price is deemed to reflect the market value and recognition of the initial margin is deferred. The margin generated on these structured financial instruments is generally recognised in profit or loss spread over the period during which the parameters are deemed to be unobservable. When the market data becomes observable, the margin remaining to be spread is immediately recognised in profit or loss. The valuation methodologies and models used to value the financial instruments presented in Levels 2 and 3 incorporate all of the factors that market players use to calculate prices. They must first be validated by an independent audit. Determination of the fair value of these instruments takes into account both the liquidity risk and the counterparty risk. Offsetting of financial assets and liabilities In accordance with IAS 32, Amundi offsets a financial asset and a financial liability and reports the net balance if, and only if it has a legally enforceable right to offset the amounts reported and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. The effect of this offsetting is presented in table 5.4. concerning the amendment to IFRS 7 on disclosures regarding the offsetting of financial assets and financial liabilities. Net gains or losses on financial instruments Net gains or losses on financial instruments at fair value through profit or loss For financial instruments at fair value through profit or loss, this heading includes the following income statement items: dividends and other revenue from equities and other variable-income securities classified under financial assets at fair value through profit or loss; changes in fair value of financial assets or liabilities at fair value through profit or loss; gains and losses on disposal of financial assets at fair value through profit or loss; changes in fair value and gains and losses on disposal or termination of derivatives not included in a fair value hedging relationship or cash flow hedge. This heading also includes the ineffective portion of hedging transactions. Net gains or losses on financial instruments at fair value through other comprehensive income For financial assets at fair value through other comprehensive income, this heading includes the following income statement items: dividends from equity instruments classified as financial assets at fair value through other comprehensive income (not-recyclable); gains and losses on disposals as well as net income associated with the termination of the hedging relationship on debt instruments classified as financial assets at fair value through other comprehensive income (recyclable); net income on disposals or termination of fair value hedging instruments for financial assets at fair value through other comprehensive income where the item being hedged is sold. Financial guarantees given A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due under the original or amended terms of a debt instrument. Financial guarantee contracts are initially measured at fair value, then subsequently at the higher of: the amount of impairment losses determined under the provisions of IFRS 9, section on "Impairment"; or the amount initially recognised less, where appropriate, cumulative revenue recognised in accordance with the principles of IFRS 15 "Revenue from contracts with customers". For Amundi, the financial guarantees given are funds where capital or performance is guaranteed. Provisions (including IAS 37) Amundi identifies all (legal or constructive) obligations resulting from a past event for which it is probable that an outflow of resources will be required to settle the obligations, and for which the due date or amount of the settlement are uncertain, but can be reliably estimated. If required, the estimates are discounted when the effect is significant. This obligation can be legal, regulatory or contractual. It can also result from the Group's practices or from commitments that created a legitimate expectation on the part of third parties involved that the Group will assume certain liabilities. If no reliable evaluation of the amount can be made, no provisions are recognised, but information is provided in the appendix, where appropriate. The Group creates provisions for these obligations which cover: risks related to guarantees granted to funds and structured issues; operational risks; employee benefits, including retirement commitments; disputes; legal, tax (excluding income tax), regulatory and noncompliance risks. Employee benefits These are grouped into four categories in accordance with IAS 19 "Employee benefits": short-term benefits such as salaries, social security contributions, annual holidays, incentives, profit sharing and bonuses are those which are expected to be paid within 12 months following the financial year during which the services were rendered; long-term benefits (long-service awards, bonuses and compensation payable 12 months or more after the close of the financial year); severance pay; post-employment benefits, falling into one of two categories described below: defined benefit plans and defined contribution plans. Retirement plans - defined contribution plans Employers contribute to a variety of compulsory pension schemes. Plan assets are managed by independent organisations and the contributing companies have no legal or implied obligation to pay additional contributions if the funds do not have sufficient assets to cover all benefits corresponding to services rendered by the employees during the financial year and during prior years. Consequently, Amundi Group entities have no liabilities in this respect other than their contributions to be paid for the year ended, which are considered expenses for the period. Defined benefit plans In accordance with IAS 19, the commitments are