Nemetschek : Notes to the Consolidated Financial Statements

Notes to the consolidated financial statements

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116 Notes to the consolidated financial statements

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Notes to the consolidated financial statements for the fiscal year 2023

General information

Nemetschek SE is the ultimate parent company of Nemetschek Group. Its headquarters are located at Konrad-Zuse-Platz 1, 81829 Munich, Germany, and it is entered into the commercial register at the Local Court of Munich (HRB 224638). Nemetschek SE and its subsidiaries (collectively "Nemetschek Group", "Nemetschek") provide software for the AEC/O (Architecture, Engineering, Construction and Operation) and the 3D Media industry.

Nemetschek SE, as the ultimate parent has been quoted on the German stock exchange in Frankfurt am Main since March 10, 1999. Nemetschek is listed on the TecDAX and MDAX.

The consolidated financial statements of Nemetschek SE as of December 31, 2023 comprise Nemetschek SE and its subsidiaries and are prepared in compliance with International Financial Reporting Standards and the relevant interpretations (IFRS) as to be applied in the European Union (EU) as at December 31, 2023, and the additional requirements pursuant to § 315e German Commercial Code (HGB). The consolidated financial statements of the smallest and the largest consolidated group are prepared by Nemetschek SE. The consolidated financial statements are required to be submitted electronically to the agency that maintains the Company Register and may be obtained via the Company Register website.

Nemetschek SE prepares and publishes the consolidated financial statements in euros. Information is shown in the consolidated financial statements in EURk (€ k) unless otherwise specified. The presentation of certain prior-year information has been changed to conform to the current year's presentation.

Accounting standards applied for the first time in 2023

The following new standards or amendments, that are effective from January 1, 2023, do not have a material effect on the Group's financial statements.

» IFRS 17: Insurance Contracts, including Amendments to IFRS 17

• IAS 1: Disclosure of Accounting Policies
• IAS 8: Definition of Accounting Estimates
• IAS 12: Income Taxes - International Tax Law Reform - Global Minimum Taxation Regulations. See accounting policies for deferred taxes and note [10]
• IFRS 17: Initial Application of IFRS 17 and IFRS 9 - Compara- tive Information

Accounting standards that are not yet effective

The following IFRS were issued on the balance sheet date by the IASB but are not mandatorily applicable until later reporting periods or have not yet been adopted into EU law. The Nemetschek Group has decided not to exercise the possible option of early application of standards and interpretations, which are not mandatorily applicable until later reporting periods.

PUBLISHED FINANCIAL REPORTING STANDARDS THAT HAVE NOT YET BEEN APPLIED

			Mandatory
Amendments to standards/interpretations		application	Anticipated effects
	Classification of
	Liabilities as Current or				No material ef-
IAS 1	Non-current		Jan. 1, 2024	fects expected

		Lease Liability in a				No effects
IFRS 16		Sale and Leaseback		Jan. 1, 2024	expected
		Non-current Liabilities				No material ef-
IAS 1		with Covenants		Jan. 1, 2024	fects expected
		Supplier Finance				No material ef-
IAS7/IFRS 7		Arrangements		Jan. 1, 2024	fects expected
		Lack of				No material ef-
IAS 21		Exchangeability		Jan. 1, 2025	fects expected

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CONSOLIDATED FINANCIAL STATEMENTS

Summary of significant accounting policies

The consolidated financial statements are prepared in accordance with the consolidation accounting and valuation principles described below.

Consolidation principles

The consolidated financial statements include subsidiaries and associates. The financial statements of the individual consolidated companies are prepared as of the closing date of the Group financial statements.

A schedule of the shareholdings of Nemetschek SE is shown in sections [18] and [32] of the consolidated financial statements.

Subsidiaries

Subsidiaries are companies over which Nemetschek is currently able to exercise power by virtue of existing rights. Power means the ability to direct the relevant activities that significantly affect a company's profitability. Control is therefore only deemed to exist if Nemetschek is exposed, or has rights, to variable returns from its involvement with a company and has the ability to use its power over that company to affect the amount of that company's returns. The inclusion of an entity's accounts in the consolidated financial statements begins when the Nemetschek Group is able to exercise control over the entity and ceases when it is no longer able to do so.

Acquired businesses are accounted for using the acquisition method, which requires that the assets acquired and liabilities assumed be recorded at their respective fair values on the date Nemetschek obtains control. For significant acquisitions, the purchase price allocation is carried out with assistance from independent third-party valuation specialists. The related valuations are based on the information available at the acquisition date. Ancillary acquisition costs are recognized as expenses in the periods in which they occur. The initial value recognized includes the fair value of any asset or liability resulting from a contingent consideration arrangement. On the acquisition date, the fair value of the contingent consideration is recognized as part of the consideration transferred in exchange for the acquiree.

