Annual Report 2023

10. Leases

Accounting policies

The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases are recognized as a right-of-use and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. If at the end of the lease contract the asset is transferred to the Group, or if the lease liabilities reflect the exercise of the purchase option, depreciation is calculated in accordance with the estimated useful life of the asset.

Assets and liabilities arising from a lease are initially measured on a present value basis. Whenever available the Group has elected to separate lease and non-lease components included in lease payments for all leases.

At the commencement date lease liabilities measurement is mainly composed by the present value of lease payments to be made over the lease term, which includes fixed payments less any lease incentives receivable and variable lease payments that depend on an index or rate.

In calculating the present value of lease payments, the Group used its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability and by reducing the carrying amount to reflect the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term or a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments). The weighted-average rate applied is 6.35% (in a range between 2.39% and 14.84%) based on the features of the agreement (underlying asset and guarantees, currency and lease term). The weighted-average rate used in 2022 was 5.92% (in a range between 2.39% and 13.88%).

Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of initial lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.

The Group applies the short-term lease recognition exemption to its short-term leases (lease term of 12 months or less) and it also applies the lease of low-value assets recognition exemption to leases considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

The Group’s leases relate mostly to store and warehouse rent contracts, with initial terms between 5 and 20 years, but may have extension options. The lease agreements do not impose any covenants. Right-of-use assets are subject to impairment tests, as referred in note 2.5.1..

Considering the accounting impacts resulting from the application of IFRS 16 – Leases, for a lessee, with the recognition of an asset under right of use not typified in the tax law and the recording of a lease liability that only has tax acceptance by the payments of rents, the management recognised the respective deferred tax asset (on the lease liability) and deferred tax liability (on the asset under right of use), on the date of initial and subsequent recognition of lease contracts. In the event of a change in the tax law by the Tax Authorities, the recognised deferred taxes may have to be reviewed/amended.

10.1. Right-of-use assets

2023

 

Land, buildings and other constructions

 

Equipment and others

 

Total

Cost

 

 

 

 

 

 

Opening balance

 

3,441

 

199

 

3,640

Foreign exchange differences

 

308

 

10

 

318

Increases

 

245

 

46

 

291

Contracts update

 

560

 

10

 

570

Transfers and reclassifications

 

 

(6)

 

(6)

Contracts cancellation

 

(52)

 

(16)

 

(68)

Closing balance

 

4,501

 

244

 

4,745

Depreciation and impairment losses

 

 

 

 

 

 

Opening balance

 

1,058

 

55

 

1,113

Foreign exchange differences

 

90

 

4

 

94

Increases

 

358

 

33

 

391

Transfers and reclassifications

 

 

(5)

 

(5)

Contracts cancellation

 

(34)

 

(11)

 

(46)

Closing balance

 

1,472

 

75

 

1,547

Net value

 

 

 

 

 

 

As at 1 January 2023

 

2,382

 

144

 

2,526

As at 31 December 2023

 

3,029

 

169

 

3,198

2022

 

Land, buildings and other constructions

 

Equipment and others

 

Total

Cost

 

 

 

 

 

 

Opening balance

 

2,984

 

109

 

3,092

Foreign exchange differences

 

(83)

 

(2)

 

(85)

Increases

 

233

 

101

 

333

Contracts update

 

375

 

6

 

381

Transfers and reclassifications

 

 

(1)

 

(1)

Contracts cancellation

 

(68)

 

(14)

 

(82)

Closing balance

 

3,441

 

199

 

3,640

Depreciation and impairment losses

 

 

 

 

 

 

Opening balance

 

800

 

44

 

844

Foreign exchange differences

 

(18)

 

(1)

 

(19)

Increases

 

311

 

25

 

336

Transfers and reclassifications

 

 

(1)

 

(1)

Contracts cancellation

 

(34)

 

(12)

 

(47)

Closing balance

 

1,058

 

55

 

1,113

Net value

 

 

 

 

 

 

As at 1 January 2022

 

2,184

 

65

 

2,248

As at 31 December 2022

 

2,382

 

144

 

2,526

10.2. Lease liabilities

2023

 

Current

 

Non-current

 

Total

Opening balance

 

430

 

2,248

 

2,678

Increases (new contracts)

 

31

 

260

 

291

Payments

 

(346)

 

(1)

 

(348)

Transfers

 

292

 

(292)

 

Contracts change/cancel

 

91

 

455

 

546

Foreign exchange difference

 

33

 

182

 

215

Closing balance

 

530

 

2,853

 

3,382

2022

 

Current

 

Non-current

 

Total

Opening balance

 

394

 

1,993

 

2,387

Increases (new contracts)

 

52

 

281

 

333

Payments

 

(321)

 

(0)

 

(321)

Transfers

 

275

 

(275)

 

Contracts change/cancel

 

39

 

305

 

344

Foreign exchange difference

 

(9)

 

(56)

 

(65)

Closing balance

 

430

 

2,248

 

2,678

10.3. Expenses recognised in the income statement

 

 

2023

 

2022

Depreciation charge of right-of-use assets

 

 

 

 

Buildings and other constructions

 

(358)

 

(311)

Equipment and others

 

(33)

 

(25)

Subtotal

 

(391)

 

(336)

 

 

 

 

 

Interest expense with lease liabilities

 

(180)

 

(140)

Gains/(losses) with contract cancellations

 

1

 

2

Net foreign exchange on lease liabilities

 

26

 

(5)

Subtotal

 

(153)

 

(143)

 

 

 

 

 

Rents (note 4)

 

 

 

 

Expenses with short term leases

 

(3)

 

(2)

Expenses with leases of low-value assets

 

(7)

 

(6)

Expenses with variable lease payments not included in lease liabilities

 

(3)

 

(2)

Expenses with non-lease components

 

(25)

 

(20)

Income from subleasing

 

14

 

11

Subtotal

 

(25)

 

(19)

 

 

 

 

 

Total expenses of the year related with lease

 

(568)

 

(498)

In 2023 the total cash outflow for leases was €552 million (€480 million in 2022).

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