Chapters
Annual Report 2020

12. Leases

Accounting policy

Definition of a lease

The lease contracts relate mainly to the lease of the Group's own stores and leases for stores that are subleased to the Group's franchisees. Lease contracts also include leases for offices, warehouses, vehicles and equipment.

At the inception date of the contract, GrandVision assesses if it has the right to obtain substantially all of the economic benefits from use of the leased asset throughout the period of use in exchange for consideration; and if it can direct how the leased asset is used.

The following contracts are not considered to be a lease and shall be expensed to the consolidated Income Statement when incurred:

  • The contracts with rent payments, which are based on variables such as revenue, volume or traffic levels.
  • When a lessor has a substantive substitution right, for example the landlord can benefit by moving the store/corner or office during the lease contract, with only limited costs or efforts of the landlord, while GrandVision cannot prevent the landlord from moving the store.

Lessee Accounting

At the lease commencement date GrandVision recognizes a right-of-use asset and a lease liability. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus key money paid when entering the lease and any other incremental costs of obtaining the lease.

Subsequently the cost of a right-of-use asset is depreciated using the straight-line basis to reduce the right-of-use asset's carrying value to its residual value over the shorter of its estimated useful life and the lease term (see also paragraph 'Significant accounting estimates and judgments'). Right-of-use assets are adjusted for remeasurements of lease liabilities. Right-of-use assets are subject to a regular impairment assessment. A triggering event analysis for impairment of right-of-use assets is performed on a store and chain level. For annual impairment test purposes right-of-use assets are included in the carrying amount of relevant CGU, which represents a country or group of countries.

The residual value of right-of-use asset is assumed to be zero, except for initial costs Droit au Bail in France as these costs relate to the right to lease, which can be sold at the end of the lease term. These costs are treated as a separate component. The residual value is reviewed on a regular basis. The fair value is determined by external valuators taking into account cost per square meter and latest similar transactions for the main shopping malls, which are publicly available. Changes in the residual value are recognized in the consolidated Income Statement.

The lease liability is initially measured at the present value of outstanding lease payments during the lease term, discounted using the incremental borrowing rate (see also paragraph 'Significant accounting estimates and judgments'). The Group has elected to include both lease and non-lease components (e.g. fixed service costs) to the amount of lease liability.

The lease liability is subsequently measured at amortized cost using the effective interest method and is remeasured when there is a change in future lease payments arising, for example, from renegotiations of the lease contract, a change in an index, or if GrandVision changes its assessment of whether it will exercise extension or termination options (see also paragraph 'Significant accounting estimates and judgments'). When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset, unless a change in accounting policy as from 2020, related to COVID-19 rent reduction, is applicable. If as a result of this remeasurement, there is any excess over the carrying amount of the asset, it is recognized in the consolidated Income Statement within occupancy costs.

At the end of the lease term or at early termination of the lease, the cost of the right-of-use asset, accumulated depreciation, and outstanding lease liability, are written-down with the difference, if any, recorded in the consolidated Income statement within other occupancy costs.

COVID-19 rent reduction

A COVID-19 rent reduction shall meet all of the following criteria: (a) the change in lease payments does not result in a higher consideration; (b) only lease payments in 2020 and not later than 30 June 2021 are reduced; and (c) there are no substantial changes to other terms and conditions of the lease (see also paragraph in 'Significant accounting estimates and judgments'). GrandVision elected to apply the practical expedient to all the rent concessions, which meet these criteria and treated a COVID-19 rent reduction as a negative variable lease payment. The amount of this rent reduction is recognized in the Consolidated Income Statement as a part of occupancy costs.

Short-term and low-value leases

The Group has elected that the lease payments associated with lease contracts with a term of 12 months or less and leases of low-value assets (individual value of below €5,000, when new, such as computer equipment or mobile phones) are recognized on a straight-line basis over the lease term.

Lessor accounting

The Group subleases some of its right-of-use assets to franchisees or other third parties. When substantially all the risks and rewards transfer to the lessee, the sublease is classified as finance lease, otherwise the sub-lease is an operating lease.

When the sublease is classified as finance lease, the right-of-use asset in the head lease is de-recognized and a lease receivable is recognized. The lease receivable is initially measured at the present value of future lease receipts, which include both lease and non-lease components. Any difference on initial recognition of finance sublease is recorded in the consolidated Income statement within occupancy costs. Subsequently, the interest income and interest expense are accrued on the lease receivable and lease liability respectively applying the effective interest method.

Significant Accounting Estimates and Judgments

Lease term

The lease term comprises the non-cancellable period of a lease contract, plus periods covered by a reasonably certain renewal option and periods covered by a termination option, which are not reasonably certain to be exercised. GrandVision assesses whether it is reasonably certain to exercise renewal and termination options at lease commencement date and subsequently, if there is a change in circumstances. When determining the lease term only the options within control of GrandVision are considered.

When assessing renewal and termination options related to real estate leases, a distinction is made between new and existing locations, as well as between the stores based on their performance.

The lease term for a new store is the longest of the non-cancellable period with a minimum of 3 years. In addition, the Group considers the other circumstances, including recent leasehold improvements, local legislation, chain strategy, etc. and then decides if a different period is more appropriate.

Towards the end of the lease term the probability of exercising renewal or termination options is reconsidered based on business strategy, performance of the store and other considerations. In general, options are considered to be reasonably certain at the moment when the landlord is notified about the extension or termination. In case the contract has automatic renewal options, the remaining lease term is equal to the shortest possible extension of the lease, but is not less than 5 years for high performing stores or not less than 3 years for other stores.

The Group is reasonably certain not to exercise a termination option if the term with possible termination would become less than 5 years for high performing stores or less than 3 years for other stores.

