79 condition has the effect of postponing the recognition of certain performance fees until the expiry of the performance valuation period and until they are definitively acquired. LEASES (IFRS 16) The Group may be the lessor or lessee of a lease. Leases for which the Group is the lessor Leases are analysed in accordance with their substance and financial reality. They are recognised in the accounts as finance leases or operating leases, as applicable. • In the case of finance leases, they are classified as the sale of a fixed asset to the lessee, financed by credit extended by the lessor. Analysis of the economic substance of finance leases leads the lessor to: a) Remove the leased asset from the balance sheet; b) Record a financial receivable from the customer under “financial assets at amortised cost” for a value equal to the present value at the contract’s implicit rate of rental payments due to the lessor under the lease, plus any non-guaranteed residual value owed to the lessor; c) Recognise deferred taxes for temporary differences relating to the financial receivable and the net carrying value of the leased; d) Break down the rental income into interest and amortised capital. • In the case of operating leases, the lessor recognises the leased assets under “property, plant & equipment” on the assets side of their balance sheet and records the rental income on a straight-line basis under “income from other activities” in the Income Statement. Leases for which the Group is the lessee Leases are recognised in the balance sheet as at the date on which the leased asset was made available. The lessee records an asset representing the right of use of the leased asset under “Property, plant & equipment” over the estimated term of the contract and a liability representing the rental payment obligation under “sundry liabilities” over that same term. A contract’s term equates to the non-cancellable period of the lease, adjusted to take account of contract extension options that the lessee is reasonably certain to exercise and the termination option that the lessee is reasonably certain not to exercise. In France, the Group principle applicable to openended or tacitly renewable contracts is to retain the first exit option after 5 years. The lease term applied for 3/6/9 commercial leases is generally nine years with an initial non-cancellable period of three years. Where the lessee considers that it is reasonably certain that it will not exercise the exit option after 3 years, the Group principle will be applied to French commercial leases in most cases, at the start date of the lease. Thus, the duration will be estimated at 6 years. The Group principle (first exit option after 5 years) may not be applied in certain specific cases, such as for a lease in which the intermediate exit options have been abandoned (for example in return for a reduction in rent). In this case, the initial rental period should be 9 years (unless a tacit extension of a maximum of 3 years is anticipated in the general case). The lease liability is recognised for an amount equal to the present value of the rental payments over the term of the contract. Rental payments include fixed rent, variable rent based on a rate or index, and payments that the lessee expects to pay as residual value guarantees, purchase options or early termination penalties. The liability is calculated excluding variable rent not based on an index or a rate and non-deductible VAT on rent, which are recognised under “operating expenses”. The discount rate applicable when calculating the right-of-use asset and the lease liability is, by default, the lessee’s marginal debt ratio over the term of the contract on the date it was signed, where the implicit rate cannot be easily established. The marginal debt ratio takes account of the rent payment structure. It reflects the terms of the lease (duration, guarantees, economic environment, etc.). The cost of leases is broken down into interest and amortised capital. The right-of-use of the asset is valued at the initial value of the lease liability plus the initial direct costs, advance payments and restoration costs, minus any lease incentive benefits. It is amortised over the estimated term of the lease. The lease liability and the right of use may be adjusted in the event of any amendment to the lease, re-estimation of the lease term or rent review related to the application of indices or rates. Deferred taxes are recognised as temporary differences in right-of-use and rental liabilities by the lessee. In accordance with the exception provided for by the standard, short-term leases (initial term of less than twelve months) and leases for which the replacement value of the leased asset is low are not recognised on the balance sheet. The corresponding leasing expenses are recorded on a straight-line basis in the Income Statement under “operating expenses” In accordance with the provisions of the standard, the Group does not apply IFRS 16 to leases of intangible assets.
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