Wärtsilä's restated financials 2017 resulting from new IFRS 15 standard and internal transfer of service activities

Wärtsilä's restated financials 2017 resulting from new IFRS 15 standard and internal transfer of service activities

As of 1 January 2018, Wärtsilä has adopted the IFRS 15 Revenue from Contracts with Customers standard by using the full retrospective method. The Interim Report for January-March 2018 will be published according to the new standard, and comparison periods for 2017, including opening balance sheet, have been restated accordingly. The consolidated net sales and operating result for 2017 decreased by EUR 11 million and EUR 14 million respectively attributable to this restatement.

Wärtsilä has also 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 order book being transferred from Marine Solutions to Services for the financial period 2017. This transfer has no impact on Group totals.

The restated financials are in millions of euros. All figures have been rounded and consequently the sum of individual figures can deviate from the presented sum figure. The restated figures included here within have not been audited.

The below tables present the restated key figures:

Figures in the table have been restated due to the adoption of IFRS 15.

Figures in the table have been restated due to the adoption of IFRS 15 and the transfer of service activities.

Figures in the table have been restated due to the transfer of service activities.

Figures in the table have been restated due to the adoption of IFRS 15 and the transfer of service activities.

IFRS 15

IFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. It replaces IAS 18 Revenue, and IAS 11 Construction Contracts, and related interpretations, providing a new basis for revenue recognition. IFRS 15 is based on the principle that revenue is recognised when control of a good or service transfers to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Wärtsilä has finalised its analysis of the effects of IFRS 15 on different revenue streams. Based on this analysis, the standard will have an impact on the timing of recognition of revenue in two business lines: long-term service and maintenance agreements, and gas solutions related construction contracts. The changes and impact caused by the standard are described below.

In long-term service and maintenance agreements, 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 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).

In the project business, 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 a variable consideration according to IFRS 15 and are required to be estimated at contract inception. According to IFRS 15, the net sales will be reduced by late delivery penalties and liquidated damages, which have been expensed under IAS 18 and IAS 11. The restatement impact of reclassification of penalties is insignificant.

Impact of IFRS 15 on financials 2017

Arising from the change of revenue recognition in long-term service and maintenance agreements, and gas solutions related construction contracts from output method to input method, an adjustment of EUR -13 million has been made to Group’s retained earnings as at 1 January 2017.

The restatement of financials 2017 result in a decrease in net sales of EUR 11 million, an increase in material and services expenses of EUR 3 million, a decrease in income taxes of EUR 5 million, and a decrease in profit for the financial period of EUR 9 million. From the consolidated statement of financial position perspective, the application of the new principles impact the deferred tax assets, other receivables, and other liabilities. Deferred tax assets increased by EUR 8 million and other receivables increased by EUR 33 million. Other liabilities increased by EUR 60 million mainly due to changes in accrued expenses and deferred income. These changes do not have an impact on cash flows.

More detailed restated financials are presented in a separate PDF-file attached to this release.


For further information, please contact:

Marco Wirén
Executive Vice President & CFO
Tel: +358 10 709 5640
marco.wiren@wartsila.com

Natalia Valtasaari
Director, Investor & Media Relations
Tel: +358 10 709 5637
natalia.valtasaari@wartsila.com

Restated tables 2017