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Pick `N Pay/ Pikwik - Impact of SAICA Circular 7/2005 on Operating Leases
PICK `N PAY STORES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1968/008034/06)
Share Code: PIK & ISIN: ZAE000005443
("Pick `n Pay")
PICK `N PAY HOLDINGS LIMITED(Incorporated in the Republic of South Africa)
(Registration number 1981/009610/06)Share code: PWK & ISIN code:
ZAE000005724("Pikwik")
Impact of SAICA Circular 7/2005 on Operating Leases
Shareholders attention is drawn to the effect on earnings of adopting Circular
7/2005 issued by the South African Institute of Chartered Accounts ("SAICA") on
the accounting for operating leases.
The adoption of International Financial Reporting Standards ("IFRS") by South
African companies has focussed attention on the accounting profession"s
interpretation of the current accounting standard (AC 105) for operating leases
with fixed rental escalations. International interpretation is that the rental
paid and received by lessees and lessors respectively, should be accounted for
on a straight line basis over the term of the lease and not on a cash basis as
followed by South African companies. The change only affects the base rentals
with fixed escalations and does not affect the turnover related rental of a
lease which will continue to be accounted for as incurred.
This results in each lease having an equal annual charge in the income statement
even though the actual cashflows may differ. During the early stages of a fixed
rental escalation lease the lessee"s income statement charge will be greater
than the actual cash outflow, necessitating a provision on the balance sheet. As
the lease enters the latter part of its term the cash outflow will be greater
than the income statement charge, leading to a release of the provision
previously raised.
The Pick `n Pay Group currently has many fixed escalation leases (the material
ones being over trading premises) in various stages of their terms. However, the
net impact on the Group"s financial statements will be the raising of a
provision. Pick "n Pay and Pikwik will adopt this new interpretation for the six
month interim reporting period to 31 August 2005 (to be released on 18 October
2005) and will raise the necessary adjustments to the comparative period figures
and also for the year ended 28 February 2005.
Although the impact of adopting this new interpretation will be a decrease in
Group earnings in absolute terms, it will have a positive effect on the year on
year earnings growth and. as the adjustment has no cashflow effect, there will
be no impact on the value of dividends declared.
The impact on the earnings per share and headline earnings per share of Pick `n
Pay and Pikwik for the year ended 28 February 2005 is as follows:
Pick `n Pay
Previously Percentage
stated Restated change
%
Headline earnings (Rm) 663.3 621.6 6.31
Earnings (Rm) 649.6 607.8 6.44
NAV (Rm) 1 341.9 1 000.1 25.47
Headline earnings per share
(cents) 141.54 132.61 6.31
Earnings per share (cents) 138.60 129.67 6.44
NAV per share (cents) 289.74 215.94 25.47
Pikwik
Previously Percentage
stated Restated change
%
Headline earnings (Rm) 351.2 328.6 6.43
Earnings (Rm) 343.9 321.3 6.57
NAV (Rm) 662.9 481.9 27.30
Headline earnings per share
(cents) 70.08 65.57 6.43
Earnings per share (cents) 68.62 64.12 6.57
NAV per share (cents) 131.42 95.55 27.30
Cape Town
30 September 2005
Sponsor: Investec Bank Limited
Date: 30/09/2005 02:22:05 PM Produced by the JSE SENS Department
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