4. Operating expenses


All figures in £ millions	2018			2017			2016
By function:
Cost of goods sold		1,943			2,066			2,093

Operating expenses
Distribution costs		88			84			88
Selling, marketing and product development costs		759			896			908
Administrative and other expenses		1,039			1,207			1,240
Restructuring costs		90			79			329
Other income		(69	)		(64	)		(85	)

Total net operating expenses		1,907			2,202			2,480
Other net gains and losses		(230	)		(128	)		25
Impairment of intangible assets		—			—			2,548

Total		3,620			4,140			7,146

Included in other income is service fee income from Penguin Random House of £3m (2017: £3m, 2016: £4m). Included in administrative and other expenses are research and efficacy costs of £14m (2017: £14m, 2016: £23m). In addition to the restructuring costs shown above, there were major restructuring costs in relation to associates of £12m (2017: £nil, 2016: £9m).

An analysis of major restructuring costs is as follows:


All figures in £ millions	2018			2017		2016
By nature:
Product costs		12			15		32
Employee costs		56			11		139
Depreciation and amortisation		1			13		29
Property and facilities		(5	)		24		43
Technology and communications		1			2		7
Professional and outsourced services		9			12		31
General and administrative costs		16			2		48

Total restructuring – operating expenses		90			79		329
Share of associate restructuring		12			—		9

Total		102			79		338

The 2017-2019 restructuring programme was announced in May 2017, began in the second half of 2017 and is expected to drive significant cost savings. The costs of this programme have been excluded from adjusted operating profit so as to better highlight the underlying performance. In 2018, property and facilities costs include gains on the disposal of properties sold as part of the restructuring programme.


All figures in £ millions	Notes		2018			2017			2016
By nature:
Royalties expensed				236			246			264
Other product costs				516			564			616
Employee benefit expense		5		1,637			1,805			1,888
Contract labour				161			152			206
Employee-related expense				115			127			122
Promotional costs				233			229			217
Depreciation of property, plant and equipment		10		66			90			95
Amortisation of intangible assets – pre-publication		20		338			338			350
Amortisation of intangible assets – software		11		88			85			84
Amortisation of intangible assets – other		11		99			138			185
Impairment of intangible assets				—			—			2,548
Property and facilities				147			202			243
Technology and communications				192			218			188
Professional and outsourced services				396			322			378
Other general and administrative costs				85			140			140
Costs capitalised to intangible assets				(390	)		(324	)		(318	)
Other net gains and losses				(230	)		(128	)		25
Other income				(69	)		(64	)		(85	)

Total				3,620			4,140			7,146

During the year the Group obtained the following services from the Group’s auditors:


All figures in £ millions	2018		2017		2016
The audit of parent company and consolidated financial statements		4		4		5
The audit of the company’s subsidiaries		2		2		2

Total audit fees		6		6		7
Audit-related and other assurance services		1		1		1
Other non-audit services		—		1		1

Total other services		1		2		2
Total non-audit services		1		2		2

Total		7		8		9

Reconciliation between audit and non-audit service fees is shown below:


All figures in £ millions	2018		2017		2016
Group audit fees including fees for attestation under section 404 of the Sarbanes-Oxley Act		6		6		7
Non-audit fees		1		2		2

Total		7		8		9

Fees for attestation under section 404 of the Sarbanes-Oxley Act are allocated between fees payable for the audits of consolidated and subsidiary accounts.

Included in non-audit fees is audit related work in relation to disposal transactions and other assurance work related to the audit of the Group’s efficacy programme.