Arla Foods Annual Report 2020
Management Review Our Strategy Our Brands and Commercial Segments Our Responsibility
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Our Consolidated Environmental, Social and Governance Data
Capital employed
3.2 PROPERTY, PLANT AND EQUIPMENT
3.2.1 Right of use assets
Financial comments
Arla leases various offices, warehouses, vehicles and
other equipment. Lease contracts are typically agreed for
a fixed duration, but may include an extension option.
Significant right of use assets include office buildings and
warehouses in Denmark, Germany, Sweden and the UK
with remaining useful lives between 10 and 20 years.
Filling machinery and other technical facilities represent
another major right of use asset category. Filling
machines typically have useful lives of 7 years, whereas
other technical facilities are depreciated between 1 to
7 years. Cars and trucks have on average useful lives of
4 and 5 years respectively. In total the group has
approximately 4,000 lease contracts.
Additions to right of use assets during the year
amounted to EUR 102 million, compared to EUR 81 last
year. The main reason for the high level of additions in
2020, besides regular renewal of lease agreements, was
insourcing of distribution activities in the UK, which led to
many new lease agreements on trucks and trailers. The
total carrying amount of right of use assets was EUR 229
million, compared to EUR 208 million last year, as specified
in table 3.2.1.a. Lease liabilities are specified in note 4.3.
Total cash outflow from right of use assets amounted to
EUR 114 million compared to EUR 116 million last year.
This comprised, lease debt payments of EUR 67 million,
compared to EUR 66 million last year, non-capitalised
short-term and low value lease costs of EUR 39 million
compared to EUR 43 million last year, and interest
expenses on lease liabilities of EUR 8 million compared to
EUR 7 million last year.
Fixture and
fitting, tools
Total
machinery and equipment
Table 3.2.1.a Right of use assets
(EURM)
Land and
Plant and
building
2020
Carrying amount at 1 January
109
21
78
208
Additions
55
4
43
102
Disposals
-8
-8
-19
-35
Depreciations and impairments for the year
-23
-10
-34
-67
Depreciation on disposals
5
6
13
24
Exhange rate adjustments
-2
-1
-3
Carrying amount at 31 December
136
13
80
229
2019
Carrying amount at 1 January
95
Additions
38
Disposals
-6
Depreciations and impairments for the year
-22
Depreciation on disposals
3
277777
77
199
36
81
-1
-9
-16
-13
-35
-70
1
9
13
Exhange rate adjustments
1
1
Carrying amount at 31 December
109
21
78
208
Accounting policies
Lease contracts are typically agreed for a fixed duration,
but may have an option to extend at a future date.
All leases are recognised as a right of use asset and a
corresponding liability at the date at which the leased
asset is available for use by the group.
A lease liability is initially measured on a present value
basis, which comprises the net present value of the
following:
■fixed lease payments (including in-substance fixed
payments), less any lease incentives receivable
variable lease payment based on an index or a rate
amounts expected to be payable by the group under
residual value guarantees
■the exercise price of a purchase option if the group is
reasonably certain to exercise that option, and
payments of penalties for terminating the lease, if the
group is reasonably certain to exercise that exit option
The lease payments are discounted using an incremental
borrowing rate, being the rate that the Group would
have to pay to borrow the funds necessary to obtain an
asset of similar value in a similar economic environment
with similar terms and conditions.
The corresponding right of use asset is measured at
cost comprising the following:
the amount of the initial measurement of the lease
liability
any lease payments made at or before the com-
mencement date less any lease incentives received
any initial direct costs, and
■restoration costs
The right of use asset is subsequently depreciated over
the shorter of the asset's useful life and the lease term
on a straight-line basis. In addition, the value of the right
of use asset is adjusted for certain remeasurements of
the lease liability.
Each lease payment comprises a reduction of the lease
liability and a 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 liability for each period.
Short-term leases and leases of low-value assets are
recognised as an expense in the income statement.
Short-term leases are those with a lease term of less
than 1 year. Leases of low-value assets are those with
an underlying asset value less than EUR 5 thousand.
♫ Uncertainties and estimates
The group has applied estimates and judgements with
impact on the recognition and measurement of right of
use assets and lease liabilities. This includes assessment
of the incremental borrowing rate, service components
and facts and circumstances that could create an
economic incentive to utilise extension options of lease
arrangements.
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