IFRS 16 adopted, policies, paras 51 – 60 certain lessee disclosures

Meggitt PLC – Annual report – 31 December 2018

Industry: aerospace

  1. Summary of significant accounting policies (extract)


The majority of the Group’s leases relate to property. A lease liability is recognised when the Group obtains control of the right-of-use asset, that is the subject of the lease. The lease liability is subsequently measured using the effective interest method, with interest charged to finance costs.

At inception, the Group evaluates whether it is reasonably certain that any option to extend a lease term will be exercised. Typically, where the initial lease term for a property used for the Group’s manufacturing operations is for at least five years, the option to extend the lease term is at market rates and the right-of-use asset is not considered specialised, it is unusual for an extension of lease term to be reflected at lease inception.

The Group will however, continue to evaluate the likelihood of exercising such options throughout the initial lease term. When the Group is committed to extending the lease, having considered the alternative options available and, where appropriate, lessor consent to the extension has been obtained, the Group will consider the option to be reasonably certain to be exercised. When an option is reasonably certain to be exercised, the right-of-use asset and lease liabilities recognised are adjusted to reflect the extended term.

Leases, which at inception have a term of less than 12 months or relate to low-value assets, are not recognised on the balance sheet. Payments made under such leases are charged to the income statement on a straight-line basis over the period of the lease.


  1. Financial risk management (extract)

Liquidity risk

The Group maintains sufficient committed facilities to meet projected borrowing requirements based on cash flow forecasts. Additional headroom is maintained to protect against the variability of cash flows and to accommodate small bolt-on acquisitions. Key ratios are monitored to ensure continued compliance with covenants contained in the Group’s principal credit agreements. The following tables analyse the Group’s non-derivative financial liabilities and derivative assets and liabilities at the balance sheet date. The amounts disclosed in the tables are the contractual undiscounted cash flows:


  1. Lease liabilities

The Group leases various factories, warehouses, offices, plant and equipment. The following amounts are included in the Group’s consolidated financial statements in respect of its leases:


At 31 December 2018, the Group had the following significant lease commitments:

  • A lease relating to its new facility being constructed at Ansty Park, West Midlands, UK (see note 11). The Group expects to recognise this lease in 2019, when it obtains control of the right-of-use asset and to recognise a lease liability and right-of-use asset of approximately £60.0m at that date. The lease term is 30 years. At the date the lease is recognised, the Group expects undiscounted cash flows to be: £9.0m inflow in one year or less; £11.0m outflow in more than one year but not more than five years; and £99.0m outflow in more than five years.
  • In January 2019, the Group completed a sale and leaseback of its existing manufacturing facilities in Coventry, West Midlands, UK. Lease liabilities and right-of-use assets of approximately £11.0m will be recognised and the lease terms range from two years for the main manufacturing facilities to 25 years for one of the Group’s specialised operations. An impairment loss of £7.6m has been recognised in 2018 in respect of the carrying value of the facilities and is included within exceptional operating items (see note 11). At the date the leases are recognised, the Group expects undiscounted cash outflows to be: £0.9m in one year or less; £2.4m in more than one year but not more than five years; and £13.4m in more than five years.