When taking into account the impact of IFRS 16 changes the story quite a lot...

... not all companies are equal

Hello,

the impact of IFRS 16 must be taken into account at different levels and numbers must be adjusted.

First D&A must be adjusted so that you get the real D&A (D&A excluding IFRS 16 D&A). As such your EBITDA will be showing you a different number. The same will apply to your CFO (cash flow from operations) numbers as D&A will be lower so the CFO will be lower and so will be your FCF.

Second, you need to adjust the financial debt and take out the debt which is linked to IFRS 16 to have the real financial debt.

In general, the higher the IFRS 16 load the less a company owns its assets and as such it brings about some risks. If a company does not own its assets then it exposed to rent increases and most of the time the company will accept to pay this higher rent as the localisation of the asset makes it impossible to not renew the rental. The bargaining power is not where one thinks.

Being an owner of your assets is a moat but clearly it takes time and requires a completely different mindset compared to the rental approach.

Some companies are crystal clear about this IFRS 16 issue and clearly put forward the D&A linked to IFRS 16 as well as the debt linked to IFRS 16.

But other companies don’t and when the notes dedicated to the D&A don’t put forward the D&A linked to IFRS 16 well my spider senses go on alert.

Here is an example!