2.5 Segment Reporting The operating segments are identified on the basis of internal reports that are regularly reviewed by the Executive Committee, the members of the Executive Committee being the chief operating decision makers, in order to allocate resources to the segments and to assess their performance. The internal financial reporting is consistently prepared along the lines of the two operating divisions: Fragrance & Beauty and Taste & Wellbeing. The business units of each division, respectively Fine Fragrances, Consumer Products, Fragrance Ingredients and Active Beauty for the Fragrance & Beauty Division and Beverages, Dairy, Savoury, Sweet Goods and Natural Ingredients for the Taste & Wellbeing Division, are not considered as separately reportable operating segments as decision making about the allocation of resources and the assessment of performance are not made at this level. Inter-segment transfers or transactions are set on an arm’s length basis. Information about geographical areas is determined based on the Group’s operations; Switzerland, Europe, Africa and Middle East, North America, Latin America and Asia Pacific. Revenues from external customers are shown by destination and by segment. 2.6 Revenue from Contracts with Customers The Group manufactures and sells manufactured fragrance, beauty, taste and wellbeing products, specialty ingredients and molecules of fragrance and taste to the agreed upon specifications and may contain additional performance obligations for certain clients such as the assignment of specific application technologies, joint market research and particular stock conditions. Most of these additional performance obligations are not distinct because they are highly dependent on the delivery of manufactured products and molecules. Sales are recognised when control of the goods has transferred, being when the goods are delivered to the customer, the customer has full discretion over the channel and price to sell the goods, and there is no unfulfilled obligation that could affect the customer’s acceptance of the goods. Delivery occurs when the customer has accepted the goods in accordance with the sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied. The goods are often sold with volume discounts based on aggregate sales over a 12 months period. Revenue from these sales is recognised based on the price specified in the contract, net of the estimated volume discounts provided that it is highly probable that a significant reversal will not occur. No element of financing is deemed present as the sales are made with credit terms that are consistent with market practice. A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. 2.7 Research and Product Development The Group is active in research and in formulas, technologies and product developments. In addition to its internal scientific efforts, the Group collaborates with outside partners. Expenditure on research activities is recognised as an expense in the period in which it is incurred. Internal developments or developments obtained through agreements on formula, technology and product costs are capitalised as intangible assets when there is an identifiable asset that will generate probable economic benefits and when the cost can be measured reliably. When the conditions for recognition of an intangible asset are not met, development expenditure is recognised in the income statement in the period in which it is incurred. 2.8 Employee Benefit Costs Wages, salaries, social security contributions, annual leave and paid sick leave, bonuses and non-monetary benefits are expensed in the year in which the associated services are rendered by the Group’s employees. 2.8.1 Pension obligations A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, principally dependent on an employee’s years of service and remuneration at retirement. Plans are usually funded by payments from the Group and employees to financially independent trusts. The liability recognised in the statement of financial position is the aggregate of the present value of the defined benefit obligation at the statement of financial position date less the fair value of plan assets. Where a plan is unfunded, only a liability representing the present value of the defined benefit obligation is recognised in the statement of financial position. The present value of the defined benefit obligation is calculated by independent actuaries using the projected unit credit method at interim and annual publication. This reflects the discounted expected future payment required to settle 49 Givaudan — 2021 Governance, Compensation and Financial Report Governance Report Compensation Report Consolidated Financial Report Statutory Financial Report Appendix Notes to the consolidated financial statements