Pick n Pay’s debt would be restated to a significant R17 billion in the 53 weeks to March 3, 2019, from only R1.6bn previously, due to the introduction of the IFRS 16 accounting standard. File Photo: IOL
CAPE TOWN – Pick n Pay’s debt would be restated to a significant R17 billion in the 53 weeks to March 3, 2019, from only R1.6bn previously, due to the introduction of the IFRS 16 accounting standard on the more than 1 600 leases the grocery store group holds.

“This is purely the accounting consequence of IFRS 16, and it is important to note the group has no long-term debt, and its major short-term debt providers have confirmed that the standard will not have any impact on the group's risk profile, its liquidity and ability to raise funds,” chief executive Richard Brasher said.

He said in a presentation Pick n Pay was “one of the first out of the starting blocks” in the adoption of the new accounting standard.

By adopting a much more onerous fully retrospective approach to the standard, investors and shareholders would, when Pick n Pay interim results were released in October, be able to recalibrate their understanding of the changes, through transparent comparisons with the previous two year results, he said.

Pick n Pay’s share price fell 1.37 percent on Wednesday to R60.36, but the decline was less than the average retail sector index, which was down by 2.07 percent at the same time. The share later closed at R59.26.

Brasher said IFRS 16 would have no impact on cash flow and R2bn in free cash flows had been generated in 2019. There would be no impact on cash dividends to shareholders either.

Headline earnings for the 53 weeks to March 3, however, would be restated downwards by 13.3 percent or by R209.1 million. Earnings before interest, tax, depreciation and amortisation would increase by R2.4bn with the removal of rent costs.

The IFRS 16 balance sheet restatements, including related deferred tax asset adjustments, reduced net asset value on the balance sheet by R1.4bn.

Pick n Pay has mainly pursued a leasehold property strategy.

This approach is followed to allow flexible investment and operating decisions and to enable the group to maintain low levels of debt and interest.

IFRS 16 requires the group to report its leasehold estate as though it is freehold – through the introduction of theoretical lease liabilities and assets, and implied interest and depreciation charges.

More than 1 600 lease values had been dealt with to make the accounting change, said Brasher.

These accounting changes had a significant impact on the composition and presentation of the balance sheet and income statement, and on gearing ratios and performance metrics.

IFRS 16 would apply to Pick n Pay from the 2020 financial year onwards, and the interim results would be published under IFRS 16 on October 22.

BUSINESS REPORT