According to IFRS 3, for each business combination, the acquirer shall measure any non-controlling interest in the acquiree either at fair value (full goodwill method) or at the non-controlling interest's proportionate share of the acquiree's net assets (partial goodwill method).

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group's share of the identifiable net assets acquired, is recorded as goodwill. If the consideration transferred is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized immediately in the consolidated statement of comprehensive income.

Non-controlling interests

Non-controlling interests have a share in the earnings of the reporting period. Their interests in the shareholders' equity of subsidiaries are reported separately from the equity of the Group. Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

Associates

Associates are companies over which Nemetschek SE has significant influence, generally through an ownership interest between 20% and 50%. They are accounted for using the equity method. The carrying amounts of companies accounted for using the equity method are adjusted annually to reflect the share of ear- nings, dividends distributed and other changes in the equity of the associates attributable to the investments of Nemetschek.

Unless stated otherwise, the financial statements of the associates are prepared as of the same balance sheet date as

Nemetschek­SE. Where necessary, adjustments are made to comply with the Group's accounting policies.

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Valuation methods

The following table shows the most important subsequent valuation principles:

SUBSEQUENT VALUATION METHODS

Item	Valuation methods

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at fair value through profit or loss: a 'financial asset which is held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Assets

Cash and cash equivalents Trade receivables Inventories

Other financial assets Other non-financial assets

Non-current assets held for sale Property, plant and equipment Intangible assets

With definite useful life

Nominal amount

Amortized costs

Lower of cost and net realizable value

See separate table

Amortized costs

Lower of carrying amount and fair value less costs to sell

Amortized costs

Amortized costs

Investments in equity instruments do not fulfill the cash flow con- ditions. The instruments are measured at fair value through profit or loss.

Reclassification of a financial asset between measurement categories of IFRS 9 requires a change to the business model for the corresponding group of instruments, in which case all affected financial assets are reclassified.

The subsequent measurement of financial assets is as follows:

SUBSEQUENT MEASUREMENT OF FINANCIAL ASSETS ACCORDING TO IFRS 9

With indefinite useful life Goodwill

Right-of-use assets

Equity and liabilities

Borrowings

Trade payables

Provisions

Deferred revenue

Other financial liabilities Other non-financial liabilities Pensions and related obligations Accrued liabilities

Impairment-only approach

Impairment-only approach

Amortized costs

Amortized costs

Amortized costs

Present value of future settlement amount

Expected settlement amount

Amortized costs or fair value through profit or loss

Amortized costs

Projected unit credit method

Amortized costs

IFRS 9 category

Amortized cost

Fair value through profit or loss

Subsequent measurement principle

These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by loss allowances. Interest income, foreign exchange gains and losses and loss allowances are recognized in profit or loss. Any gain or loss on derecogniti- on is recognized in profit or loss.

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.

Financial assets are classified and measured according to IFRS 9. The purchase and sale of financial assets are recognized on the trade date and are initially measured at fair value. Subsequently, a financial asset is measured at 1) amortized cost, 2) at fair value through other comprehensive income or 3) at fair value through profit or loss. The classification and measurement of financial assets which are not equity instruments depend on two factors that are to be checked at the time of acquisition: the business model under which the financial asset is held, as well as the cash flow conditions of the instrument.

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				CONSOLIDATED FINANCIAL STATEMENTS
Judgments and estimates	Fair value estimation
In preparing these consolidated financial statements, manage-	IFRS 7 requires for financial instruments that are measured in the
ment has made judgments and estimates that affect the applica-	statement of financial position at fair value in accordance with
tion of the Group's accounting policies and the reported amounts	IFRS 13 a disclosure of fair value measurements by level using
of assets, liabilities, income and expenses. Actual results may	the following fair value measurement hierarchy:
differ from these estimates. Estimates and underlying assump-	»	Level 1: Quoted prices (unadjusted) in active markets for iden-
tions are reviewed on an ongoing basis. When available, manage-
	tical assets or liabilities;
ment uses external resources like market studies to support the
assumptions. Revisions to estimates are recognized prospec-	»	Level 2: Inputs other than quoted prices included within Level
tively.		1 that are observable for the asset or liability, either directly (i.e.
Information about assumptions and estimation uncertainties on		as prices) or indirectly (i.e. derived from prices); and
December 31, 2023 that have a significant risk of resulting in a	» Level 3: Inputs for asset or liability that are not based on obser-
material adjustment to the carrying amounts of assets and liabili-		vable market data (i.e. unobservable inputs).
ties in the next fiscal year, is included in the following notes:	On December 31, 2023 and 2022, the Group's financial instru-
»	Note [16] - Impairment of goodwill: key assumptions under-	ments carried in the statement of financial position at fair value
	lying recoverable amounts.	are categorized within Level 3 of the fair value hierarchy. They are
»	Note business combinations: fair value of the consideration	reported in the statement of financial position as other financial
assets and other financial liabilities. In accordance with IFRS 13,

