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13 Right-of-use assets

The Group generally purchases its production-related buildings and equipment (see note 12). However, it also enters into lease contracts. Right-of-use assets relate to lease contracts that the Group has entered into as a lessee. The contracts mainly cover leases of assets such as office buildings, production-related buildings and equipment, warehouses and cars.

Composition of right-of-use assets

(In € million)

 

Buildings

 

Plant and equipment

 

Cars

 

Total

Cost

 

29.9

 

26.4

 

4.9

 

61.2

Accumulated depreciation and impairment losses

 

(5.8)

 

(4.8)

 

(1.6)

 

(12.2)

Carrying amount as of 31 December 2019

 

24.1

 

21.6

 

3.3

 

49.0

Cost

 

113.1

 

49.4

 

7.5

 

170.0

Accumulated depreciation and impairment losses

 

(12.6)

 

(12.7)

 

(3.6)

 

(28.9)

Carrying amount as of 31 December 2020

 

100.5

 

36.7

 

3.9

 

141.1

Carrying amount as of 1 January 2019

 

 

 

 

Initial effect of adopting IFRS 16

 

12.0

 

1.1

 

2.8

 

15.9

Reclassification from PP&E upon adoption of IFRS 16

 

14.3

 

13.3

 

 

27.6

Additions

 

2.0

 

10.1

 

2.3

 

14.4

Additions through business combination

 

0.9

 

0.5

 

0.1

 

1.5

Depreciation

 

(5.3)

 

(3.1)

 

(1.6)

 

(10.0)

Other adjustments

 

(0.2)

 

(0.5)

 

(0.3)

 

(1.0)

Effect of movements in exchange rates

 

0.4

 

0.2

 

 

0.6

Carrying amount as of 31 December 2019

 

24.1

 

21.6

 

3.3

 

49.0

Carrying amount as of 1 January 2020

 

24.1

 

21.6

 

3.3

 

49.0

Additions

 

86.1

 

23.8

 

3.0

 

112.9

Depreciation

 

(7.3)

 

(8.1)

 

(2.1)

 

(17.5)

Other adjustments

 

(0.2)

 

(0.2)

 

(0.2)

 

(0.6)

Effect of movements in exchange rates

 

(2.2)

 

(0.4)

 

(0.1)

 

(2.7)

Carrying amount as of 31 December 2020

 

100.5

 

36.7

 

3.9

 

141.1

The Group’s most significant leases are the 20-year lease of its second sleeves manufacturing facility in China that commenced in December 2020, and the 20-year lease of the SIG Tech Centre in China that commenced in 2018. Together, these two leases make up the larger part of the carrying amount of leased buildings. Approximately 70% of the increase in buildings in the year ended 31 December 2020 is related to the lease of the new sleeves manufacturing facility (see also note 11). The Group has entered into an increased number of leases of production equipment for closures during the current year compared to the prior year. The larger part of the plant and equipment category relates to leases of production equipment for closures with a lease term of four to five years. The lease term of other assets is most commonly in the range of three to five years.

Depreciation of right-of-use assets

Depreciation of right-of-use assets is recognised in the following components in the statement of profit or loss and other comprehensive income.

(In € million)

 

Year ended
31 Dec. 2020

 

Year ended
31 Dec. 2019

Cost of sales

 

11.8

 

5.8

Selling, marketing and distribution expenses

 

3.0

 

1.8

General and administrative expenses

 

2.7

 

2.4

Total depreciation

 

17.5

 

10.0

Lease commitments

The Group has entered into lease contracts that have not yet commenced. The present value of estimated future lease payments under these lease contracts approximates €35 million as of 31 December 2020 (€74 million as of 31 December 2019). These contracts mainly concern production equipment for closures, with the leases expected to commence within the next twelve to fifteen months. As of 31 December 2019, the lease commitments mainly related to the 20-year lease of the Group’s second sleeves manufacturing facility in China but also to leases of production equipment for closures.

Accounting policy

At the commencement date of lease, the Group recognises a lease liability and a related right-of-use asset. The accounting for lease liabilities is described in note 22.

The right-of-use asset represents the Group’s right to use the leased asset. A right-of-use asset is initially measured at cost, which in many cases will equal the amount recognised as a lease liability. However, adjustments are required for any lease payments made at or before the commencement date of the lease and any initial direct costs incurred. The cost also includes the estimated cost to dismantle and remove the leased asset, to restore it to the condition required under the lease contract or to restore the site on which it is located, to the extent such an amount is recognised as a provision.

Subsequent to initial recognition, a right-of-use asset is measured at cost less accumulated depreciation and impairment losses. A right-of-use asset is subsequently also adjusted for certain remeasurements of the related lease liability.

Right-of-use assets are depreciated on a straight-line basis from the commencement date of the lease over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term.

As for PP&E, right-of-use assets are reviewed regularly and at least annually to identify whether there is an indication of impairment. If an impairment indicator exists, the asset’s recoverable amount is estimated. See note 5.5.3 for further details about impairment testing of non-financial assets.