IFRS 16 - The New Lease Accounting Standard · operating lease obligations data from each company’s latest annual report (posted on the investor relations page of the company’s

IFRS 16 - The New Lease Accounting Standard

A Ranking of the Leasing Obligations of the FTSE 350

January 2019

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IFRS 16 - The New Lease Accounting Standard A Ranking of the Leasing Obligations of the FTSE 350 JANUARY 2019

BACKGROUND AND HISTORY OF IFRS 16Starting on 1 January 2019, companies will begin to adopt the new IFRS 16 lease accounting standard published by the International Accounting Standards Board (IASB). As one of the biggest accounting changes in history, IFRS 16 will result in listed companies transferring almost $3 trillion worth of liabilities onto corporate balance sheets over the coming years.

Historically, only finance leases – leases that have a similar structure to asset purchases – have been reported as assets and liabilities on corporate balance sheets. Other leases, called operating leases, were “off-balance sheet” and were accounted for using principles similar to service contracts.

Following the major accounting scandals of the early 2000s such as WorldCom, Enron, and Arthur Andersen, off-balance sheet liabilities became a major focal point for the regulatory agencies that govern the capital markets in various countries around the world. Regulators were concerned that without corporations reporting leases on balance sheets, investors and analysts did not have sufficient information to evaluate the financial position of a company or easily make comparisons between peers in the same industry.

In an effort to provide greater transparency, the IASB, which defines standards for international financial reporting, introduced a new set of lease accounting standards. IFRS 16 was first published in January 2016 and will supersede the current lease accounting standard IAS 17.

IFRS 16 eliminates the operating leases classification. Instead, all leases will be treated as finance leases. The IFRS 16 standard was published in conjunction with the updated US GAAP lease accounting standard, ASC 842, though the standards differ on several key points, including that ASC 842 maintains the dual classification of leases as operating and finance. The IFRS 16 standard still allows short-term (less than or equal to 12 months) and low-value (less than or equal to $5000) leases to be reported in the footnotes.

Additional information on IFRS 16 is available on https://www.ifrs.org/projects/2016/ifrs-16-leases/.

Source: International Accounting Standards Board - IFRS 16 Effects Analysis



WHO WILL BE MOST IMPACTED BY THE NEW LEASE ACCOUNTING STANDARDS? LeaseAccelerator ranked the operating lease obligations of the FTSE 350 as of November 2018. It sourced the operating lease obligations data from each company’s latest annual report (posted on the investor relations page of the company’s corporate website) as of November 2018. The numbers have been rounded up to the nearest ten thousand for presentation purposes. Numbers reported in a currency other than the pound sterling were converted. No other manipulations of the data have been performed.

Operating lease obligations are comprised of two principle categories:

1. Real Estate – most companies lease rather than own the office buildings, distribution centres, retail stores, research labs, manufacturing plants, and data centres used to run their operations.

2. Equipment – companies also lease technology assets such as computers, servers, and data centre equipment to support their IT initiatives as well as transportation assets like forklifts, trucks, railway carriages, and marine vessels to move goods through the supply chain.

For most companies, the monetary value of the real estate portion of the lease portfolio is higher than the equipment portion. However, corporations tend to have a far greater number of equipment assets than real estate assets, complicating administration and accounting efforts.

LeaseAccelerator’s analysis of the FTSE 350 index companies found that Royal Dutch Shell, BP, Sainsbury’s, Vodafone, and International Airlines Group have the highest operating lease obligations. The highest leasing obligations are concentrated among companies from the energy, airlines, retail, telecommunications, and financial services sectors.

• Energy companies such as Royal Dutch Shell and BP typically lease a diverse range of assets, including offshore drilling rigs, tankers, terminals, pipelines, storage tanks, railway freight carriages, petrol, and convenience stores.

• Airline companies such as International Airlines Group, TUI Group, and Wizz Air typically lease significant space at airports for check-in, baggage checking, and departure gates. Additionally, these groups lease a significant percentage of the aircraft and components used to fly cargo and passengers to and from destinations.

• Retailers such as Sainsbury’s, Marks & Spencer, and Tesco typically lease a large footprint of real estate for their stores and distribution centres as well as IT assets such as servers, storage, and data centre equipment to support their e-commerce operations.

