Accounting policy

General

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards incidental to ownership. All other leases are classified as operating leases.

Agreements not in the legal form of a lease contract are analyzed in accordance with IFRIC 4 Determining whether an Arrangement contains a Lease to determine whether or not they contain a leasing contract to be accounted for in accordance with IAS 17 Leases.

Finance leases – lessee

On commencement of the lease, assets held under finance leases are initially recognized as assets of the Group at their fair value, or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the lease.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to produce a constant periodic rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Group’s general policy on borrowing costs (see above). Contingent rentals arising under finance leases are recognized as expenses in the periods in which they are incurred.

Operating leases – lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Finance leases

In € million

 

2018

 

2017

Net carrying amount of finance leases

 

 

 

 

Land and buildings

 

2

 

2

Fixtures and equipment

 

32

 

33

Total

 

34

 

35

Assets leased under a finance lease are items of property, plant, and equipment.

Finance lease obligations

In € million

 

Minimum lease payments

 

2018

 

2017

Amounts payable under finance leases:

 

 

 

 

Within one year

 

6

 

9

In years two to five inclusive

 

23

 

28

Beyond five years

 

61

 

72

Less future finance charges

 

(54)

 

(64)

Present value of minimum lease payments of finance leases

 

36

 

46

Amount due for settlement within 12 months

 

6

 

9

Amount due for settlement after 12 months

 

84

 

101

The future finance charges are related to a 20-year contract on a cogeneration asset with high interest rate.

Operating lease obligations

In € million

 

2018

 

2017

Total minimum lease payments under operating leases recognized in the consolidated income statement

 

101

 

94

In € million

 

2018

 

2017

Within one year

 

95

 

84

In years two to five inclusive

 

226

 

226

Beyond five years

 

171

 

141

Total of future minimum lease payments under non-cancellable operating leases (undiscounted)

 

491

 

450

Operating leases are related primarily to buildings and transportation equipment (mainly railcars). The lease commitments reported at the end of each year exclude those from discontinued operations.

In preparation for IFRS 16 implementation, the future minimum lease payments have been reviewed and:

  • exclude non-lease components;
  • include amounts due related to extension options when it is reasonably certain to exercise the options. This pertains mainly to buildings; and
  • exclude future minimum lease payments for assets with a commencement date in a subsequent year (€ 0 million, and € 67 million at the end of 2018, and 2017, respectively).