Operating Assets, Liabilities, and Contingent Liabilities

(21) Leasing

Accounting and measurement policies
Leasing

Scope of IFRS 16

The Group exercises the option provided by IFRS 16 to not recognize leases of intangible and low-value assets as leases. Right-of-use assets under leases are reported in the balance sheet item “Property, plant and equipment” (see Note (20) “Property, plant, and equipment”).

Where the provision of company cars to employees qualifies as an employee benefit within the meaning of IAS 19, IFRS 16 is not applied. In this case, its accounting treatment is governed solely by IAS 19.

Separation of lease and non-lease components

Leases for land, land rights and buildings are separated into lease and non-lease components. The Group otherwise elects to exercise the option not to separate non-lease components from lease components.

Depreciation of the right-of-use assets arising from leases

Right-of-use assets are generally depreciated over the lease term. If it is considered sufficiently probable that an existing purchase option will be exercised or ownership will be automatically transferred at the end of the lease term, however, depreciation takes place over the period that applies for comparable assets under property, plant and equipment (see Note (20) “Property, plant, and equipment”).

Determining the incremental borrowing rate

If the interest rate for the lease cannot be reliably determined, the incremental borrowing rate is applied in measuring the lease liability. Within the Group, the incremental borrowing rate is determined on the basis of the risk-free interest rate of the respective Group company over a similar term and in the same currency. This interest rate is adjusted using a risk surcharge specific to the Group. The Group applies the repayment model to determine the current portion of the lease. The current portion of the lease corresponds to the repayment share of the next 12 months.

Determining the lease term

Where renewal or termination options are available, their exercise is assessed on a case-by-case basis, considering factors such as location strategies, leasehold improvements and the degree of specificity.

Significant discretionary decisions and sources of estimation uncertainty
Leasing

Identification of a lease

Discretionary decisions can arise during the identification of leases in answering the question of whether a lessor’s right of substitution is substantive. The Group classifies rights of substitution as not substantive if the facts and circumstances of the case do not support a different assessment.

Measurement of lease and non-lease components

In the case of leases for land, land rights and buildings, separating the lease into lease and non-lease components is subject to discretion and estimation uncertainty if observable prices are not available from the contract partner or other potential lessors.

Determining the lease term

When determining the lease term, existing renewal and termination options must be evaluated to determine the probability that such options will be exercised. The assessment of the probability of exercise may be discretionary even though it relies on existing and material information on the general economic context, such as location strategies, leasehold improvements or the degree of specificity. If the available information does not allow a reliable assessment, the Group uses historical experience for comparable situations.

The largest ten leases accounted for around 50% of total lease liabilities in fiscal 2024. In 2023, the largest 30 leases accounted for around 50% of total lease liabilities. They mainly relate to right-of-use assets for office, warehouse and laboratory buildings. If options to renew these leases were exercised in the future, which is not yet considered likely, this would result in additional potential undiscounted cash outflows of up to € 183 million (2023: € 235 million).

Where individual contracts include termination options, it was considered unlikely that these would be exercised, meaning that additional lease payments were already included in the corresponding lease liability.

Determining the incremental borrowing rate

Determining the risk-free interest rate and determining the risk surcharge are both discretionary.

Initial measurement of the lease liability and the right-of-use asset

In measuring the lease liability, there is discretionary scope and significant estimation uncertainty regarding assessing the probability that existing purchase, termination and renewal options will be exercised.

In measuring right-of-use assets under leases, the Group is subject to estimation uncertainty regarding any restoration obligations and their resulting payments.

The reconciliation of net carrying amounts of right-of-use assets from leases was as follows:

Reconciliation of right-of-use assets from leases – 2023

 

 

Right-of-use assets

€ million

 

Land, land rights and buildings

 

Plant and machinery

 

Other facilities, operating and office equipment

 

Total

Net carrying amounts as of Jan. 1, 2023

 

415

 

8

 

58

 

481

Changes in the scope of consolidation

 

 

 

 

Additions

 

157

 

4

 

45

 

206

Disposals

 

-23

 

 

-1

 

-25

Depreciation

 

-108

 

-2

 

-37

 

-147

Impairment losses

 

 

 

 

Reversal of impairment losses

 

 

 

 

Other

 

-13

 

1

 

-1

 

-14

Net carrying amounts as of Dec. 31, 2023

 

427

 

10

 

64

 

500

Reconciliation of right-of-use assets from leases – 2024

 

 

Right-of-use assets

€ million

 

Land, land rights and buildings

 

Plant and machinery

 

Other facilities, operating and office equipment

 

Total

Net carrying amounts as of Jan. 1, 2024

 

427

 

10

 

64

 

500

Changes in the scope of consolidation

 

3

 

 

 

3

Additions

 

314

 

1

 

40

 

356

Disposals

 

-21

 

 

-2

 

-23

Depreciation

 

-126

 

-2

 

-37

 

-165

Impairment losses

 

 

 

 

Reversal of impairment losses

 

 

 

 

Other

 

18

 

1

 

-3

 

16

Net carrying amounts as of Dec. 31, 2024

 

614

 

9

 

62

 

686

The net carrying amounts of other facilities, operating and office equipment mainly included right-of-use assets for vehicles.

The additions to land, land rights and buildings primarily related to newly agreed right-of-use assets for laboratories, office buildings and warehouses as well as agreed lease renewals. The largest individual addition related to a rental agreement for a laboratory building in the United States in the Life Science business sector. The building serves to expand the Group’s capacities for biosafety testing and analytical development services.

The expenses and income and the payments under the leases in accordance with IFRS 16 were reported in the consolidated income statement and the consolidated statement of cash flows as follows:

Leases affecting the consolidated income statement

€ million

 

2024

 

2023

Right-of-use assets

 

 

 

 

Depreciation

 

-165

 

-147

Impairment losses

 

 

Reversals of impairment losses

 

 

Expenses for leasing low-value assets

 

-8

 

-11

Expenses for leases with variable lease payments

 

 

 

 

 

 

 

Income from subleasing right-of-use assets

 

 

Income from sale-and-lease-back transactions

 

 

 

 

 

 

 

Interest expenses for lease liabilities

 

-25

 

-14

Total

 

-198

 

-173

Payments from leases shown in the consolidated cash flow statement

€ million

 

2024

 

2023

Operating Cash Flow

 

-24

 

-25

Financing Cash Flow

 

-139

 

-149

Total

 

-163

 

-174

At the reporting date, the future lease payments were distributed over the following periods:

December 31, 2024

€ million

 

Within 1 year

 

1-5 years

 

After more than 5 years

 

Total

Future lease payments

 

147

 

337

 

433

 

917

Interest portion of future payments

 

-21

 

-64

 

-82

 

-167

Present value of future lease payments

 

126

 

274

 

351

 

750

December 31, 2023

€ million

 

Within 1 year

 

1-5 years

 

After more than 5 years

 

Total

Future lease payments

 

130

 

278

 

152

 

560

Interest portion of future payments

 

-11

 

-22

 

-15

 

-47

Present value of future lease payments

 

120

 

256

 

137

 

513

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