Tesco, Britain's biggest retailer, said on Monday a new accounting standard related to the treatment of leases would have increased its operating profit and margin in the last financial year while decreasing pretax profit and earnings per share.
Tesco is introducing IFRS 16, the new financial reporting standard on accounting for leases, for its new 2019-20 financial year. It is adopting the standard retrospectively.
New Accounting Standard
The new standard seeks to align the presentation of leased assets more closely to owned assets. It has no impact on how the business is run and no bearing on the plans or financial ambitions Tesco detailed in October 2016.
Tesco published its 2018-19 results on 10 April.
If these results had been adopted under IFRS 16 the group's operating profit increases by £401 million to £2.607 billion as rent is removed and only part-replaced by depreciation, while group operating margin increased by 63 basis points to 4.08%.
Pretax profit and diluted earnings per share both decrease, by £152 million and 1.39 pence respectively, reflecting a combination of depreciation and interest being higher than the rent they replace.
Tesco said the first accounts prepared under IFRS 16 will be the 2019-20 interim results, published in October 2019, followed by the 2019-20 preliminary results, published in April 2020.