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KONE has adopted the new IFRS 16 effective January 1, 2019. KONE has applied IFRS 16 using the modified retrospective approach by recognizing the cumulative effect of initially applying the standard in the opening balance sheet as at January 1, 2019, thus comparative information has not been restated.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. These right-of-use assets are depreciated over the contract period or over the useful lifetime, which is the shorter. Interest cost of leases are presented in financing expenses. There are optional exemptions for short-term leases and leases of low-value items which KONE has selected to utilize and the lease expense is recognized on a straight-line basis as permitted by IFRS 16. Lessor accounting remains similar to IAS 17 standard – i.e. lessors continue to classify leases as finance or operating leases. KONE does not have any material contracts as lessor.
At initial application of IFRS 16 KONE has recognized new assets and liabilities, mainly for its operating leases of facilities and vehicles. KONE has measured a right-of-use asset at the date of initial application for leases previously classified as an operating lease applying IAS 17 at an amount equal to the lease liability. This includes also leases whose lease term will end within 12 months at the initial application of IFRS 16. Leases that were previously classified as finance leases applying IAS 17 are accounted for as right-of-use assets and lease liabilities applying IFRS 16 from the date of initial application. At initial application of IFRS 16 KONE has excluded initial direct costs from the measurement of the right-of-use asset, has not used hindsight when assessing the lease term and has relied on its assessment of whether leases are onerous applying IAS 37 immediately before the date of initial application.
As of January 1, 2019 KONE has recognized new right-of-use assets and respective lease liabilities of EUR 358 million. Operating lease obligation at December 31, 2018 was EUR 384 million. The difference to the lease liability value at initial application is mainly due to application of exemptions for short-term leases and leases of low-value items and discounting of the lease liability. At initial application lease liabilities were discounted at an incremental borrowing rate at January 1, 2019. The weighted average discount rate was 3.0%.
Adoption of IFRS 16 has a significant impact on presentation of the consolidated statement of cash flows improving cash flow from operations before financing items and taxes. Under IFRS 16 payments of lease liabilities are presented in financing activities and related interest expense as interest paid while previously the full amount of lease payments was included in the cash flow from operations before financing items and taxes.
IFRS 16 impact in Q1 2019
- EUR 358 million increase in the opening interest-bearing debt
- EUR 5 million increase in capital expenditure on lease agreements
- EUR 2 million positive impact on Q1 EBIT
- EUR 3 million increase in financing expenses
Cash flow statement
- EUR 28 million positive impact on cash flow from operations (before financing items and taxes)
- EUR 2 million negative impact on cash flow from financing items and taxes
- EUR 26 million negative impact on cash flow from financing activities