Changes in accounting policies

IFRS 16 Leases has been applied in the voestalpine Group since April 1, 2019, using the modified retrospective method of initial application. Hence there was no need to adjust the previous year’s figures. The new Standard combines the guidance on lease accounting and replaces IAS 17 as well as the associated Interpretations.

The new rules eliminate the prior distinction on the part of the lessee between finance and operating leases. Previous operating leases thus must generally be treated in the same way as finance leases.

The application of IFRS 16 had an impact on the Group’s net assets, financial position, and results of operations because voestalpine Group companies were considered lessees under operating leases as of the first-time adoption date.

The voestalpine Group identified the capitalization of right-of-use assets and the corresponding liabilities as the most significant effect. As a result, instead of recognizing lease expenses on a straight-line basis as in the past, depreciation expenses for right-of-use assets and interest on lease liabilities are recognized. This leads to an improvement in EBITDA and EBIT as well as to a shift between cash flows from operating activities and financing activities.

The voestalpine Group applies the following measurement choices and exemptions:

• IFRS 16 was only applied to agreements that had already been classified as leases prior to the date of initial application.
• Right-of-use assets and lease liabilities are not recognized separately in the statement of financial position but instead are presented in the Notes.
• Upon first-time adoption, a given lease liability was recognized at the present value of the remaining lease payments, discounted using the incremental borrowing rate at the time of initial application; the right-of-use asset was recognized in the same amount.
• The Group elected the option not to determine a right-of-use asset or lease liability for leases with terms up to 12 months (short-term leases) and for leases where the underlying asset is of low value. In the voestalpine Group, low-value assets concern leased assets whose cost does not exceed EUR 5,000.
• At the transition date, leases with a residual term of up to 12 months were classified as short-term leases.
• No separation is made with respect to contracts containing both non-lease components and lease components; this does not apply to land and buildings.
• IFRS 16 is not applied to intangible asset leases.

The changes did not have significant effects on existent finance leases.

The table below presents the effects of the initial application of IFRS 16 Leases on the opening statement of financial position as of April 1, 2019:

Lease payments of EUR 549.1 million on leases previously classified as operating leases were discounted using the incremental borrowing rate and recognized as lease liabilities at the resulting current value as of April 1, 2019. The average incremental borrowing rate used to this end as of the initial application date was 2.16%.

Liabilities from non-cancelable operating leases as of March 31, 2019, were EUR 207.0 million, while gross lease liabilities as of April 1, 2019 (the first time IFRS 16 was applied) were EUR 549.1 million. The difference relates, for one, to diminishing effects from short-term leases and from leases where the underlying asset is of low value and, for another, to the increases related to the recognition of options to renew, buy, and terminate leases beyond the minimum lease term. Management had to assess whether the renewal of a lease term was reasonably certain. This was assumed to be the case particularly with respect to both large investments in leased real estate and assets that serve functions critical to individual core activities.

The deduction of the discounting effect of EUR 112.7 million from the gross lease liabilities of EUR 549.1 million has led to net lease liabilities (excluding finance leases) of EUR 436.4 million (according to the transition table for the consolidated statement of financial position).