transferred (including contingent consideration), fair value of	the following overview shows the valuation methods as well as
intangible assets acquired as well as their useful lives.
the unobservable inputs used:

• Note [10] - recognition of deferred tax assets: availability of future taxable profit against which deductible temporary diffe- rences and tax losses carried forward can be utilized.
• Notes [13] and [23] - measurement of loss allowances for tra- de receivables: The determination of loss allowances is based on historical values which are adjusted to account for informa- tion relating to the future. Material (special) items from the past may distort risk provisioning, which may make correction necessary.
• Note [1]: Revenue recognition for rental models using the adju- sted market assessment approach includes assumptions regarding standalone selling prices and judgments about tech- nology lifetime cycles.

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DETERMINATION OF FAIR VALUES

						Relationship of significant unobservable inputs to
Type		Valuation method	Significant unobservable inputs	fair value
Other financial assets
						The fair value would increase if:
						- the price of the last financing round
		Valuation based on the price of last finan-				increases
		cing round. The fair value adjustments				- the held asset class would have higher
		are recognized under other financial	Nature and price of the last financing	liquidity preference/ special rights as a
		expenses / income.	round	result of the last financing round.
		A market based approach is used,
		evaluating a variety of quantitative and				The fair value would increase if:
		qualitative factors such as actual and				- the weighting of the financing rounds
		forecasted results, milestone achieve-		- Discounts for lack of marketability	changes
		ments, cash position, recent or planned		- Weighting of financing rounds	- the discount for lack of marketability
		transactions, and market comparable		- Expected holding period until exit or	is lower
		companies (venture capital method). The		conversion	- the expected holding period increases
		fair value adjustments are recognized		- Immanent value upon exit, respectively	- the immanent exit, respectively con-
		under other financial expenses / income.		conversion	version, value is higher.
		Valuation based on the Net Asset Value
		(NAV) as reported by the respective
		funds. The fair value adjustments are re-
Unlisted equity and debt		cognized under other financial expenses				An increase in the reported NAV would
securities		/ income.		NAV calculations of the respective funds	result in an increase in the fair value.
Other financial liabilities
		The discounted cash flow method is ap-
		plied, which considers the present value
		of expected payments, discounted using				An increase in the probability adjusted
		a risk-adjusted discount rate. The fair				revenues and profits used in isolation
		value adjustments are recognized under				would result in an increase in the fair
Contingent consideration		other financial expenses / income.		Probability adjusted revenues and profits	value.

The fair value of financial assets and financial liabilities that are not measured at fair value but for which fair value disclosures are required are included in Level 3 categories. The fair values have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with the most significant input being the discount rate that reflects the credit risk of counterparties.

Currency translation

Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are prepared in EUR, which is the Group's presentation currency.

Group companies

In the consolidated financial statements, the assets and liabilities of companies that do not use the euro as their functional currency are translated as follows:

• Assets and liabilities are translated at the closing rate on the date of that consolidated statement of financial position. Good- will and fair value adjustments arising through the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing rate. Equity componen- ts are translated at the historical exchange rates prevailing at

the respective dates of their first-time recognition in the Group equity.

• Income and expenses are translated at average exchange rates; and
• All resulting exchange differences are recognized in other com- prehensive income.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the actual exchange rates on the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss. There is an exception for monetary items that are designated as part of the Group's net investment in a foreign operation. These are recognized in other comprehensive income until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recognized in other comprehensive income.

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CONSOLIDATED FINANCIAL STATEMENTS

Cash and cash equivalents

Cash and cash equivalents represent cash at banks, cash on hand, and short-term deposits with maturities of three months or less from the date of acquisition. Cash equivalents are highly liquid short-term financial investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Cash not available from rental guarantee deposits is disclosed as other financial assets.

Trade receivables

Trade receivables are recognized at the transaction price, which represents the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or ­services to a customer, excluding amounts collected on behalf of third parties.

Inventories

Inventories are mainly comprised of hardware, third party licen- ses, as well as marketing materials.

