30. Impact of first time application of IFRS16: Leases
The Group’s approach to the application of IFRS 16 Leases with effect from 1 January 2019 is set out at note 2 Accounting Policies. At initial application, the Group recognised right of use assets and related lease liabilities by adjusting the opening balances brought forward from the Statement of Financial Position reported at 31 December 2018. The impact of the application of IFRS 16 is set out below.
(i) Reconciliation of opening lease obligations
A reconciliation of the previously reported operating lease commitments of €70.9 million at 31 December 2018 to the opening lease obligations at Note 30 is set out below;
€m | |
|---|---|
Operating lease contractual commitments at 31 December 2018 | 70.9 |
Commitments relating to extension options not contracted for at 31 December 2018 and assessed as reasonably certain to be exercised as at 1 January 2019 | 5.7 |
Commitments related to leases previously classified as finance leases | 1.1 |
Commitments relating to leases treated as short term leases | (0.7) |
Gross lease commitments at 1 January 2019 | 77.0 |
Effect of discounting | (45.0) |
Lease liability at 1 January 2019 | 32.0 |
Present value of lease commitments previously classified as finance leases | (1.0) |
Lease liabilities recognised on adoption of IFRS 16 | 31.0 |
(ii) Reconciliation of the opening position as per Statement of Financial Position
The effects on the opening position as per the Consolidated Statement of Financial Position were as follows;
Carrying amount at 31 December 2018 | Effect of IFRS 16 | Carrying amount at 1 January 2019 | |
|---|---|---|---|
€m | €m | €m | |
Assets | |||
Non-Current assets | |||
Property, plant and equipment | 307.7 | (1.2) | 306.5 |
Right of use assets | - | 32.2 | 32.2 |
Non-Current liabilities | |||
Borrowings | 204.7 | 22.6 | 227.3 |
Current liabilities | |||
Borrowings | 0.3 | 8.4 | 8.7 |
(iii) Effect on the Income Statement from the date of adoption of IFRS 16 compared to IAS 17 in the period
The effects of the reported result for the year ended 31 December 2019 from applying the new accounting policy compared to the previous policy are set out below.
€m | |
|---|---|
Reduction in operating lease expenses included in other operating costs | (9.4) |
Reduction in depreciation of property, plant and equipment | (0.5) |
Increase in depreciation and amortisation expense arising from depreciation of right of use assets | 9.1 |
Increase in finance costs | 1.0 |
Net decrease in profit before tax in the period | 0.2 |
The effect of the net decrease in profit before tax was to decrease 2019 basic earnings per share and diluted earnings per share by 0.1 cent.
(iv) Incremental borrowing rates at date of adoption
The incremental borrowing rates used to value lease liabilities relating to right to use assets recognised at the date of adoption of IFRS 16 are set out below.
Lease terms of between 1 and 5 years | Lease terms of between 77 and 103 years | |
|---|---|---|
Euro | 1.50% | 4.10% to 4.25% |
Sterling | 2.65% to 2.72% | - |
US Dollar | 4.25% to 4.32% | - |
There were no leases at the date of adoption with terms ending between 6 and 76 years.