• Telecommunications firms such as Vodafone Group and BT Group lease a mix of real estate and equipment assets including mobile phone towers, data centre properties, fibre optic circuits, and networking equipment.

• Financial institutions such as HSBC, Barclays, and The Royal Bank of Scotland typically lease a large footprint of real estate, including bank branches and office buildings, as well as technology assets such as servers, storage, and data centre equipment to support online banking and electronic trading operations.



COMPANIES RANKED BY OPERATING LEASE OBLIGATIONSRank Company Industry Operating Leases (MM)1 Royal Dutch Shell Oil & Gas Producers £18,279.422 BP Oil & Gas Producers £10,868.593 Sainsbury’s Food & Drug Retailers £10,019.004 Vodafone Group Mobile Telecommunications £8,621.325 International Airlines Group Travel & Leisure £6,796.386 BT Group Fixed Line Telecommunications £6,597.007 IWG Miscellaneous Commercial Services £5,057.508 Associated British Foods Food Producers £4,614.009 Marks & Spencer General Retailers £4,196.0010 FirstGroup Other Transportation £3,622.1011 Whitbread Retail hospitality £3,579.6012 HSBC Banks £3,076.5613 Tesco Food & Drug Retailers £2,599.0014 BBA Aviation Investment Trusts/Mutual Funds £2,576.0015 Barclays Banks £2,536.0016 TUI Group Travel & Leisure £2,311.4117 Royal Bank of Scotland Group Banks £2,279.0018 Unilever Personal Goods £2,182.4519 Wizz Air Airlines £2,111.3120 Dixons Carphone Specialty Stores £2,057.0021 Lloyds Banking Group Banks £2,054.0022 CRH plc Construction & Materials £1,947.2523 Merlin Entertainments Movies/Entertainment £1,897.0024 Rolls-Royce Holdings Aerospace & Defence £1,871.0025 Next plc General Retailers £1,847.7026 Tritax Big Box REIT Wholesale Distributors £1,842.8327 Travis Perkins Investment Trusts/Mutual Funds £1,832.1028 Greene King Restaurants £1,827.1029 Morrisons Food & Drug Retailers £1,769.0030 BAE Systems Aerosapce & Defense £1,646.0031 Cineworld Movies/Entertainment £1,625.0032 Spire Healthcare Hospital/Nursing Management £1,590.9033 BHP Mining £1,565.3334 Rio Tinto Group Mining £1,437.0235 SSP Group Restaurants £1,424.5036 B & M European Retail Value Real Estate Development £1,257.7837 Shire plc Pharmaceuticals & Biotechnology £1,230.3938 Assura Real Estate Investment Trusts £1,215.1039 Pearson plc Media £1,201.00



Rank Company Industry Operating Leases (MM)40 Royal Mail Industrial transportation £1,067.0041 GlaxoSmithKline Pharmaceuticals & Biotechnology £1,045.0042 Aviva Life Insurance £853.0043 Ferguson plc Support Services £841.9644 W H Smith Specialty Stores £841.0045 Sports Direct Apparel/Footwear Retail £839.9046 Capita Real Estate Development £833.0047 Standard Chartered Banks £819.3848 Burberry Personal Goods £800.4049 BCA Marketplace Beverages: Non-Alcoholic £761.6050 Wetherspoon (J D) Restaurants £727.5551 Babcock International Department Stores £701.9052 Mitchells & Butlers Restaurants £693.0053 Wood Group Oil Equipment & Services £672.4054 Premier Oil Oil & Gas Production £670.6755 Glencore Mining £617.6556 Mediclinic International Hospital/Nursing Management £607.0057 Compass Group Support Services £561.0058 Superdry Apparel/Footwear Retail £558.2059 Halfords Group Specialty Stores £555.4060 WPP plc Media £548.6061 JD Sports Apparel/Footwear Retail £507.5062 Bunzl Support Services £506.2063 Schroders Financial Services £502.8064 Prudential plc Life Insurance £486.0265 RELX Group Media £484.0066 Legal & General Life Insurance £472.0067 G4S Miscellaneous Commercial Services £470.0068 Howden Joinery Specialty Stores £464.8069 Jardine Lloyd Thompson Insurance Brokers/Services £455.7370 National Express Group Other Transportation £445.1071 British American Tobacco Tobacco £445.0072 National Grid plc Gas, Water & Multi-utilities £443.0073 Metro Bank Regional Banks £419.2874 Savills Real Estate Development £416.3075 InterContinental Hotels Group Travel & Leisure £415.9276 Inchcape Specialty Stores £410.7077 AstraZeneca Pharmaceuticals & Biotechnology £406.8978 Dunelm Group Department Stores £400.0079 Anglo American plc Mining £399.11



