Bringing Leases on Balance Sheet

- Proposed new accounting rules — "The IASB yesterday published an Exposure Draft on Leases, which would eliminate the current operating/financing lease distinction and bring all leases on balance sheet. The final IFRS is due in Q2 2011, with the new standard planned to take effect no earlier than 2013."
- Bigger balance sheets — "The ED proposes that lessees should report the present value of expected lease payments as an asset and liability on the balance sheet. Operating lease expense would be replaced by amortisation of the asset and an interest charge on the liability. Lease cash flows would be reclassified in the cash flow statement."
- Effect on key metrics — "For many companies using leased assets, the proposed change would increase reported debt and gearing, increase Enterprise Value/Sales multiples, increase operating cash flow, and affect other valuation multiples. It would also reduce EPS of many companies on initial adoption of the new rules."
- Sector impact — "Retail, transport and leisure sectors would be particularly affected by the new rules."
- Company impact — "UK companies with significant operating lease exposure include Regus, Debenhams, DSG, Home Retail Group, Tui Travel, Kingfisher and Sainsbury. In the MSCI Europe ex UK index, the most affected companies include Iberia, Autogrill, Kesko, Accor, JCDecaux, Tui and Air France."

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