assessed based on a set of actuarial, financial and demographic assumptions and using the Projected Unit Credit method. This method consists of allocating an expense corresponding to the rights vested over the period for each financial year of employment. The expense is calculated based on the future, discounted benefit. The calculations for expenses for future social benefits are made on the basis of assumptions for discount rates, employee turnover and changes in wages and social security contributions developed by Management. The discount rates are determined based on the average period of commitment, that is, the weighted average of the payment dates of future benefits. The underlying index used is the iBoxx AA Index. In accordance with IAS 19, Amundi allocates all actuarial differences recorded in gains and losses recognised through other comprehensive income (not-recyclable). Actuarial differences consist of adjustments related to experience (difference between estimated and actual experience) and the effect of changes made to the actuarial assumptions. The expected yield of plan assets is determined on the basis of the discount rates used to evaluate the defined benefits obligation. The difference between the expected yield and the actual yield of plan assets is recorded in gains and losses recognised through other comprehensive income (not-recyclable). Past service costs, generated on the modification or reduction of a plan, are recognised immediately in profit or loss when the modification or reduction of the plan occurs. The provision amount is equal to: the current value of the commitment for the defined benefits on the closing date, calculated using the actuarial method recommended by IAS 19; less, if appropriate, the fair value of assets allocated to hedging the commitments. They can be represented by an eligible insurance policy. In the event that the obligation is fully hedged by a policy which exactly covers, in both amount and time, all or part of the benefits payable by virtue of the plan, the fair value of the latter is considered to be that of the corresponding obligation (i.e. the amount of the corresponding actuarial debt). Amundi has taken out an "IFC" insurance policy (end-of-career allowance) with an insurance company in the Crédit Agricole group. A provision to cover the retirement benefits is included in balance sheet liabilities in the "Provisions" item for commitments which are not covered. Long-term benefits Long-term benefits are benefits which are paid to employees other than post-employment benefits, severance payments and equity-based compensation, but which are not due in full during the 12 months following the end of the financial year in which the corresponding services were rendered. They include, among other things, bonuses and other deferred compensation paid 12 months or more after the end of the financial year in which they were earned, but which are not indexed to shares. The valuation method is similar to that used by the Group for post-employment benefits in the defined benefit category. The long-term benefits that may be granted by Amundi consist mainly of: the award of bonuses whose payment will be deferred to future financial years subject to meeting certain performance conditions set in advance and continued employment at the time of payment; the end-of-career leave plan for certain employees. Non-compliance risk Amundi conducts a regulated activity. As such, its business is subject to regular monitoring and investigation by various regulators. These inspections may reveal certain irregularities and may, in some instances, result in fines or other penalties. The impact of this risk is recorded in the "Cost of Risk" section of the income statement. Revenue from Contracts with Clients (IFRS 15) Most of the Group's revenue comes from third-party asset management in collective or individual portfolios (dedicated funds or mandates). It is essentially based on the assets under management in managed funds. The net fees comprise net management fees which are equal to the gross management fees received after deduction of fees paid: the gross management fees compensate the portfolio management services. They are primarily calculated by reference to a percentage of the outstanding amounts managed; the fees paid are composed of: contractual retrocessions paid to distributors. These generally correspond to a percentage of the management fees, custodian and valuation agent fees, where these are paid by the asset management company, as well as a limited number of associated administrative costs such as the ETF listing fees. Net fees are also composed of: fees paid to Amundi for the guarantee given to guaranteed funds or structured EMTNs. Various costs connected to the formation and the life of structured products are added to these fees; transfer fees paid by the fund in respect of the execution of sales and purchases of securities on behalf of funds by the Amundi trading desk; other fees for lower amounts, such as: entry fees, compensation for consulting services, borrowing and lending securities fees, account maintenance fees for Employee Savings Plans. Performance fees are paid to the asset management company as provided by contract. They are calculated on the basis of a percentage of the positive difference between the observed performance of the fund and the benchmark index mentioned in the contract. Income and expenses for fees are recorded in profit or loss according to the nature of the services they represent. Their recognition on the income statement must reflect the rate at which control of the goods or services sold is transferred to the client: Net income from a transaction associated with a service provision is recognised under Fees upon transfer of control of the service