Rank Company Industry Operating Leases (MM)80 Ashtead Group Support Services £397.6081 Ei Group Restaurants £396.0082 Centrica Gas, Water & Multi-utilities £388.0083 Ocado Food & Drug Retailers £373.6084 Mondi Forestry & Paper £369.9785 William Hill Casinos/Gaming £362.5086 easyJet Travel & Leisure £352.0087 DCC plc Support Services £344.9888 Reckitt Benckiser Household Goods & Home Construction £340.0089 Rank Group Casinos/Gaming £330.7090 RSA Insurance Group Nonlife Insurance £327.0091 SIG plc Building Products £321.4092 Diageo Beverages £312.0093 Smurfit Kappa General Industrials £311.2794 Intertek Support Services £300.7095 Standard Life Aberdeen Financial Services £297.0096 Man Group Investment Managers £293.8897 United Utilities Gas, Water & Multi-utilities £292.9098 Carnival Corporation & plc Travel & Leisure £291.7599 Investec Investment Banks/Brokers £267.58100 CYBG Regional Banks £267.00101 Ted Baker Apparel/Footwear £266.69102 Kier Group Engineering & Construction £261.40103 TP ICAP Investment Banks/Brokers £244.00104 NewRiver Real Estate Investment Trusts £240.72105 Direct Line Group Non-life Insurance £232.10106 Unite Group Real Estate Development £217.80107 Millennium & Copthorne Hotels Hotels/Resorts/Cruiselines £217.00108 ContourGlobal Electric Utilities £211.75109 Smith, D.S. General Industrials £210.00110 Hays Personnel Services £208.20111 Cairn Energy Oil & Gas Production £203.32112 Imperial Brands Tobacco £203.00113 London Stock Exchange Group Financial Services £198.00114 Stobart Other Transportation £194.67115 Domino’s Pizza Restaurants £186.04116 Experian Support Services £183.61117 Smith & Nephew Health Care Equipment & Services £182.26118 SSE plc Electricity £174.60119 Weir Group Industrial Machinery £173.50



Rank Company Industry Operating Leases (MM)120 Provident Financial Finance/Rental/Leasing £170.10121 Balfour Beatty Food: Specialty/Candy £168.00122 Cobham Aerospace & Defense £167.10123 Admiral Group Nonlife Insurance £166.60124 Card Factory Specialty Stores £165.30125 Pennon Group Water Utilities £162.90126 TI Fluid Systems Auto Parts: OEM £159.70127 Smiths Group General Industrials £155.00128 Grainger Wholesale Distributors £152.65129 Greggs Food Retail £150.64130 Rentokil Initial Support Services £149.70131 St. James’s Place plc Life Insurance £148.70132 Computacenter Information Technology Services £147.50133 Greencore Food: Major Diversified £138.10134 TalkTalk Group Specialty Telecommunications £136.00135 ITV plc Media £136.00136 PageGroup Personnel Services £135.89137 Coca-Cola HBC AG Beverages £135.62138 Antofagasta Mining £134.13139 Informa Media £132.00140 Johnson Matthey Chemicals £114.00141 Micro Focus Software & Computer Services £110.67142 Inmarsat Wireless Telecommunications £105.96143 Bakkavör Investment Trusts/Mutual Funds £98.90144 Aggreko Electric Utilities £98.00145 NMC Health Health Care Equipment & Services £97.22146 Melrose Industries Automobiles & Parts £96.50147 Clarkson Marine Shipping £93.60148 RPC Group Containers/Packaging £92.00149 IMI Miscellaneous Manufacturing £91.90150 Rathbone Brothers Investment Managers £89.29151 Petrofac Oilfield Services/Equipment £81.50152 UDG Healthcare Medical Distributors £80.54153 Jupiter Fund Management Financial Conglomerates £77.40154 Barratt Developments Household Goods & Home Construction £75.60155 Tullow Oil Oil & Gas Production £73.86156 Keller Group Engineering & Construction £68.20157 Spectris Electrical Products £67.50158 Marshalls Construction Materials £65.22159 Entertainment One Wholesale Distributors £64.10



