This interim financial report is prepared in accordance with IAS 34 (Interim Financial Reporting) using the same accounting policies and methods of computation as in the annual financial statements for 2016. All figures in the accounts have been rounded and consequently the sum of individual figures can deviate from the presented sum figure.

Use of estimates

The preparation of the financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the valuation of the reported assets and liabilities and other information, such as contingent liabilities and the recognition of income and expenses in the statement of income. Although the estimates are based on the management’s best knowledge of current events and actions, actual results may differ from the estimates.

IFRS amendments

In 2017, the Group has adopted the following new standard issued by the IASB.

The Group has early adopted IFRS 9 Financial Instruments. The standard replaces IAS 39 Financial Instruments - Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial assets, new general hedge accounting requirements and a new expected credit loss model for calculating impairment on financial assets. In main aspects, it also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. The impacts of IFRS 9 adoption are described below.

The new hedge accounting guidance in IFRS 9 aligns the hedge accounting treatment better with risk management activities and, among others, allows net position hedging. The Group applies the new hedge accounting requirements prospectively. Usually the Group hedges the received orders separately from the committed purchases but in some projects or long term agreements the Group might apply cash flow hedging also against the expected net cash flows, consisting of related sales proceeds and purchases in the same currency. The result from net position hedges is presented on a separate line in the statement of income. The adoption of the new hedge accounting requirements did not have any material impact on the reporting period January-March 2017.

Under IFRS 9, financial assets are classified according to their cash flow characteristics and the business model they are managed in. The Group has categorised its financial assets to financial assets measured at amortised cost, at fair value through the statement of income and at fair value through other comprehensive income. The reclassification has not had any impact on equity.

Financial assets are classified under IFRS 9 as presented in the table below.

Applying IFRS 9 also changes the measurement of the loss allowance for financial assets by introducing an expected credit loss model. At the adoption of IFRS 9, the Group has revised its impairment methodology. The methodology applied depends on whether there has been a significant increase in credit risk. The Group assesses possible increase in the credit risk for financial assets measured at amortised cost at the end of each reporting period. The loss allowance is estimated at an amount equal to 12-month expected credit losses at the current reporting date if there has not been a significant increase in credit risk.

For trade receivables and receivables from revenue recognition in accordance with percentage of completion method, simplified approach is used and the loss allowance is measured at the estimate of the lifetime expected credit losses. Receivables from revenue recognition in accordance with percentage of completion method are usually covered with advance payments collected from customers. Thus, recognising credit losses based on the lifetime expected loss amounts mainly concerns trade receivables. For trade receivables not due or maximum 359 days overdue, an impairment of 0.1% - 2.0% is made, depending on the aging category and the origin of the receivable. In calculating the expected credit loss rates, the Group considers historical loss rates for each category, and adjusts for forward looking macroeconomic data. In addition to that, trade receivables more than 360 days old are assessed for impairment individually. Considering this, the Group has made an adjustment of EUR -3 million in retained earnings and trade receivables per 1 January 2017. Figures in the comparison periods have not been restated.

This interim report is unaudited.