18 - Leases

Accounting policies

The Group as lessee

The Group classifies leased assets into the following categories: real estate, vehicles, and ICT data center space. For real estate and ICT data center space, the individual approach is applied (individual contract) while for passenger and commercial vehicles, a portfolio approach is applied (number of vehicles per type, average remaining contract duration in months and average monthly instalment.

At the commencement of a lease, the Group recognizes a right-of-use asset and a corresponding lease liability for all leases. The Group applies the exceptions for short-term leases with lease terms of six months or less and .leases for which the underlying asset is of low value (assets with a value of USD 5,000 and below). The Group has chosen the practical expedient to recognize the lease payments associated with those leases as an expense on a straight-line basis over the lease term. The Group recognized € 21.7 million of lease expense from the application of these expedients (2022: € 19 million)..

Critical judgements in determining the lease term

In determining the lease term, the Group considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) on existing contracts are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). New lease contracts are only recognized if the start date is on or before the reporting date.. Lease contracts typically span 1-5 years, occasionally extending to 10 years, and often include renewal and termination options.

Upon the commencement of the lease, the measurement of the lease liability primarily includes fixed lease payments, which are net of any lease incentives received, along with variable lease payments that depend on an index or a rate. These variable payments are initially measured using the index or rate as of the commencement date. The present value of these lease payments is computed using a term and risk-equivalent incremental borrowing rate when the lease's implicit interest rate is not readily determinable. The lease term considers the non-cancellable lease period, also including periods encompassed by extension or termination options if it is reasonably certain that these will be exercised (taking into account the contractual arrangements in this regard). For personal and business vehicles, a portfolio approach is applied.

Right-of-use assets are initially recognized at the corresponding lease liability's value, inclusive of any initial direct costs and less any lease incentives received. Ancillary costs related to dismantling and removal are included if they relate to the lease asset. Right-of-use assets are subsequently depreciated over the lease term, which typically spans from 1 to 5 years, using the straight-line method.

Depreciation of right-of-use assets is presented within the functional area to which it relates. Lease liability interest is presented as interest expenses and included as part of cash flows from operating activities. Whilst, cash payments of lease liabilities are shown separately in the cash flow from financial activities.

The Group does not act as a lessor for any lease contracts.

Leases in business combinations

The Group measures the acquired lease liability as if the lease contract were a new lease at the acquisition date. The Group applies IFRS 16’s initial measurement provisions, using the present value of the remaining lease payments at the acquisition date. The discount rate is determined from the perspective of the acquiree, as the acquiree is the customer in the lease contract. However, as the rate cannot be reasonably derived from the acquiree, the implicit rating is based on the financing conditions of the Company as they provide financing as a holding to their subsidiaries.

The right-of-use asset is measured at an amount equal to the recognized liability, adjusted to reflect the favorable or unfavorable terms of the lease, relative to market terms.

The Group does not recognize right-of-use assets and lease liabilities for leases with lease terms which end within 12 months of the acquisition date and leases for low-value assets.

Lease consisted of the following items (in € 1,000):

In calculating the lease liabilities an incremental borrowing rate is applied consisting of 3 components: risk-free interest rate of a 10-year government bond supplemented by group and asset-specific spread. This means for the 10-year period for 2023 and 2022 a spread of the internal interest rate of 1.13%-2.15% and 1.29%-2.15% respectively.