Rank Company Industry Operating Leases (MM)160 Bodycote Engineering & Construction £61.60161 Close Brothers Group Investment Banks/Brokers £58.30162 Essentra Industrial Specialties £57.50163 Playtech Packaged Software £56.18164 Hiscox Multi-Line Insurance £55.01165 Sophos Information Technology Services £53.48166 Sanne Group Investment Managers £52.50167 RHI Magnesita Construction Materials £51.97168 Dairy Crest Food: Meat/Fish/Dairy £51.90169 Paddy Power Betfair Travel & Leisure £51.58170 Hunting Oilfield Services/Equipment £50.86171 Brewin Dolphin Holdings Investment Trusts/Mutual Funds £50.62172 Coats Textiles £48.90173 ConvaTec Medical Specialties £48.12174 Britvic Beverages: Non-Alcoholic £47.80175 Beazley Group Miscellaneous Commercial Services £45.70176 Electrocomponents Wholesale Distributors £45.50177 Halma Electronic & Electrical Equipment £45.03178 Aveva Packaged Software £44.69179 Equiniti Miscellaneous Commercial Services £44.50180 Esure Property/Casualty Insurance £43.70181 Drax Group Electric Utilities £43.50182 Ibstock Construction Materials £43.29183 Hilton Food Group Food: Meat/Fish/Dairy £42.43184 Ultra Electronics Holdings Aerospace & Defense £41.92185 Lancashire Holdings Multi-Line Insurance £41.90186 AA Other Consumer Services £40.00187 James Fisher & Sons Marine Shipping £38.80188 Moneysupermarket.com Group Other Consumer Services £37.90189 Homeserve Miscellaneous Commercial Services £37.80190 Ascential Advertising/Marketing Services £37.40191 Galliford Try Homebuilding £36.40192 TR Property Investment Trust Real Estate Investment Trusts £34.95193 Synthomer Chemicals: Specialty £34.70194 Hikma Pharmaceuticals Pharmaceuticals: Generic £34.48195 888 Holdings Casinos/Gaming £34.40196 Ferrexpo Steel £33.28197 3i Financial Services £32.00198 Just Eat General Retailers £31.00199 Spirax-Sarco Engineering Industrial Machinery £30.80



Rank Company Industry Operating Leases (MM)200 Croda International Chemicals £30.70201 Bank of Georgia Other Transportation £30.22202 Auto Trader Group Miscellaneous Commercial Services £30.00203 Vesuvius Miscellaneous Manufacturing £29.60204 Hargreaves Lansdown Financial Services £28.60205 GVC Holdings Travel & Leisure £28.28206 QinetiQ Aerospace & Defense £28.20207 Cranswick Food: Meat/Fish/Dairy £26.80208 Taylor Wimpey Household Goods & Home Construction £25.20209 Bovis Homes Group Homebuilding £25.09210 Games Workshop Recreational Products £24.67211 BTG Pharmaceuticals: Other £24.40212 Intermediate Capital Group Investment Managers £24.10213 FDM Group Information Technology Services £22.12214 British Land Real Estate Investment Trusts £21.00215 Diploma Wholesale Distributors £20.90216 Genus Agricultural Commodities/Milling £20.80217 Indivior Pharmaceuticals: Other £20.38218 Rotork Industrial Machinery £19.27219 Elementis Chemicals: Specialty £18.49220 Kingfisher plc General Retailers £18.00221 Randgold Resources Mining £17.98222 Hammerson Real Estate Investment Trusts £17.40223 Renishaw Electronic Equipment/Instruments £16.98224 Phoenix Group Holdings Life/Health Insurance £16.00225 Polypipe Building Products £15.50226 Tate & Lyle Food: Specialty/Candy £14.00227 Countryside Properties Homebuilding £13.90228 Crest Nicholson Homebuilding £13.60229 Bellway Specialty Insurance £13.15230 IntegraFin Holdings Investment Managers £13.10231 Paragon Banking Group Regional Banks £13.00232 Sage Group Software & Computer Services £13.00233 Saga Property/Casualty Insurance £12.90234 Dechra Pharmaceuticals Pharmaceuticals: Other £12.60235 Persimmon plc Household Goods & Home Construction £12.30236 Rightmove Media £12.27237 IG Group Holdings Investment Banks/Brokers £12.10238 Thomas Cook Group Other Consumer Services £12.00239 Just Group Life/Health Insurance £11.90



