KONE Corporation, stock exchange release, March 19, 2018 at 9.15 a.m. EET
KONE publishes restated information on 2017 financials as a result of adaption of new IFRS 15 and IFRS 9 accounting standards
KONE has adapted new accounting standards issued by the International Accounting Standards Board, IFRS 15, Revenue from Contracts with Customers, and IFRS 9, Financial Instruments, effective on January 1, 2018.
The most significant impact from the implementation of the IFRS 15 is the application of percentage of completion revenue recognition method also in the volume new equipment and modernization businesses. In these businesses revenue was previously recognized upon the handover of the project to the customer while long-term major projects were already recognized under percentage of completion method. With the new IFRS 15 principles revenue will be recognized gradually based on the progress from the point when materials arrive at customer site until the handover of the project for all construction contracts at KONE. Implementation of IFRS 9 did not have a material impact in KONE's consolidated financial statements.
As a result of the adoption of these new standards, KONE publishes restated information on 2017 financials for comparison. This information should be read in conjunction with KONE's reported financial statements for 2017, published on January 25, 2018. KONE has applied the same accounting principles in the preparation of this restated information as in its financial statements for 2017, except for the adoption of the new IFRS 15 and IFRS 9 standards. The restated information presented has not been audited.
Below are the restated key figures. More details can be found in the attached tables and at www.kone.com/investors.
Key figures for 2017
|Operating income margin||%||13.6||13.6|
|Adjusted EBIT margin||%||13.7||13.8|
|Income before tax||MEUR||1,250.4||1,275.2|
|Basic earnings per share||EUR||1.86||1.89|
|Cash flow from operations (before financing items and taxes)||MEUR||1,263.3||1,263.3|
|Interest-bearing net debt||MEUR||-1,690.2||-1,690.2|
|Return on equity||%||32.0||34.2|
|Net working capital (including financing items and taxes)||MEUR||-745.0||-875.6|
Net sales by region
Net sales by business
IFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Revenue is recognized when, or as, the customer obtains control of the goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. KONE has adopted the new standard by using the full retrospective method.
The impact of the implementation of IFRS 15 is limited to revenue recognition of new equipment and modernization contracts where the revenue recognition will occur over time, measured based on the percentage of completion method as the customer obtains control of each asset, i.e. separately identifiable performance obligation. A performance obligation is a distinct good or service within a contract that customer can benefit on stand-alone basis. For KONE's new equipment and modernization contracts, a performance obligation typically means delivery and installation of a single unit, i.e. an elevator, escalator or other People Flow solution. Percentage of completion is defined as the proportion of an individual performance obligation's cost incurred to date from the total estimated costs for that particular performance obligation. The percentage of completion method requires accurate estimates of future revenues and costs over the full term of the contracts. These significant estimates form the basis for the amount of revenue to be recognized and include the latest updated total revenue, cost and risks adjusted by the typical estimation revisions for similar types of contracts. These estimates may materially change due to the stage of completion of the contract, changes in the contract scope, costs estimates and customer's plans and other factors.
Application of new revenue recognition principles under IFRS 15 has a material impact on KONE's consolidated financial statements. In practice, revenue is recognized earlier based on the progress also for those new equipment and modernization contracts which were not previously defined as long-term major projects already recognized under the percentage of completion method. From a balance sheet perspective, the application of new principles decreased inventories and related advances received and deferred income, while receivables were somewhat increased. Deferred tax assets and liabilities changed slightly. As a result of the restated timing of revenue recognition, retained earnings were increased. Also, reported new equipment and modernization order book decreased due to application of percentage of completion method also for other new equipment and modernization contracts than long-term major projects. These changes do not impact cash flow.
IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. Additionally, IFRS 9 introduces expanded disclosure requirements and changes in presentation. KONE has adopted the new standard by using the full retrospective method.
The main impact of the IFRS 9 application for KONE is coming from the new expected credit loss model applied to assess impairment loss for the doubtful accounts receivable. The adaption of the new principles slightly increased the accumulated impairment loss. Under IFRS 9, all shares and non-current financial assets which were previously classified as available-for-sale investments and measured at cost are classified as investments measured at fair value through other comprehensive income. Overall, the implementation of IFRS 9 did not have a material impact on the transactions and balances recognized in KONE's consolidated financial statements.
For further information, please contact:
Sanna Kaje, Vice President, Investor Relations, tel. +358 204 75 4705
At KONE, our mission is to improve the flow of urban life. As a global leader in the elevator and escalator industry, KONE provides elevators, escalators and automatic building doors, as well as solutions for maintenance and modernization to add value to buildings throughout their life cycle. Through more effective People Flow®, we make people's journeys safe, convenient and reliable, in taller, smarter buildings. In 2017, KONE had annual net sales of EUR 8.9 billion, and at the end of the year over 55,000 employees. KONE class B shares are listed on the Nasdaq Helsinki Ltd. in Finland.