RELX Group – Annual report – 31 December 2018
1 Basis of preparation and accounting policies
Standards and amendments effective for the year (extract 1)
New accounting standards and amendments effective for the period and adopted by the Group in 2018 are IFRS 9 – Financial Instruments and IFRS 15 – Revenue from Contracts with Customers. IFRS 16 – Leases has also been adopted in the period, a year earlier than its mandatory effective date of 1 January 2019.
The impact of the adoption of these standards on the full year 2016 and full year 2017 results is as follows:
Standards and amendments effective for the year (extract 2)
IFRS 16 – Leases (early adopted and therefore effective for the 2018 financial year)
IFRS 16 eliminates the distinction between operating and finance leases and requires lessees to recognise all leases with a lease term of greater than 12 months in the statement of financial position. RELX has adopted this standard a year earlier than the mandatory effective date of 1 January 2019. IFRS 16 has been adopted on a fully retrospective basis.
The change in accounting standard results in both an asset and liability being brought onto the statement of financial position for the majority of leases where RELX is a lessee. The asset is then depreciated, and interest expense recognised over the life of the lease. The standard also gives guidance on the recognition of subleases, which results in finance sublease receivables being recognised on the balance sheet. As at 31 December 2017, the restated statement of financial position includes additional right-of-use assets of £271m, finance lease receivables of £57m and additional lease liabilities of £381m (31 December 2016:right-of-use assets of £306m, finance lease receivables of £63m and lease liabilities of £430m).
The impact on the income statement for the 12 months to 31 December 2017 is an increase of £11m to both reported and adjusted operating profit (31 December 2016: £6m increase to reported operating profit) offset by a net increase to finance costs of £15m (31 December 2016: £16m). After taking into account additional gains from disposals of right-of-use assets, there is no impact on reported net profit.
Opening balance sheet adjustment
An opening balance sheet adjustment has been made at 1 January 2016 to reflect the impact of adoption on prior years. The adjustment reduces opening retained earnings by £36m. This mainly relates to the recognition of lease expense earlier on in the lease under IFRS 16 and the deferral of revenue into future periods under IFRS 15.
23 Lease arrangements
All leases where RELX is the lessee (with the exception of short-term and low-value leases) are recognised in the statement of financial position. A lease liability is recognised based on the present value of the future lease payments, and a corresponding right-of-use asset is recognised. The right-of-use asset is depreciated over the shorter of the lease term or the useful life of the asset. Lease payments are apportioned between finance charges and a reduction of the lease liability.
Low-value items and short-term leases with a term of 12 months or less are not required to be recognised on the balance sheet and payments made in relation to these leases are recognised on a straight-line basis in the income statement.
The leases held by the Group can be split into two categories: property and non-property. The Group leases various properties, principally offices, which have varying terms and renewal rights that are typical to the territory in which they are located. Non-property includes all other leases, such as cars and printers.
Interest expense on the lease liabilities recognised within finance costs was £14m (2017: £17m, 2016: £18m).
As at 31 December 2018, RELX was committed to leases with future cash outflows totalling £40m which had not yet commenced and as such are not accounted for as a liability as at 31 December 2018. A liability and corresponding right-of-use asset will be recognised for these leases at the lease commencement date.
RELX subleases vacant space available within its leased properties. IFRS 16 specifies conditions whereby a sublease is classed as a finance lease for the sub-lessor. The finance lease receivable balance held is as follows:
Interest income recognised in relation to finance lease receivables is disclosed in note 7.
18 Financial instruments (extract)
Debt is issued to meet the funding requirements of various jurisdictions and in the currencies that are needed. It is recognised that debt can act as a natural translation hedge of earnings, net assets and net cash flow in currencies other than the reporting currency. For this reason, the majority of the Group’s net debt is denominated in US dollars and euros, reflecting the Group’s largest geographical markets.
There were no changes to the Group’s long-term approach to capital and liquidity management during the year.
The remaining contractual maturities for borrowings and derivative financial instruments are shown in the table below. The table shows undiscounted principal and interest cash flows and includes contractual gross cash flows to be exchanged as part of cross-currency interest rate swaps and forward foreign exchange contracts where there is a legal right of set-off.
7 Net finance costs
Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that takes a substantial period of time to bring to use are capitalised. All other interest on borrowings is expensed as incurred. The cost of issuing borrowings is generally expensed over the period of borrowing so as to produce a constant periodic rate of charge.
Losses of £8m (2017: gains of £63m; 2016: losses of £26m) on interest rate derivatives designated as cash flow hedges were recognised in other comprehensive income and accumulated in the hedge reserve, and may be reclassified to the income statement in future periods. Gains of £3m (2017: gains of £65m; 2016: losses of £27m) in total were transferred from the hedge reserve in the period. The movements in 2017 included gains of £78m (2016: losses of £18m) related to foreign exchange movements on debt hedges which were reclassified immediately to the income statement and offset £78m (2016: £18m gains) of foreign exchange losses on the related debt.
3 Operating profit (extract)
Operating profit is stated after charging/(crediting) the following:
Consolidated statement of cash flows