5.1 Application of accounting policies

The accounting policies applied by the Group in the consolidated financial statements for the year ended 31 December 2019 are, except as noted below and in note 5.2, consistent with those applied in the consolidated financial statements for the year ended 31 December 2018.

The Group has in 2019 introduced share-based payment plans for certain members of management. These plans are accounted for under IFRS 2 Share-based Payment. The members of the Board of Directors have since January 2019 been partly compensated in the form of SIG shares. See note 31 for further information. The Group is settling its obligations under the share-based payment plans and arrangements via purchases of own shares. These shares are accounted for as treasury shares under IAS 32 Financial Instruments: Presentation. See note 24 for further information.

5.2 Impact of new or amended standards and interpretations

A number of new or amended standards and interpretations were effective for annual periods beginning on 1 January 2019. The applicable standards and interpretations had no, or no material, impact on the consolidated financial statements. However, IFRS 16 Leases is the most relevant new standard for the Group.

IFRS 16 Leases

IFRS 16 Leases replaces the current guidance under IFRS on leases (including IAS 17 Leases) and contains new requirements in relation to the accounting for leases by lessees.

The Group adopted IFRS 16 on 1 January 2019, applying the standard’s modified retrospective approach. Comparative information has therefore not been restated. The Group adopted IFRS 16 only to contracts that were previously identified as leases.

Assets leased by the Group are under IFRS 16 recognised on the statement of financial position as a right-of-use asset with a corresponding liability, representing the present value of the future lease payments. However, leases of low-value assets and short-term leases continue to be accounted for off-balance sheet as allowed by the standard’s practical expedients. Leases with a remaining contract period of 12 months or less on 1 January 2019 have also been accounted for off-balance sheet. Under IAS 17, assets leased by the Group were classified as finance leases if the terms of the lease contract transferred substantially all the risks and rewards of ownership to the Group. All other leases were classified as operating leases and accounted for off-balance sheet.

The Group is not materially impacted by IFRS 16. The Group recognised lease liabilities as of 1 January 2019 of €15.9 million relating to lease contracts that previously were accounted for as operating leases. The same amount has been recognised as right-of-use assets. No adjustment of the right-of-use assets was required for any onerous lease contracts. The Group also chose to exclude initial direct costs from the measurement of the right-of-use assets upon the adoption of IFRS 16. As a consequence, there was no impact from the adoption of IFRS 16 on the Group’s opening retained earnings as of 1 January 2019.

For leases that had been classified as finance leases under IAS 17 (including leases under sale and leaseback transactions resulting in finance leases), the carrying amounts of lease liabilities and right-of-use assets as of 1 January 2019 equalled the carrying amounts of finance lease liabilities and related assets immediately before this date. Assets with a carrying amount of €27.6 million were reclassified from property, plant and equipment to right-of-use assets. The Group’s finance lease liabilities amounted to €26.5 million as of 31 December 2018.

The table below provides an overview of the impact on the Group’s financial position of the transition to IFRS 16.

(In € million)

 

1 January 2019

Operating lease commitments disclosed as of 31 December 2018

 

20.2

IFRS 16 recognition exemptions:

 

 

Leases of low-value assets

 

(1.1)

Short-term leases (including leases with a remaining contract period of 12 months or less as of 1 January 2019)

 

(2.2)

Impact of discounting

 

(1.0)

Lease liabilities as of 1 January 2019 for contracts previously accounted for as operating leases, discounted using the incremental borrowing rate as of 1 January 2019

 

15.9

Finance lease liabilities as of 31 December 2018

 

26.5

Total lease liabilities as of 1 January 2019

 

42.4

Right-of-use assets as of 1 January 2019 relating to contracts previously accounted for as operating leases

 

15.9

Assets as of 31 December 2018 relating to contracts previously accounted for as finance leases

 

27.6

Total right-of-use assets as of 1 January 2019

 

43.5

When measuring the lease liabilities as of 1 January 2019 for contracts that were previously accounted for as operating leases, the weighted-average discount rate applied was 2.51%.

The right-of-use assets are presented separately on the face of the statement of financial position, while the lease liabilities are included in loans and borrowings. Further details about the accounting for these items are included in notes 13 and 22.