Other financial assets

Other financial assets mainly relate to security deposits carried at amortized cost as well as equity and convertible loan instruments recognized at fair value through profit or loss.

Impairment of financial assets

For trade receivables and contract assets as per IFRS 15, Nemet- schek consistently applies the simplified approach and recognizes lifetime expected credit losses. In order to calculate the collective loss allowance, the Nemetschek Group determines a default rate on the basis of historical defaults and then adjusts these with forward looking information if appropriate. The rates are reviewed on a regular basis to ensure that they reflect the latest data on credit risk. For contract assets as per IFRS 15 no impairments were recognized due to materiality. In case objective evidence of credit impairment is observed for trade receivables from a specific customer, a detailed analysis of the credit risk is performed, and an appropriate individual loss allowance is recognized for this customer. Trade receivables are considered to be in default when it is expected that the debtor will not fulfill its credit obligations toward Nemetschek. Loss allowances on trade receivables are presented as other expenses in the consolidated statement of comprehensive income.

For other financial assets not measured at fair value through profit or loss, Nemetschek Group applies the general impairment approach according to IFRS 9. As it is the policy of Nemetschek Group to invest only in high-quality assets of issuers with a minimum internal or external rating of at least investment grade, the low credit risk exception is used. Thus, these assets are always

allocated to stage 1 of the three-stage credit loss model and, if material, a loss allowance for an amount equal to 12-month expected credit losses will be recorded. Impairment losses on other financial assets are shown in the line item "Other financial expenses". The credit risk of cash and cash equivalents measured at amortized cost is insignificant due to their short-term maturity, counterparties' investment grade credit ratings and established exposure limits. Therefore, Nemetschek Group did not recognize any credit impairment losses of those financial assets.

Other non-financial assets

Other non-financial assets mainly relate to accrued items and contract assets. A contract asset is a right to consideration in exchange for goods or services transferred to the customer. If the Group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognized for the earned consideration that is conditional.

The capitalized assets for the incremental costs of obtaining a customer contract primarily include sales commissions earned by the sales partners of the Group and are classified as other non- financial assets. They are amortized on a straight-line basis over the contract duration, which represents the Group's expectation for the amortization period of the capitalized cost of obtaining a contract. The amortization is presented as commissions within other expenses. The Group does not capitalize the incremental cost of obtaining a contract if the amortization period of the asset is one year or less.

Property, plant and equipment

Property, plant and equipment are measured at amortized cost. This comprises any costs directly attributable to bringing the asset to the condition necessary for it to be capable of operating in the manner intended by management less any accumulated depreciation and accumulated impairment losses. Depreciation is recognized for those assets, with the exception of land and construction in progress, over the estimated useful life utilizing the "straight-line method" and taking into account any potential residual value. Parts of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item are depreciated separately.

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The estimated useful lives of property, plant and equipment are as follows:

acquired in a business combination as well as other intangibles are amortized as follows:

TABLE OF USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT		USEFUL LIFE OF INTANGIBLE ASSETS
		Useful life in years				Useful life in years
Vehicles		5		Brand name		10	- 15
Office equipment		3 - 10		Technology		5	- 12
Leasehold improvements		5 - 10		Customer relationship		10	- 25

Expenditure for repairs and maintenance is expensed as incurred. Renewals and improvements are capitalized and depreciated separately if the recognition criteria are met.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within other income / expenses.

Intangible assets and goodwill

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary on the date of acquisition.

Goodwill is allocated to cash-generating units (CGUs) for the purpose of impairment testing. The allocation is made to those cash- generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. For purposes of internal and external reporting, the activities of Nemetschek Group are broken down into the Design, Build, Media and Manage segments. The budget for 2024 and the medium-term planning for the subsequent years were drawn up on the basis of this reporting structure.

Intangible assets (except goodwill)

Separately acquired intangible assets are shown at historical cost less accumulated amortization. Intangible assets acquired in a business combination are recognized at fair value on the acquisition date. Intangible assets which have a finite useful life will be amortized over their estimated useful lives. Amortization is calculated using the straight-line method. Intangible assets not yet available for use are not amortized, but instead tested for impairment at least annually.

The Group's intangibles are not qualifying assets in accordance with IAS 23. Therefore, no borrowing costs are capitalized.

