This financial statements bulletin 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.
In 2017, the Group has adopted the following new and amended standards issued by the IASB.
New IFRS 9 Financial Instruments replaces the existing guidance in IAS 39 Financial Instruments - Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including new general hedge accounting requirements and a new expected credit loss model for calculating impairment on financial assets. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39.
Adoption of IFRS 9 led to some changes in the hedging processes and presentation. The new model aligns the accounting treatment with risk management activities and allows net hedging, from which the gains or losses will be presented on a separate line in the consolidated statement of income. Regarding impairment of financial assets, the change mainly concerns trade receivables where the credit losses will be recognised based on the expected lifetime credit losses.
The restatement impact on equity and trade receivables was EUR -3 million. Figures in the comparison period have not been restated.
On the date of initial application, 1 January 2017, the financial instruments of the Group were as follows, with any reclassifications noted.
Amendments to IAS 7 Statement of Cash Flows - Disclosure Initiative clarify IAS 7 to improve information provided to users of financial statements about an entity's financing activities e.g. by providing a reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities (separately from changes in other assets and liabilities). The amendments had an impact on the notes of the consolidated financial statements.
Amendments to IAS 12 Income Taxes - Recognition of Deferred Tax Assets for Unrealised Losses clarify the requirements on recognition of deferred tax assets for debt instruments measured at fair value. The amendments had no impact on consolidated financial statements.
Adoption of new and updated IFRS standards
In 2018, the Group will adopt the following new and amended standards and interpretations issued by the IASB.
New IFRS 15 Revenue from Contracts with Customers (effective for financial periods beginning on or after 1 January 2018): IFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. It replaces existing revenue guidance, including IAS 18 Revenue, and IAS 11 Construction Contracts. IFRS 15 is based on the principle that revenue is recognized when control of a good or service transfers to a customer. When applying the new standard, the entity needs to assess whether the revenue will be recognised over time or at a point in time. The effect of variable considerations and the time value of money on transaction price need to be assessed. In addition, IFRS 15 requires quantitative and qualitative disclosures about the entity’s contracts with customers, performance obligations in the contracts and significant judgements to be made. The Group is adopting the new standard on the required effective date using the full retrospective method.
In product delivery, short-term service orders, and short-term projects the management expects to identify mostly one performance obligation in a contract under the new standard, and revenue is typically recognised at a point in time when transfer of control occurs.
In long-term service agreements, and long-term projects the management expects to recognise mostly one performance obligation in a contract, and revenue is recognised at a point in time. When applying IFRS 15, the revenue recognition method is changed in two business lines: long-term service and maintenance agreements, and gas solutions related construction contracts.
In long-term service and maintenance agreements the customer value is created over time during the contract period. The revenue recognition method changes from an output method (percentage of completion based on the proportion of the contracted services performed) to an input method (percentage of completion based on costs incurred). Due to the standard maintenance schedules, this typically delays the revenue recognition in a contract. In construction contracts related to gas solutions, the key value drivers are engineering, procurement, and project management, and the manufacturing is usually outsourced. The revenue recognition method changes from an output method (percentage of completion based on the progress measured by surveys of work performed) to an input method (percentage of completion based on costs incurred).
The two business lines together represent, depending on the year, approximately 10-15% of the group’s net sales. However, the impact on Group net sales is in large extend mitigated with wide portfolio of projects and agreements in different stages of lifetime. The combined restatement impact on equity on 1 January 2017 is EUR -10 million.
In project business the contracts usually have clauses for liquidated damages, which were previously accounted as provisions for cost when their probability was more likely than not to occur. Liquidated damages are treated as variable consideration in IFRS 15, and they are required to be estimated at contract inception. According to analyses, this will reduce the Group’s recognised revenue to some extent as the penalties accounted as costs are deducted from sales according to IFRS 15.
Amendments to IFRS 2 Share-based Payment* - Clarification and Measurement of Share-based Payment Transactions (effective for financial periods beginning on or after 1 January 2018). The amendments are intended to eliminate the diversity in the classification and measurement of particular share-based payment transactions (accounting for cash-settled share-based payment transactions that include a performance condition, share-based payments in which the manner of settlement is contingent on future events, share-based payments settled net of tax withholdings and modification of share-based payment transactions from cash-settled to equity-settled). The amendments will have no impact on consolidated financial statements.
Amendments to IFRS 4 Insurance Contracts - Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (effective for financial periods beginning on or after 1 January 2018): Applying IFRS 9 Financial Instruments with IFRS 4. The amendments bring certainty to insurers on whether, and how, they should apply IFRS 9 before they apply the forthcoming insurance contracts standard. The amendments will have no impact on consolidated financial statements.
IFRIC 22: Foreign Currency Transactions and Advance Consideration* (effective for financial periods beginning on or after 1 January 2018). The interpretation considers how to determine the date of the transaction when applying the standard on foreign currency transactions IAS 21. The guidance aims to reduce diversity in practice. The interpretation will have no impact on consolidated financial statements.
The following new standard already issued by the IASB will be adopted in 2018 or later, depending on the effective date.
New IFRS 16 Leases (effective for financial periods beginning on or after 1 January 2019): IFRS 16 changes the accounting for operating leases by requiring companies to recognise lease assets and lease liabilities in the balance sheet, initially measured at the present value of unavoidable future lease payments, and to depreciate those assets and interest on lease liabilities in the statement of income over the lease term. Whether a contract contains a lease is determined on the basis of whether the customer has the right to control the use of an identified asset for a period of time.
When adapting IFRS 16, the portion of the lease payments currently included in other operating expenses in the consolidated statement of income will be transferred to depreciations and amortisations, and the interest portion to financial expenses. The standard will affect primarily the accounting for the Group´s operating leases increasing the balance sheet totals and leading to some changes in key figures. At the reporting date, the Group has non-cancellable operating lease commitments of 182 MEUR. The Group is assessing the impact of IFRS 16.
At this stage, the Group does not intend to adopt the standard before its effective date.
* Not yet endorsed for use by the European Union as of 31 December 2017.
The annual figures in this financial statements bulletin are audited.