With the exception of certain variable lease payments and lease payments for leases of low-value assets and short-term leases, the larger part of the Group’s total lease expense for lease contracts that previously were accounted for as operating leases will under IFRS 16 be presented as depreciation of right-of-use assets and interest expense on the lease liabilities rather than as part of operating expenses as they had been under IAS 17. The Group recognised €6.1 million of depreciation charges and €0.3 million of interest expense in the year ended 31 December 2019 relating to lease contracts that were previously accounted for off-balance sheet. The expense relating to lease contracts that are accounted for off-balance sheet in the year ended 31 December 2019 totals €3.7 million.

Lease payments under operating lease contracts had been included in cash flows from operating activities under IAS 17. Variable lease payments that are not included in the measurement of the lease liability, lease payments for leases of low-value assets and short-term leases as well as payments for the interest portion of the lease liability are also included in cash flows from operating activities under IFRS 16. Payments for the principal portion of the lease liability are presented as part of cash flows from financing activities. Payments of €6.1 million for the year ended 31 December 2019 presented as part of cash flows from financing activities relate to lease contracts for which such payments were previously included in cash flows from operating activities.

The Group is as a lessee also impacted by new disclosure requirements under IFRS 16.

The accounting for lease contracts by lessors remains substantially unchanged under IFRS 16. There is no change in the accounting for the Group’s filling lines deployed with customers under contracts accounted for as operating leases.

5.3 Adoption of standards and interpretations in 2020 and beyond

A number of new or amended standards and interpretations are effective for annual periods beginning on 1 January 2020 or later and have not been applied in preparing these consolidated financial statements. The Group does not plan to adopt these standards and interpretations before their effective dates. Many of them are not applicable to the Group or are expected to have no, or no material, impact on the consolidated financial statements.

5.4 Critical accounting judgements, estimates and assumptions

In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses and disclosure of contingent assets and liabilities. The estimates and associated assumptions are based on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from estimates and assumptions made. The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both the current and future periods.

Management believes that the following accounting policies involve the most significant judgements, estimates and assumptions:

  • Liabilities for various customer incentive programmes – see notes 6 and 18.
  • Impairment testing and recognition of impairment losses – see notes 12 and 14.
  • Business combinations and fair value assessments – see note 27.
  • Measurement of obligations under defined benefit plans – see note 30.
  • Determination of income tax liabilities – see note 32.
  • Realisation of deferred tax assets – see note 32.

5.5 Accounting policies and other topics relating to the consolidated financial statements as a whole

5.5.1 Foreign currency

Items included in the financial statements of individual Group entities are recognised in their respective functional currency, which is the currency of the primary economic environment in which each Group entity operates.

Foreign currency transactions

Foreign currency transactions are translated into the respective functional currency of the Group entity at the exchange rates at the dates of the transactions. Monetary assets and liabilities in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary assets and liabilities in foreign currencies that are measured based on historical cost are translated at the exchange rates at the dates of the transactions. Foreign currency exchange gains or losses are generally recognised in profit or loss.

Foreign operations

Assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisitions, are translated into Euro at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into Euro at average rates for the reported periods, which approximate the exchange rates at the dates of the transactions. This also applies to the statement of cash flows and all movements in assets and liabilities as well as any items of other comprehensive income. The foreign currency exchange gains and losses arising on the translation of the net assets of foreign operations are recognised in other comprehensive income, in the translation reserve.

When a foreign operation is disposed of or liquidated, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal (or liquidation). The Group does not apply hedge accounting to the foreign currency exchange differences arising between the functional currency of the foreign operation and the Euro.

Significant exchange rates

The following significant exchange rates against the Euro applied during the periods presented:

 

 

Average rate for the year

 

Spot rate as of

 

 

31 Dec. 2019

 

31 Dec. 2018

 

31 Dec. 2019

 

31 Dec. 2018

Australian Dollar (AUD)

 

1.61017

 

1.57935

 

1.59949

 

1.62200

Brazilian Real (BRL)

 

4.40968

 

4.29386

 

4.51570

 

4.44400

Chinese Renminbi (CNY)

 

7.73094

 

7.80368

 

7.82050

 

7.87510

Swiss Franc (CHF)

 

1.11282

 

1.15485

 

1.08540

 

1.12690

Mexican Peso (MXN)

 

21.56039

 

22.70877

 

21.22019

 

