Lease agreements

The lease agreements of the Group mainly relate to office premises. The durations of the lease agreements range from less than one year to fifteen years, and the contracts can usually be extended after the original date of expiration. The index, renewal and other terms of the different agreements vary.

In addition to real estate, the Group has additionally leased assets such as several land areas under substations and transmission lines and some 110 kilovolt transmission lines and circuit breaker bays.

13. LEASE AGREEMENTS, € 1,000 2018 2017
Rental obligations from lease agreements:    
In one year 4,223 4,079
In more than one year and less than five years 14,716 14,279
In more than five years 11,273 13,913
Total 30,212 32,270

 Accounting principles

Lease agreements
Lease obligations where the risks and rewards incident to ownership remain with the lessor are treated as other lease agreements. Lease obligations paid on the basis of other lease agreements are treated within other operating expenses and are recognised in the income statement as equally large items during the lease period. Other lease agreements primarily concern office facilities, land areas and network leases. In accordance with the principles of standard IAS 17 Leases, those leases which transfer substantially all the risks and rewards incident to ownership to the company are classified as finance leases. The company has not leased tangible or intangible assets using finance leases.

IFRS 16 Leases
The IFRS 16 standard will be applied as of 1 January 2019. It replaces the previous IAS 17 Leases standard, which required classification of leases as either operating leases or finance leases. As defined in the new standard, a lease is a contract, or part of a contract, that conveys the right to use an identified asset for a period of time in exchange for consideration. Each lease is analysed independently when the contract is entered into, including all the components contained in the contract. From now on, both the underlying asset to which the right to use applies and the liability representing future lease payments are recognised in the balance sheet over the time of its economic impact. The substantial changes due to IFRS 16 mostly apply to lessors. Leases are recognised in the balance sheet except for short-term leases and leases of low-value assets. Exceptions are possible for short-term leases and leases of low-value assets, and no adjustments are necessary for such assets when transitioning from the old system to the new one. It is possible to apply a modified retrospective transition approach when adopting the standard, in other words the company recognises the effect of initially applying IFRS 16 as an adjustment to the equity at the date of initial application, on 1 January 2019. 

The company has assessed the impacts of the adoption of the IFRS 16 standard.

During 2018, Fingrid carried out a project to prepare for the transition to the new standard. The initial stage of the project focused on finding out which of the company’s contracts meet the standard definition of a lease and consequently fall within its scope of application. According to the company’s current view, the contracts to be recognised in the balance sheet in compliance with IFRS 16 are real estate leases. The company has a number of other contracts that, according to the management’s judgement, are insignificant in terms of their impact on the balance sheet and accuracy of financial reporting.

The company’s lease liabilities on the reporting date of the 2018 financial statements totalled EUR 30.2 million, consisting of EUR 4.2 million in short-term liabilities, to be paid within a year, and EUR 26.0 million in long-term liabilities, with a due date after more than a year. The lease liabilities are presented in note 13.

The change results in an increase in property, plant and equipment, and in liabilities. As a result of the project, the Group recognised items of property, plant and equipment totalling around EUR 35 million on 1 January 2019 as leases in compliance with IFRS 16. Other operating expenses in the income statement will decrease because leases will in future be stated as depreciations and interest costs. The liability will be amortised using the effective interest rate method, where the relative amount of interest expenditure decreases along with the principal liability, resulting in ‘frontloading’ of the lease expenses in the income statement over the lease term. The standard also affects the Group’s cash flow. The cash flow from operating activities will increase because the capital repayment component of the lease liabilities will be classified as cash flow from financing activities. The interest component will continue to be disclosed in the cash flow from operating activities.

According to Fingrid’s estimation, IFRS 16 will have an impact of EUR –0.2 million on the consolidated profit during the first year. Lease expenses are estimated to decrease by around EUR 3.0 million in 2019, whereas depreciations are estimated to increase by EUR 2.6 million and interest costs by EUR 0.7 million.

The right-of-use contracts of the powerlines have already been entered directly in the balance sheet on the contract date, which means there will be no changes in their accounting procedures due to the transition to IFRS 16.

Fingrid will apply a modified retrospective transition approach when adopting the standard, in other words the impacts will be recognised on the transition date, 1 January 2019. The modified retrospective transition approach entails no retrospective adjustments to the previous year’s figures.