Tesco PLC (LON:TSCO) will post lower pre-tax profits in future due to a restatement of its accounts under new guidelines.
In future, rental charges on the properties the supermarket giant leases will be replaced by depreciation and interest. That boosts operating profit but will mean a higher interest cost to the bottom line.
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To illustrate, Tesco said pre-tax profits for the half year to August would have dropped by £101mln as a result of the new accounting method, though operating profits would have received a £188mln boost.
Tesco’s leases are relatively new and incur higher interest charges in their early years, a cost that reduces over time.
That immature portfolio means lower earnings per share and vice versa for a mature portfolio compared to the previous way of adding the numbers.
On the balance sheet, net assets drop by £1.4bn to £13bn while indebtedness jumps by £3.3bn to £15.8bn.
There is no impact on how the business is run or cash flow, Tesco emphasised.