Property, plant and equipment (“PP&E”) is mainly composed of filling lines that are deployed at customers’ sites under contracts accounted for as operating leases (see also note 5.5.2) and the Group's plant and production equipment. PP&E also includes work in progress, which relates to construction of filling machines and to filling lines under installation at customers’ sites as well as to construction of various types of production equipment used by the Group in its manufacturing and assembly facilities.

Impact of new IFRS standards

Upon the adoption of IFRS 16 Leases on 1 January 2019, assets with a carrying amount of €27.6 million that are leased by the Group under contracts that previously were accounted for as finance leases were reclassified from PP&E to the new asset category right-of-use assets. See further note 5.2. There was no impact on the accounting for filling lines deployed at customers’ sites by the Group (as a lessor).

Composition of PP&E

(in € million)

 

Land

 

Buildings

 

Plant and equipment

 

Work in progress

 

Filling
lines (1)

 

Total

(1)

The filling lines qualify to be accounted for as operating lease contracts. The Group does not lease out any other assets.

Cost

 

39.3

 

184.5

 

559.4

 

170.0

 

680.1

 

1,633.3

Accumulated depreciation and impairment losses

 

 

(36.3)

 

(309.2)

 

 

(219.0)

 

(564.5)

Carrying amount as of 31 December 2018

 

39.3

 

148.2

 

250.2

 

170.0

 

461.1

 

1,068.8

Cost

 

40.1

 

181.6

 

620.7

 

156.0

 

854.2

 

1,852.6

Accumulated depreciation and impairment losses

 

 

(47.0)

 

(399.6)

 

 

(332.9)

 

(779.5)

Carrying amount as of 31 December 2019

 

40.1

 

134.6

 

221.1

 

156.0

 

521.3

 

1,073.1

Carrying amount as of 1 January 2018

 

39.7

 

142.0

 

274.0

 

209.2

 

350.5

 

1,015.4

Additions

 

 

14.9

 

3.3

 

205.6

 

7.8

 

231.6

Disposals

 

 

(0.1)

 

(0.6)

 

(1.8)

 

(0.5)

 

(3.0)

Depreciation

 

 

(9.9)

 

(83.8)

 

 

(78.6)

 

(172.3)

Impairment losses

 

 

 

 

 

(0.6)

 

(0.6)

Transfers

 

 

3.2

 

61.6

 

(242.9)

 

178.1

 

Effect of movements in exchange rates

 

(0.4)

 

(1.9)

 

(4.3)

 

(0.1)

 

4.4

 

(2.3)

Carrying amount as of 31 December 2018

 

39.3

 

148.2

 

250.2

 

170.0

 

461.1

 

1,068.8

Carrying amount as of 1 January 2019

 

39.3

 

148.2

 

250.2

 

170.0

 

461.1

 

1,068.8

Additions

 

 

0.5

 

3.5

 

167.7

 

6.5

 

178.2

Additions through business combination

 

 

 

6.4

 

2.8

 

4.7

 

13.9

Reclassification to right-of-use assets

 

 

(14.3)

 

(13.3)

 

 

 

(27.6)

Disposals

 

 

 

(4.3)

 

 

(5.4)

 

(9.7)

Depreciation

 

 

(9.2)

 

(75.5)

 

 

(92.5)

 

(177.2)

Impairment losses

 

 

 

 

 

(2.8)

 

(2.8)

Transfers

 

 

7.6

 

49.3

 

(186.6)

 

129.7

 

Effect of movements in exchange rates

 

0.8

 

1.8

 

4.8

 

2.1

 

20.0

 

29.5

Carrying amount as of 31 December 2019

 

40.1

 

134.6

 

221.1

 

156.0

 

521.3

 

1,073.1

Notes 7 and 11 include further information about the Group’s capital expenditure with regard to its production equipment and filling lines.

Depreciation of PP&E

Depreciation of PP&E is recognised in the following components in the statement of profit or loss and other comprehensive income.

(In € million)

 

Year ended
31 Dec. 2019

 

Year ended
31 Dec. 2018

Cost of sales

 

170.9

 

167.0

Selling, marketing and distribution expenses

 

1.2

 

1.2

General and administrative expenses

 

5.1

 

4.1

Total depreciation

 

177.2

 

172.3

Capital expenditure commitments

As of 31 December 2019, the Group had entered into contracts to incur capital expenditure of €99.7 million (€42.1 million as of 31 December 2018) for the acquisition of PP&E. The commitments relate to filling machine assembly, certain downstream equipment and equipment for the Group’s sleeves manufacturing facilities. The increase between the two periods is mainly due to upcoming investments in relation to the second sleeves manufacturing facility in China. The facility is expected to be ready in early 2021 and will then be leased by the Group (see also note 13). Out of the total amount of committed capital expenditure, €9.3 million of commitments as of 31 December 2019 concern contracts with a related party (Erwepa – see note 29).

Accounting policy, significant judgements and estimates

Items of PP&E are measured at cost less accumulated depreciation and accumulated impairment losses. Gains and losses on disposals of items of PP&E are recognised in profit or loss as part of other income or expenses.

The cost of an acquired or self-constructed item of PP&E includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. The cost of the Group’s filling lines also includes the estimated cost of dismantling to the extent such an amount is recognised as a provision. Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group and the cost can be measured reliably. The costs of the day-to-day servicing of PP&E are recognised in profit or loss as incurred.

Items of PP&E are depreciated on a straight-line basis over their estimated useful lives, with depreciation generally recognised in profit or loss. Land is not depreciated. The estimated useful lives for the current and comparative periods are as follows:

Buildings:

15 to 40 years

Plant and equipment:
Production-related equipment and machinery:
Furniture and fixtures:


4 to 12 years
3 to 8 years

Filling lines (leased assets, SIG as the lessor)

10 years

The Group as a lessor – filling lines

The Group mainly deploys filling lines under contracts that qualify to be accounted for as operating leases (see note 5.5.2 for additional details). As further described in this accounting policy section, the filling lines are measured at cost and depreciated over their estimated useful life of ten years and tested for impairment when there is an impairment indicator.

Impairment of PP&E

Items of PP&E 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.

A change in the Group’s intended use of certain assets, such as a decision to rationalise manufacturing locations, may trigger a future impairment. Value in use calculations require management to estimate the future cash flows expected to arise from an individual asset or cash generating unit and to determine a suitable discount rate to calculate present value.