provided to the client, if this can be reliably estimated. Said transfer may be made as the service is rendered (ongoing service) or on a given date (one-off service). Fees remunerating ongoing services (management fees, for example) are recorded in profit or loss according to the stage of completion of the service provided. Fees received or paid for one-off services are recorded, in full, in profit or loss when the service is provided. The fees payable or receivable contingent upon meeting a performance target are recognised only if all of the following conditions are met: the amount of fees and commissions can be estimated reliably; it is probable that the future economic benefits resulting from the services rendered will flow to the Company; the stage of completion of the service can be estimated in a reliable way and the costs incurred for the service and the costs to complete it can be estimated in a reliable way. These performance fees are, therefore, recognised in the majority of cases in profit or loss at the end of the calculation period. Share-based payments (IFRS 2) IFRS 2 "Share-based payments" requires valuation of the transactions remunerated by payment in stock and similar instruments in the profit or loss and balance sheet of the Company. The standard is applicable to transactions carried out for employees, and specifically: transactions whose payment is based on shares and paid in equity instruments; transactions whose payment is based on shares and paid in cash. Two plans in the Amundi Group are covered by IFRS 2: share-based payment plans initiated by the Amundi Group of the type where settlement is made by awarding equity instruments (allocating performance shares). Share awards are measured at fair value at the time of the award. They are recognised in expenses under "personnel expenses" against equity over the acquisition period of the rights. When the award takes place after the services have been delivered, Amundi carries out a valuation of the services provided by the beneficiaries. The expense is recognised over the period during which these services were provided; Amundi and Crédit Agricole S.A. share subscriptions are made available to employees as part of the Company Savings Plan. They are also covered by the provisions of IFRS 2. The shares are offered with a maximum discount of 30%. The plans have no vesting period, but include a five-year lock-up period. Employees are entitled to a benefit calculated as the difference between the fair value of the share acquired on the allocation date and the award value paid by the employee on the subscription date, multiplied by the number of shares subscribed. The expense for this share allocation plan settled by Amundi and Crédit Agricole S.A. is recognised under personnel expenses against an increase in "Consolidated reserves, Group share". Income tax In accordance with IAS 12, the income tax expense includes all income-related taxes, whether current or deferred. Current tax IAS 12 defines current tax liability as "the amount of income tax payable (recoverable) with respect to the taxable profit (tax loss) for a financial year". The taxable income is the profit (or loss) for a given financial year measured according to the rules set by the taxation authorities and based on which income tax must be paid (recovered). The applicable rates and rules used to determine the current tax liability are those in effect in each country in which the Group's companies are established. A tax consolidation group has been set up for French entities (since 1 January 2010), with Amundi S.A. as the head of the Group. The current tax liability includes all taxes on income, payable or recoverable, for which payment is not subordinated to the completion of future transactions, even if payment is spread over several financial years. The current tax liability must be recognised as a liability until it is paid. If the amount that has already been paid for the current year and previous financial years exceeds the amount due for these years, the surplus must be recognised under assets. When tax credits on revenues from securities portfolios and receivables are effectively used to pay corporation tax due for the financial year, they are recognised under the same heading as the income with which they are associated. The corresponding tax charge continues to be recognised under the "Income tax" heading in the income statement. Moreover, certain transactions carried out by the entity may have tax consequences that are not taken into account in measuring the current tax liability. IAS 12 defines differences between the carrying amount of an asset or liability and its tax base as temporary differences. Deferred taxes Certain transactions carried out by Amundi may generate income taxes payable or recoverable in future periods. IAS 12 defines differences between the carrying amount of an asset or liability and its tax base as temporary differences. The standard requires that deferred taxes be recognised in the following cases: A deferred tax liability must be recognised for all taxable temporary differences between the carrying amount of an asset or liability on the balance sheet and its tax base, unless the deferred tax liability arises from: initial recognition of goodwill; initial recognition of an asset or a liability in a transaction that is not a business combination and that does not affect either the accounting or the taxable profit (tax loss) on the transaction date. A deferred tax asset must be recognised for all deductible temporary differences between the carrying amount of an asset or liability on the balance sheet and its tax base, insofar as it is deemed likely that a future taxable profit will be available against which such deductible temporary differences can be