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Wärtsilä Financial Statements Bulletin 2018

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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 2017, except for the IFRS amendments stated below. 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 2018, the Group adopted the following new and amended standards issued by the IASB.

IFRS 15 Revenue from Contracts with Customers and related amendments to the standard. The standard establishes a new five-step model that will apply to revenue arising from contracts with customers. IFRS 15 is based on the principle that revenue is recognised when control of a good or service transfers to a customer. In accordance with the standard, revenue is recognised as control is passed either over time or at a point in time. The Group has adopted the new standard on the required effective date using the full retrospective method. The disclosures related to revenue are presented according to the new standard.

Adoption of IFRS 15 led to changes in revenue recognition in long-term service and maintenance agreements and oil and gas business related construction contracts. In long-term service and maintenance agreements the revenue changed from an output method (percentage of completion based on the proportion of the contracted services performed) to input method (percentage of completion based on cost incurred). In construction contracts related to gas solutions, the revenue recognition method changed 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 cost incurred). The combined restatement impact in equity was EUR -13 million. The restatement impact on 2017 earnings per share was -0.04 EUR.

As IFRS 15 was adopted using the full retrospective method, the impact of the restatement is presented in the below table also for the opening balance of financial period 2017:

Condensed statement of financial position
Restated Restated
MEUR 1.1.2017 31.12.2017 31.12.2018
Non-current assets
Intangible assets 1 434 1 577 1 747
Property, plant and equipment 405 349 324
Investments in associates and joint ventures 84 83 66
Other investments 15 13 16
Deferred tax assets 144 131 129
Other receivables 38 132 86
Total non-current assets 2 119 2 285 2 369
Current assets
Inventories 1 042 1 051 1 165
Other receivables 1 775 1 933 2 038
Cash and cash equivalents 472 379 487
Total current assets 3 289 3 363 3 690
Total assets 5 408 5 648 6 059
Equity
Share capital 336 336 336
Other equity 1 936 2 016 2 082
Total equity attributable to equity holders of the parent company 2 272 2 352 2 418
Non-controlling interests 34 24 14
Total equity 2 305 2 376 2 432
Non-current liabilities
Interest-bearing debt 520 517 748
Deferred tax liabilities 93 102 99
Other liabilities 270 270 245
Total non-current liabilities 884 889 1 092
Current liabilities
Interest-bearing debt 108 102 74
Other liabilities 2 111 2 281 2 461
Total current liabilities 2 219 2 383 2 535
Total liabilities 3 103 3 272 3 627
Total equity and liabilities 5 408 5 648 6 059

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). These 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 had no impact on the 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 had no impact on the consolidated financial statements.

IFRIC 22 Foreign Currency Transactions and Advance Consideration (effective for financial periods beginning on or after 1 January 2018). This 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 had no impact on the consolidated financial statements.

Adoption of new and updated IFRS standards

In 2019, the Group will adopt the following new standard issued by the IASB.

New IFRS 16 Leases (effective for financial periods beginning on or after 1 January 2019): IFRS 16 addresses the definition, recognition and measurement of lease agreements and notes related to leases. The standard replaces IAS 17 Leases. 

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 some changes in key figures. At the reporting date, the Group has operating lease commitments of EUR 284 million. Based on the Group´s estimation, the net present value of the capitalised lease liability amounts to EUR 212 million according to the following bridge calculation:

MEUR
Nominal amount of rents according to leasing contracts on 31 December 2018 284
Variable lease payments -23
Residual value -3
Expenses relating to short-term leases and leases of low-value assets -15
Leases not yet commenced to which Wärtsilä is committed -3
Nominal amount of lease liability on 1 January 2019 240
Present value 212

The Group will apply the two available exceptions, which relate to either short-term contracts in which the lease term is less than 12 months or less, or low-value assets, which are expensed to other operating expenses. The Group will apply the modified approach in transition.

Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures* (effective for financial periods beginning on or after 1 January 2019). The amendments clarify that IFRS 9 Financial Instruments is applied to the accounting for long-term interest in an associate or joint venture to which the equity method is not applied. The amendments will have no impact on the consolidated financial statements.

Amendment to IAS 19 Plan Amendment, Curtailment or Settlement* (effective for financial periods beginning on or after 1 January 2019). This amendment clarifies the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendment specifies that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to use updated assumptions to determine the current service cost and net interest. The interpretation would have an impact on the consolidated financial statements in the case of curtailments or settlements.

Amendments to IFRS 9 Prepayment Features with Negative Compensation (effective for financial periods beginning on or after 1 January 2019). Prepayment Features with Negative Compensation amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments. Without the amendment these financial assets would have had to be measured at FVPL. The amendments will have no impact on the consolidated financial statements.

IFRIC 23 Uncertainty over income tax treatment (effective for financial periods beginning on or after 1 January 2019). This interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12. The key matter is whether the tax authority will accept the chosen tax treatment. When considering this, the assumption is that tax authorities will have full knowledge of all relevant information in assessing the proposed tax treatment. The interpretation will not have any significant impact on the consolidated financial statements.

Annual improvements to IFRSs 2015-2017 cycle*: Annual improvements include smaller amendments to four standards. The improvements are not expected to have an impact on the consolidated financial statement.  

The Group expects to adopt later than 2019 the following new standard to the existing standards already issued by the IASB.

IFRS 17 Insurance contracts* (effective from financial periods beginning on or after 1 January 2021). IFRS 17 applies to all types of insurance contracts (direct insurance and re-insurance) regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. The overall objective is to provide a consistent accounting model for insurance contracts. The impact is under review within the Group.

* Not yet endorsed for use by the European Union as of 31 December 2018.

Internal transfer of service activities

Wärtsilä has decided to transfer certain service activities from Marine Solutions to Services as of 1 January 2018. The aim is to strengthen the focus on the development of these activities. The comparison periods for 2017 have been restated, resulting in EUR 177 million in net sales, EUR 190 million in order intake, and EUR 49 million in the order book being transferred from Marine Solutions to Services for the financial period 2017. This transfer has no impact on Group totals.

The annual figures in this financial statements bulletin are audited.

 

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