The periods of 5 years for high performing stores and 3 years for new and other stores is determined considering Group practice and experience, developments in (optical) retail markets, real estate rental markets, regulations, economic environment and technology. These estimates are reassessed periodically. 

Discount rate

The Group uses incremental borrowing rates (IBRs) as a discount rate, since the interest rate implicit in the lease contract generally cannot be readily determined for most of the leases in lease portfolio of the Group. The IBR is the rate that a lessee would pay to attract required funding to purchase the asset over a similar term, with a similar security and in a similar economic environment. In determining the IBR, the comparable uncontrolled price method was selected. The IBR is determined as the sum of a reference rate, credit risk premium and sovereign risk premium. The sovereign risk premium is based on the Credit Default Swaps’ market.

The calculation of IBR takes into account the currency of the lease contract, the lease term, type of leased assets, the country of the lessee and the credit rating of the lessee. The credit rating of the lessee is determined based on financial assessment, in which a scoring approach is applied to key financial ratios of the lessee.

The IBRs are determined on a country-by-country basis with a distinction between the currency of the lease contract, as well as lease term. A single IBR is applied to a portfolio of leases, which are similar in nature and in lease term within a country.

COVID-19 rent reduction: substantial change

COVID-19 rent concession is not eligible for the practical expedient if there is a substantial change in lease terms. To be considered substantial, at least one of the following criteria is met: (a) there is a change of the scope of the lease; (b) there is a change in a lease term.

The movements in the right-of -use assets are as follows:

in thousands of EUR

Notes

Buildings

Other

Total

At 1 January 2019

Cost

1,385,118

8,430

1,393,548

Accumulated depreciation and impairment

-

-

-

Carrying amount

1,385,118

8,430

1,393,548

Movements

Acquisitions

23,212

66

23,278

Additions

119,372

4,506

123,878

Reassessment/modification

251,054

97

251,151

Disposal

- 846

- 2

- 848

Depreciation charge

6

- 349,818

- 4,936

- 354,754

Impairment

6

- 5,695

-

- 5,695

Exchange differences

12,366

30

12,396

At 31 December 2019

1,434,763

8,191

1,442,954

At 1 January 2020

Cost

1,778,412

12,117

1,790,529

Accumulated depreciation and impairment

- 343,649

- 3,926

- 347,575

Carrying amount

1,434,763

8,191

1,442,954

Movements

Acquisitions

324

-

324

Additions

58,235

4,305

62,540

Reassessment/modification

230,872

1,041

231,913

Disposal

- 88

- 30

- 118

Depreciation charge

6

-347,767

-4,817

- 352,584

Impairment

6

-24,234

-

- 24,234

Exchange differences

-37,845

-335

- 38,180

At 31 December 2020

1,314,260

8,355

1,322,615

Cost

1,985,803

14,537

2,000,340

Accumulated depreciation and impairment

- 671,543

- 6,182

- 677,725

Carrying amount

1,314,260

8,355

1,322,615

The impairment loss in 2020 represents the write-down of the Right-of-use assets mainly in the Americas & Asia segment, following an impairment assessment performed in June 2020 for the chains with historically low performance, and following restructuring. This was recognized in the consolidated Income Statement within general and administrative costs and not reversed at December 2020.

The residual value of right-of-use assets at end of December 2020 is €123,171 (2019:€126,498).

In 2019, acquisitions relate mainly to McOptic in Switzerland.

The movements in the lease liabilities are as follows:

in thousands of EUR

2020

2019

Non-current

1,037,293

1,001,505

Current

373,278

362,020

At 1 January

1,410,571

1,363,525

Acquisitions

324

20,506

Additions

62,450

127,304

Reassessment/modification

242,848

254,716

Payments/Receipts

- 359,217

- 400,492

Rent reductions

- 33,971

-

Accrued interest

24,743

30,265

Exchange differences

- 32,771

14,747

At 31 December

1,314,977

1,410,571

Non-current

957,625

1,037,293

Current

357,352

373,278

At 31 December

1,314,977

1,410,571

The movement 'Rent reductions' relates to temporary reductions of lease payments, due on or before end of reporting period, that were agreed with landlords in connection with the COVID-19 pandemic. The full impact of these temporary rent reductions is recognized in the consolidated Income Statement within the occupancy costs in the current period, instead of spreading this amount over the duration of the lease term.

The movements in the financial lease receivables are as follows:

in thousands of EUR

2020

2019

Non-current

48,090

47,636

Current

16,080

17,257

At 1 January

64,170

64,893

Additions

3,495

9,911

Reassessment/modification

11,632

5,421

Payments/Receipts

- 15,210

- 16,717

Rent reductions

- 849

-

Accrued interest

349

650

Exchange differences

- 50

12

At 31 December

63,537

64,170

Non-current

47,572

48,090

Current

15,965

16,080

At 31 December

63,537

64,170

The maturity of the lease liabilities is as follows:

in thousands of EUR

31 December 2020

31 December 2019

Within 1 year

357,352

373,278

1 - 2 years

303,592

310,831

2 - 5 years

495,667

536,867

After 5 years

158,366

189,595

Total

1,314,977

1,410,571

The future receipts from subleases are as follows:

in thousands of EUR

Notes

31 December 2020

31 December 2019

Finance subleases

Operating subleases

Finance subleases

Operating subleases

Within 1 year

16,018

1,003

16,243

910

1 - 2 years

14,258

523

13,982

709

2 - 3 years

11,650

345

11,719

570

3 - 4 years

8,674

204

9,314

492

4 - 5 years

5,982

187

6,163

295

After 5 years

7,623

120

7,602

447

Total undiscounted receipts

64,205

2,382

65,023

3,423

Unearned finance income

- 668

n.a

- 853

n.a

Finance subleases

16

63,537

n.a

64,170

n.a