allocated. A deferred tax asset must also be recognised for carrying forward unused tax losses and tax credits insofar as it is probable that the Group will have access to future taxable profits against which the unused tax losses and tax credits can be allocated. The tax rates applicable in each country are used as appropriate. Calculation of deferred taxes takes the tax rates of each country into account and should not be discounted in accordance with IAS 12. Taxable unrealised gains on securities (FCP - mutual funds in France) do not generate any taxable temporary differences between the carrying amount of the asset and the tax base. As a result, deferred tax is not recognised on these gains. In France, capital gains on the sale of equity investments, as defined by the French General Tax Code and coming under longterm taxation treatment, are exempt from corporation tax (except for a share of fees taxed at the normally applicable rate). Accordingly, unrealised gains recognised at the end of the financial year generate a temporary difference requiring the recognition of deferred tax on this share, in so far as Amundi considers the disposal of the securities likely. When the securities in question are classified as financial assets at fair value through other comprehensive income, unrealised gains and losses are recognised in equity. In parallel, the tax expense or actual tax saving pertaining to Amundi in respect of these unrealised capital gains or losses is reclassified as a deduction from equity. As part of IFRS 16 "Leasing contracts", a deferred tax liability is recognised on the right of use and a deferred tax asset on the lease liability for leasing contracts for which the Group is lessee. Deferred tax assets and liabilities offset each other if, and only if: Amundi has a legally enforceable right to offset current tax assets and liabilities; and the deferred tax assets and liabilities concern income tax assessed by the same tax authority: either for the same taxable entity; or for different taxable entities that intend either to settle current income tax assets and liabilities on a net basis, or to settle their tax assets and liabilities at the same time during each future financial year in which it is expected that substantial deferred tax assets or liabilities will be paid or recovered. Current and deferred tax is recognised in net income for the financial year, unless the tax arises from: either a transaction or event recognised through other comprehensive income, during the same year or during another financial year, in which case it is directly debited or credited to equity; or by a business combination. Tax risks Tax risks relating to income tax result in the recognition of a receivable or a current tax liability when it is deemed to be more likely than unlikely that the assets will be received or the liabilities paid. These risks are also taken into account when assessing current and deferred tax assets and liabilities. IFRIC 23 "Uncertainty over income tax treatments" applies as soon as an entity has identified one or more uncertainties over income tax treatments undertaken with regard to its taxes. It also provides details of their estimates: the analysis must be based on the risk of an identification made solely by the tax administration; the tax risk must be recognised as a liability if it is more likely than not that the tax authorities will challenge the treatment used, at an amount reflecting the Management's best estimate; in the event that the probability of redemption by the tax authorities is greater than 50%, a receivable must be recorded. Property, plant and equipment Amundi applies component accounting to all its property, plant and equipment. In accordance with the provisions of IAS 16, the depreciable base takes account of the potential residual value of fixed assets. Operating and investment buildings, as well as equipment, are recognised at acquisition cost less accumulated depreciation, amortisation and write-downs since they were commissioned. Depreciation Fixed assets are depreciated based on their estimated useful lives. The main periods used are: Fixtures and fittings 5-to-10-year straight-line IT equipment 3-year declining balance Office equipment 5-year straight-line Office furniture 10-year straight-line Technical facilities 10-year straight-line Buildings 20-year straight-line Repair and maintenance costs are recorded as expenses when incurred except in cases in which they contribute to increasing productivity or the useful life of the fixed asset. The information which Amundi has about the value of its amortisable fixed assets has led it to conclude that impairment tests would not result in any change in the values recorded in the balance sheet. Intangible assets Intangible assets include software, as well as the intangible assets resulting from the identification of contractual rights at the time of allocating the acquisition price of a business combination. Purchased software is recorded on the balance sheet at purchase cost less accumulated depreciation and impairment since the acquisition date. Proprietary software is recognised at production cost less accumulated depreciation, amortisation and write-downs since completion. Assets acquired from business combinations resulting from contractual rights (e.g. distribution agreements) are valued on the basis of corresponding future economic benefits or the potential of the expected services. Amortisation Intangible fixed assets are amortised as follows: for software: based on their estimated useful life; for assets acquired in business combinations resulting from contractual rights: the contract period or the estimated useful life. Currency transactions A distinction is made between cash and non-cash items, in accordance