Rank Company Industry Operating Leases (MM)

240 KAZ Minerals Other Metals/Minerals £11.76241 Charter Court Financial Services Finance/Rental/Leasing £11.40242 Energean Oil & Gas Oil & Gas Production £10.45243 Hastings Group Property/Casualty Insurance £9.80244 Polymetal International Precious Metals £9.40245 PZ Cussons Household/Personal Care £9.30246 Berkeley Group Holdings Household Goods & Home Construction £9.30247 Ashmore Group Investment Managers £9.20248 Redrow Homebuilding £9.00249 RIT Capital Partners Investment Trusts/Mutual Funds £8.90250 Barr, A.G. Major Banks £8.30251 Severn Trent Gas, Water & Multi-utilities £8.30252 Go-Ahead Group Other Transportation £7.70253 Great Portland Estates Real Estate Development £7.10254 Capital & Counties Properties Personnel Services £6.70255 John Laing Group Investment Trusts/Mutual Funds £6.40256 IP Group Miscellaneous Commercial Services £6.30257 Victrex Chemicals: Major Diversified £5.90258 Segro Real Estate Investment Trusts £5.10259 Shaftesbury Real Estate Investment Trusts £4.60260 Sirius Minerals Chemicals: Agricultural £4.10261 Fresnillo plc Mining £3.86262 Vivo Energy Gas Distributors £3.59263 St. Modwen Properties Other Transportation £3.00264 On the Beach Regional Banks £2.72265 OneSavings Bank Other Consumer Services £2.60266 Hochschild Mining Precious Metals £2.53267 Softcat Information Technology Services £2.41268 TBC Bank Major Banks £1.88269 Alliance Trust Investment Trusts/Mutual Funds £1.63270 Senior Aerospace & Defense £1.30271 Big Yellow Group Homebuilding £1.10272 Hill & Smith Miscellaneous Manufacturing £1.00273 Grafton Group Real Estate Investment Trusts £0.84274 Stagecoach Group Real Estate Investment Trusts £0.80275 Euromoney Institutional Investor Data Processing Services £0.71276 Morgan Advanced Materials Industrial Specialties £0.60277 Spirent Telecommunications Equipment £0.60278 Centamin Precious Metals £0.56279 Amigo Financial Conglomerates £0.50



Rank Company Industry Operating Leases (MM)280 Meggitt Aerospace & Defense £0.40281 LondonMetric Property Real Estate Development £0.34282 Telecom Plus Specialty Telecommunications £0.31283 Workspace Group Real Estate Development £0.20284 Witan Investment Trust Investment Trusts/Mutual Funds £0.07285 3i Infrastructure Investment Managers £0.00286 Fidelity China Special Situations Investment Trusts/Mutual Funds £0.00287 HICL Infrastructure Company Investment Managers £0.00288 Renewables Infrastructure Group Investment Managers £0.00289 Aberforth Smaller Companies Trust Investment Trusts/Mutual Funds Data Not Available

