LENMED AIR 2019.pdf

IFRS adjustments The Group’s performance has been somewhat impacted by a number of new IFRS statements, as well as by a change in accounting policy. These factors are discussed below: 1. IFRS 9 financial instruments IFRS 9 addresses the accounting principles for the financial reporting of financial assets and financial liabilities, including classification, measurement, impairment, derecognition, and hedge accounting. IFRS 9 replaces the earlier versions of IFRS 9 and completes the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement. The standard is mandatory for accounting periods beginning on or after 1 January 2018 and has, therefore, been adopted by Lenmed for the year ended 28 February 2019. The Group has applied the standard retrospectively as at 1 March 2018 with no restatement of comparative information for prior years. IFRS 9 replaces the ‘incurred loss’ model of IAS 39 with a forward-looking ‘expected credit loss’ model to measure impairment losses on financial assets. The majority of the Group’s financial assets are trade receivables, for which IFRS 9 requires the simplified approach to be applied, measuring the impairment loss allowance based on lifetime expected credit loss. Furtherto this, as a practical expedient, Lenmed has applied a provision matrix assessing historical credit losses per aged bucket of trade debtors and overlaid this with Lenmed’s assessment of general economic conditions to estimate expected future losses. There is an opening movement to retained earnings of R10.83 million and an adjustment of R16.4 million to current year earnings to align to the new standard. This has had the effect of increasing the doubtful debt provision from R56.1 million to R82.4 million. 2. IFRS 15 revenue from contracts with customers This standard combines, enhances and replaces previous guidance on recognising revenue with a single revenue standard that introduces a new revenue recognition model for contracts with customers. The standard is mandatory for accounting periods beginning on or after 1 January 2018 and has, therefore, been adopted by Lenmed for the year ended 28 February 2019. The Group has applied the standard retrospectively and assessed the cumulative effect of initially applying the standard on 1 March 2018 to be Rnil, without any adjustment to retained earnings on this date. The core principle of IFRS 15 is that an entity recognises revenue from contracts with customers to depict the transfer of control of promised goods or services to customers for an amount that reflects the consideration to which an entity expects to be entitled to in exchange for those goods or services. The model features a contract-based five-step analysis of transactions to determine whether, how much, and when revenue is recognised. The implementation of the new standard has not impacted the measurement and timing of revenue recognition. 3. IFRS 16 — leases IFRS 16 sets out the principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 replaces the previous leases standard, IAS 17 and related interpretations. IFRS 16 has one model for lessees, which results in leases previously classified as operating leases and recorded off- balance sheet, now being capitalised on the balance sheet and requiring a lessee to recognise a right-of-use asset and a concomitant lease liability. This standard is mandatory for accounting periods beginning on or after 1 January 2019. The Group has chosen not to early-adopt the standard for the year ended 28 February 2019. However, there will be an adjustment to both the statements of comprehensive income and of financial position in 2020. The current prognosis is that Property, Plant and Equipment will increase by approximately R156 million and long-term liabilities by R167 million. Additionally, profits before tax would be approximately R7.4 million lower than reported in 2019. 4. Adjustment to accounting policy In order to align the Group to the rest of the industry and to more fully reflect the cost of the land and buildings in the Group, the Board has decided to carry this category of asset at historical cost less accumulated depreciation and less any impairment losses. This amends the current accounting policy, where land and buildings are carried at their current market valuations. This change in the accounting policy has resulted in the following amendments: Land and buildings in 2018 as a result of the revaluation of prior periods has been decreased by R303.6 million while the revaluation reserve of R230.5 million and deferred taxation attributable to the revaluation of R75.6 million has been extinguished. The income statement in 2018 and 2019 has resulted in an increase of R1.2 million in profit before interest and taxation and R0.9 million after tax. This report must be read in conjunction with the Group annual financial statements, commencing on page 83 of this Annual Integrated Report. Group revenue increased by 15% from R2 220.8 million to R2 546.1 million The Group generated R423.6 million from operating activities (2018: R360.8 million), reflecting improved cash management 39 LENMED ANNUAL INTEGRATED REPORT 2019