with IAS 21. On the closing date, foreign-currency denominated monetary assets and liabilities are converted into Amundi's functional currency at the closing price. The resulting currency translation adjustments are recognised in profit or loss. There are two exceptions to this rule: for debt instruments at fair value through other comprehensive income (recyclable), the translation adjustments calculated on an amortised cost are taken to profit or loss; the balance is recorded in equity; exchange adjustments on items designated as cash flow hedges or forming part of a net investment in a foreign entity are recognised in equity. Non-monetary items are treated differently depending on the nature of the items: items at historical cost are valued at the exchange rate on the transaction date; items at fair value are valued at the exchange rate on the reporting date. Exchange adjustments on non-monetary items are recognised: in profit-and-loss if the gain or loss on the non-monetary item is recorded in profit or loss; in equity, if the gain or loss on the non-monetary item is recorded in equity. Basic earnings per share In accordance with IAS 33: basic earnings per share are equal to net consolidated income divided by the weighted average number of shares in circulation during the financial year; diluted earnings per share are equal to net consolidated income divided by the weighted average number of shares in circulation during the financial year. These two components must be adjusted for the effect any potentially dilutive ordinary shares may have. Cost of risk The cost of risk mainly consists of the cost of credit risk including any changes in provisions for guaranteed funds (financial guarantees), provisions for litigation and other expenses related to operational risk. Leases The Amundi Group holds leasing contracts primarily as a lessee. Lease transactions are recognised in the balance sheet on the date of availability of the leased assets. The lessee accounts for an asset that is representative of the right to use the leased asset in the property, plant and equipment during the estimated term of the contract and a debt owed under an obligation to pay the rents in the various liabilities over the same term. The term of lease corresponds to the non-cancellable term of the leasing contract adjusted by the contract extension options that the lessee is reasonably likely to exercise and the termination option that the lessee is reasonably likely not to exercise. In France, the Group principle applicable to open-ended or automatically renewable contracts is to use the first exit option after five years. The term used for "3/6/9" commercial leases is generally nine years with an initial non-cancellable period of three years. When the lessee deems it reasonably certain that it will not exercise the exit option after three years, the Group principle will be applied to French commercial leases in most cases, on the leasing contract commencement date. This means that the term will be estimated at six years. The Group principle (first exit option after five years) may not be applied in some specific cases, such as for a lease where intermediate exit options have been waived (for example, through a rent reduction). In such cases, an initial lease term of nine years will apply (generally unless an automatic extension of up to three years is expected). The lease liability is recognised at an amount equal to the present value of the rent payments over the term of the contract. Rent payments include fixed rents, variable rents based on a rate or index, and payments that the lessee expects to make as residual value guarantees, a purchase option or as an early termination penalty. Variable rents that do not depend on an index or a rate and the non-deductible VAT on rents are excluded from the debt calculation and are recognised as general operating expenses. The discount rate applicable for calculating the right of use and the rental liability is, by default, the lessee's marginal debt ratio over the term of the contract on the date of signature of the contract when the implicit rate cannot easily be calculated. The marginal debt ratio takes account of the rental payment structure. The expense of the leasing contracts is partly comprised of interest and partly of capital amortisation. The right to use the asset is valued at the initial value of the lease liability, plus the initial direct costs, advance payments and refurbishment costs. It is amortised over the estimated term of the contract. The lease liability and the right of use may be adjusted in the event of an amendment to the leasing contract, a reassessment of the lease term or a rent review linked to the application of indices or rates. Deferred taxes are recognised on the basis of timing differences between the rights to use and the lessee's rental liabilities. In accordance with the exception set out in the standard, short-term leasing contracts (an initial term of less than 12 months) and leasing contracts where the value when new of the leased property is low are not recognised in the balance sheet; the corresponding leasing expenses are recorded on a straight-line basis in the income statement in general operating expenses. In accordance with the provisions set out in the standard, the Group does not apply IFRS 16 to leasing contracts for intangible assets. Non-current assets held for sale and discontinued operations A non-current asset (or a group held for sale) is classified as held-for-sale if, at close, its carrying amount will be recovered principally through a sale transaction rather than through ongoing use. For this to be the case, the asset (or group held for sale) must be available for immediate sale in i...

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