Avast Information Technology Services Data Not AvailableBaillie Gifford Japan Trust Miscellaneous Commercial Services Data Not AvailableBankers Investment Trust Engineering & Construction Data Not AvailableBBGI Investment Managers Data Not AvailableBlackRock Smaller Companies Trust Investment Trusts/Mutual Funds Data Not AvailableBritish Empire Trust Investment Banks/Brokers Data Not AvailableCaledonia Investments Financial Conglomerates Data Not AvailableCity of London Investment Trust Investment Trusts/Mutual Funds Data Not AvailableCivitis Social Housing Real Estate Investment Trusts Data Not AvailableCLS Holdings Real Estate Development Data Not AvailableDaejan Holdings Real Estate Development Data Not AvailableDerwent London Real Estate Development Data Not AvailableEdinburgh Dragon Trust Investment Trusts/Mutual Funds Data Not AvailableEdinburgh Investment Trust Investment Trusts/Mutual Funds Data Not AvailableEvraz Industrial Metals & Mining Data Not AvailableF&C Commercial Property Trust Investment Trusts/Mutual Funds Data Not AvailableF&C Global Smaller Companies Investment Trusts/Mutual Funds Data Not AvailableFidelity European Values Investment Trusts/Mutual Funds Data Not AvailableFidelity Special Values Investment Trusts/Mutual Funds Data Not AvailableFinsbury Growth & Income Trust Investment Trusts/Mutual Funds Data Not AvailableForeign & Colonial Investment Trust Investment Trusts/Mutual Funds Data Not AvailableGCP Infrastructure Investments Investment Managers Data Not AvailableGenesis Emerging Markets Fund Investment Trusts/Mutual Funds Data Not AvailableGreencoat UK Wind Investment Managers Data Not AvailableHarbourVest Global Private Equity Investment Managers Data Not AvailableHerald Investment Trust Investment Trusts/Mutual Funds Data Not AvailableHg Capital Trust Investment Trusts/Mutual Funds Data Not AvailableInternational Public Partnerships Investment Managers Data Not AvailableIntu Properties Real Estate Investment Trusts Data Not AvailableJPMorgan American Investment Trust Investment Trusts/Mutual Funds Data Not Available


Rank Company Industry Operating Leases (MM)JPMorgan Emerging Markets Investment Trust Investment Trusts/Mutual Funds Data Not AvailableJPMorgan Indian Investment Trust Investment Trusts/Mutual Funds Data Not AvailableJPMorgan Japanese Investment Trust Investment Trusts/Mutual Funds Data Not AvailableJupiter European Opportunities Trust Investment Trusts/Mutual Funds Data Not AvailableLand Securities Real Estate Investment Trusts Data Not AvailableMercantile Investment Trust Investment Trusts/Mutual Funds Data Not AvailableMonks Investment Trust Investment Trusts/Mutual Funds Data Not AvailableMurray International Trust Investment Trusts/Mutual Funds Data Not AvailableNB Global Investment Trusts/Mutual Funds Data Not AvailablePantheon International Investment Managers Data Not AvailablePerpetual Income & Growth Investment Trust Investment Trusts/Mutual Funds Data Not AvailablePershing Square Holdings Data Not AvailablePersonal Assets Trust Investment Trusts/Mutual Funds Data Not AvailablePlus500 Investment Banks/Brokers Data Not AvailablePolar Capital Technology Trust Investment Trusts/Mutual Funds Data Not AvailablePrimary Health Properties Real Estate Development Data Not AvailableQuilter Investment Managers Data Not AvailableRiverstone Energy Investment Managers Data Not AvailableSafestore Real Estate Investment Trusts Data Not AvailableSchroder AsiaPacific Fund Investment Trusts/Mutual Funds Data Not AvailableScottish Investment Trust Investment Trusts/Mutual Funds Data Not AvailableScottish Mortgage Investment Trust Equity Investment INstruments Data Not AvailableSequoia Economic Infrastructure Income Fund Investment Trusts/Mutual Funds Data Not AvailableSerco Miscellaneous Commercial Services Data Not AvailableSyncona Investment Trusts/Mutual Funds Data Not AvailableTemple Bar Investment Trust Investment Trusts/Mutual Funds Data Not AvailableTempleton Emerging Markets Investment Trust Investment Trusts/Mutual Funds Data Not AvailableUK Commercial Property Trust Investment Trusts/Mutual Funds Data Not AvailableVietnam Enterprise Investments Investment Trusts/Mutual Funds Data Not AvailableVinaCapital Vietnam Opportunity Fund Investment Trusts/Mutual Funds Data Not AvailableWorldwide Healthcare Trust Investment Trusts/Mutual Funds Data Not Available

The FTSE 350 Index represents large and mid cap stocks traded on the London Stock Exchange (LSE), which pass screening for size and liquidity. The FTSE 350 index is made up of the constituents of the FTSE 100 and FTSE 250 index

Documents

IFRS 16 - The New Lease Accounting Standard · operating lease obligations data from each company’s latest annual report (posted on the investor relations page of the company’s