The useful lives of intangible assets acquired in a business combination are estimates based on the economics of each specific asset which were determined in the process of the purchase price allocation. The useful lives are reviewed at each reporting date by taking into account, amongst others, technological change and adjusted if appropriate. The major part of these assets is brand names, technology and customer relationships. Intangibles

Development costs

Costs of research are expensed in the period in which they are incurred. Costs for development activities, whereby research findings are applied to a plan or design for the development of new or substantially improved intangible assets, are capitalized if development costs can be measured reliably, the product or process is technically and commercially feasible and future economic benefits are probable. Furthermore, Nemetschek Group intends and has sufficient resources to complete development and use or sell the intangible asset.

In the fiscal year 2023, as well as in the previous year, none of the development projects fulfilled the capitalization criteria. Development costs in the amount of EUR 201,632k (previous year: EUR 182,568k) and amortization of software acquired in business combinations in the amount of EUR 19,393k (previous year: EUR 23,296k) are carried as expenses.

Impairment of non-financial assets

Assets with a finite useful life

For assets with a finite useful life, an impairment test is needed if there are indications that those assets may be impaired. If such indications exist, the amortized carrying value of the asset is compared to the recoverable amount, which is the higher of an asset's fair value less costs to sell and its value in use. The value in use is the discounted present value of future cash flows expected to arise from the continuing use of the asset. In the case of an impairment, the difference between the amortized carrying amount and the lower recoverable amount is recognized as an expense in profit or loss. If evidence exists that the reasons for the impairment no longer exist, the impairment loss is reversed. The reversal cannot result in an amount exceeding amortized cost.

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CONSOLIDATED FINANCIAL STATEMENTS

Goodwill and intangible assets not yet ready for use Intangible assets not yet ready for use or advance payments on such assets as well as goodwill must be tested for impairment annually. A test is also performed whenever there is any indication that an asset might be impaired. Where the reasons for an impairment no longer exist, the impairment loss is reversed, except in the case of goodwill.

The recoverable amount is determined for each individual asset, unless an asset generates cash inflows that are not largely independent of those from other assets or other groups of assets or cash-generating units. In these cases, the impairment test is performed at the relevant level of cash-generating units to which the asset is attributable. Where the recoverable amount of the cash- generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognized.

Nemetschek determines the recoverable amount of the relevant unit to which the goodwill is allocated based on the value in use. The value in use is calculated using a discount rate from the present value of the future cash flows from the use of this unit.

The determination of the future cash flows and their underlying parameters such as revenue growth and EBITDA margin is performed on the basis of the knowledge gained in the past, the current economic results and the budgets approved over a period of three to five years, which contains the expected future macroeconomic developments. The budgeting for the fiscal year 2024 is prepared applying certain uniform Group assumptions "from the bottom to the top" (bottom-up method). The cash flows for the further budget years follow similar premises, however they are not at the same level of detail as the first budget year. Estimates for periods beyond the budgeting horizon are made using the perpetuity method. The growth rates applied do not account for capacity expanding investments for which cash flows have not yet been incurred. These are derived from available market studies by market research institutes and do not exceed the long- term average historical growth rates of the relevant cash-generating units. In the fiscal year 2023 a growth rate of up to 2.0% (previous year: 2.0%) was assumed.

The budgets are driven by a strongly growing business during the planning period of three to five years. In the terminal value a growth rate between 1.5% and 2.0% (previous year: 1.5% and 2.0%) is estimated leading to a gap between the last year of the detail plan and the terminal value. To derive a more realistic recoverable amount, a three year convergence period is applied. Within that period the growth rate at the end of the detail planning period converges to the growth rate applied in the terminal value.

The discount rate required for discounting future cash flows is calculated from the weighted average cost of capital (WACC) of the related cash-generating unit or group of cash-generating units after tax. The relevant pre-tax WACC in accordance with IAS 36 is derived from future cash flows after tax and the after-tax WACC applying typical tax rates for each cash-generating unit.

Then, the risk-free interest rate according to the Svensson method, taking into account risk premiums (with an applied floor of 0%), and the beta as well as the gearing ratio are derived from a group of comparable entities. The discount rate thus estimated reflects the current market returns as well as the specific risk of the respective cash-generating unit or group of cash-generating units. The discount rate applied to derive the present value of the cash flow forecasted ranges between 13.1% and 18.6% (previ- ous year: 12.0% and 19.5%) before tax.

Leases

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of vehicles and office equipment, the Group has elected not to separate non-lease components and instead account for the lease and non-lease components as a single lease component.

The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. 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 any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property, plant and equip- ment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The Group recognizes leasehold improvements as an item of pro- perty, plant and equipment.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date and discounted by using the incremental borrowing rate, as the interest rate implicit in the lease cannot be readily determined. The interest rate is derived in relation to the currency areas.

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