22.49212

New Zealand Dollar (NZD)

 

1.69855

 

1.70513

 

1.66531

 

1.70559

Thai Baht (THB)

 

34.75217

 

38.16260

 

33.41502

 

37.05202

U.S. Dollar ($ or USD)

 

1.11967

 

1.18082

 

1.12340

 

1.14500

5.5.2 Lease accounting

The Group as lessor

The Group deploys filling lines at its customers’ sites under both lease and sale contracts. These contracts generally contain certain terms showing that the Group retains control of the filling line and does not transfer the significant risks and rewards of ownership to the customer. As a consequence of these contractual terms, the majority of the Group’s filling line contracts qualify to be accounted for as operating leases in accordance with IFRS 16 Leases. See further notes 6, 12 and 20. Sale contracts that do not contain such terms are accounted for in accordance with IFRS 15 Revenue from Contracts with Customers.

The Group’s lease contracts do not include unconditional rights for customers to extend the lease or to purchase the filling line at the end of the stated lease period. Due to the Group’s long-term relationships with its customers and changing customer needs, contracts could be modified or terminated at any time. Customers may for example want to change to a different filling machine model. Filling lines taken back from customers are generally overhauled and redeployed with other existing or new customers.

The Group as lessee

The Group leases a few buildings as well as facility and production equipment that in the past qualified to be accounted for as finance leases (including sale and leaseback transactions resulting in finance leases). It also leases assets including offices, some production-related buildings and equipment, warehouses and cars that in the past qualified to be accounted for as operating leases. Since the adoption of IFRS 16 Leases, the majority of the leases are accounted for on-balance sheet (see further note 5.2).

Under IAS 17 (until 31 December 2018)

Leases under which the Group is the lessee were classified as finance leases whenever the terms of the lease contract transferred substantially all the risks and rewards of ownership to the Group. All other leases were classified as operating leases. The Group’s sale and leaseback transactions qualified to be accounted for as finance leases.

Under IFRS 16 (from 1 January 2019)

The majority of the Group’s leased assets are recognised as right-of-use assets with corresponding lease liabilities. See notes 13 and 22 for further details about the accounting for right-of-use assets and lease liabilities.

Leases of low-value assets and short-term leases (leases with a lease term of 12 months or less) are accounted for off-balance sheet. The lease payments are recognised as an expense on a straight-line basis over the lease term. Variable lease payments that are not included in the measurement of lease liabilities are also accounted for off-balance sheet and are recognised as expense when incurred. The Group’s off-balance sheet leases have an insignificant impact on the Group’s result.

The accounting for sale and leaseback transactions depends on whether the initial transfer of the Group’s underlying asset to the buyer-lessor is a sale. If the transfer of the asset is not a sale (i.e. control of the asset is retained), the Group accounts for the transaction as a financing transaction. The asset is kept on the statement of financial position (as part of property, plant and equipment) and a financial liability is recognised equal to the proceeds received from the buyer-lessor. The financial liability is decreased by the payments made less the portion considered interest expense. If the transfer of the asset is a sale (i.e. control of the asset is transferred), the Group derecognises the underlying asset and applies lease accounting to the lease back. The right-of-use asset is measured at the retained portion of the previous carrying amount of the asset. Such a transfer may result in a gain or loss.

5.5.3 Impairment of non-financial assets

The carrying amounts of the Group’s property, plant and equipment, right-of-use assets, intangible assets with finite useful lives and investments in joint ventures 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. Goodwill and intangible assets with indefinite useful lives are tested for impairment on an annual basis and whenever there is an indication that they may be impaired.

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units.

The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs of disposal. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit.

An impairment loss is recognised if the carrying amount of an asset or cash generating unit exceeds its recoverable amount. An impairment loss is allocated to first reduce the carrying amount of any goodwill allocated to the cash generating unit, and then to reduce the carrying amounts of the other assets in the cash generating unit on a pro rata basis. Impairment losses are recognised in profit or loss.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Further details on impairment testing are provided in the respective notes on property, plant and equipment, right-of-use assets and intangible assets (see notes 12, 13 and 14).

5.5.4 Contingent assets

Contingent assets are possible assets arising from a past event to be confirmed by future events not wholly within the control of the Group. Contingent assets are not recognised in the statement of financial position but are separately disclosed.