Adoption of IFRS standards in financial reporting
Kyro Corporation Stock Exchange Release 6 April 2005 4.30 pm
Adoption of IFRS standards in financial reporting
Kyro Group has adopted International Financial Reporting Standards (IFRS) in its
financial reporting from the beginning of 2005. The most significant changes to
the Group's result and balance sheet arise from a change in revenue recognition
policies, the capitalisation of product development expenses, the accounting of
subsidiaries share options and the replacement of goodwill amortisation with
annual impairment testing.
The effects of IFRS changes on the 2004 income statement
The result for financial year 2004 according to Finnish Accounting Standards
(FAS) was EUR 11.6 million. The result for the financial year applying IFRS
reporting policy was EUR 14.5 million, i.e. the effect of the change was EUR 2.9
million. Earnings per share were EUR 0.15 (FAS) and EUR 0.18 (IFRS) in 2004.
The effects of IFRS changes on the balance sheet at 31.12.2003 and 31.12.2004
According to FAS, the balance sheet total at the end of 2003 was EUR 246.1
million, while the corresponding IFRS figure was EUR 263.4 million. The changes
increased the balance sheet total by EUR 17.3 million. The balance sheet total at
the end of 2004 was EUR 225.6 million under FAS and EUR 248.0 million under IFRS.
The changes made according to IFRS increased the balance sheet total by EUR 22.4
million. The calculations have been made based on current information and
standards. The calculations are unaudited.
Segment-specific data
Kyro's primary reporting segments are based on the company's division of business
operations, namely the Glaston Technologies and Energy business areas. Secondary
reporting segments are based on a geographical division. The areas are Europe
(including CIS-countries, the Middle East and Africa), America and Asia
(including Japan and Australia).
The main change in accounting policies and their effects on the income statement
and balance sheet are as follows:
Recognition of sales
According to the IAS 18 standard, revenue from the sale of goods is recognised
when the risks and rewards of owning the goods are transferred to the buyer. When
goods are delivered installed and the installation is an essential part of the
agreement and installation has not yet been performed completely, the risks and
rewards of owning the goods have not yet been transferred from the seller to the
buyer.
The Kyro Group's preprocessing line and safety glass machines deliveries are
recognised according to the IFRS standard when delivery and installation have
been performed and accepted. In other respects the basis for recognising revenue
remains the transfer of the good or service.
Order book
The sales recognition policy under IFRS increases the order book of the Group's
Glaston Technologies business area. Compared with the previous recognition policy
under FAS, safety glass machines projects remain in the order book for a few
months longer, i.e. until the deliveries have been installed, tested and
accepted.
Inventories
According to the IAS 2 standard, inventories are valued at the lower of the
acquisition cost and net realisable value, taking into account an appropriate
share of the fixed and variable overhead costs of manufacture based on normal
operating capacity. The change in the valuation of inventories also affects the
Kyro Group's production companies.
Inventories increase due to the new sales recognition policy. Accounts receivable
decrease and non-interest-bearing liabilities (advances received) increase.
Intangible assets
According to the IAS 38 standard, intangible assets that arise from development
activity must be entered in the balance when they fulfil certain criteria. These
include the capacity of the intangible asset to generate future financial income
and the determination of development expenditure in a reliable way.
Previously, product development costs had been directly recognised as an expense
during the financial period in which they arose.
Employee benefits
The Group has defined-benefit severance pay schemes fixed by law in Italy and
defined-benefit voluntary pension schemes in Finland in certain Group companies.
Pension expenses are recognised as an expense on the basis of actuarial
calculations. TEL scheme disability pensions in Finland are recognised within
defined-benefit schemes.
Options
The option scheme for Tamglass Ltd. Oy shares, available to the Tamglass Group's
key personnel and Kyro's management, has been treated as part of the Group's
minority interest according to present accounting policy.
According to the IFRS 2 standard, the scheme in question is a share-based
incentive scheme which should be paid in cash. Share options have been recognised
in personnel expenses and in accrued expenses and deferred income for the
performance period of the option scheme.
Lease agreements
The Group has finance leases and other leases.
Fixed assets acquired by finance leases include property which is in production
use as well as production machinery and equipment at various operating locations.
Asset items have been capitalised in the balance sheet and amortised using the
straight-line method over their useful life or over the duration of the lease in
question in accordance with IAS 17 standard.
Other leases are mainly operating location, vehicle and office equipment leases,
and the lease payments are recognised as an expense during the lease period.
Deferred taxes
According to the Kyro Group's present accounting policies, deferred tax
liabilities and deferred tax assets have been calculated for periodisation
differences between taxation and the financial statements using the prescribed
tax rate of the following years at the closing date. The balance sheet contains
the deferred tax liability in full, and deferred tax assets are recognised at
their estimated probable amount. In terms of present accounting policy, there are
no differences compared with the IAS 12 standard.
Goodwill
According to the new accounting policy, goodwill amortisation is not performed,
rather it is replaced by impairment testing.
Kyro Group has exercised the relief permitted by the IFRS 1 standard, namely
company acquisitions made before the transition date have not been adjusted
according to IFRS policies. Consolidated goodwill is allocated to business
groups, which contain a number of cash generating units.
The carrying amounts of goodwill were assessed in collaboration with an external
independent expert in order to ascertain possible impairment in accordance with
IAS 36. The calculations did not result in write-downs in the opening balance
sheet at 1 January 2004, nor at the closing date of 31 December 2004.
Other asset items
The Group did observe any indications of a possible fall in value of asset items
that would have led to the preparation of impairment testing.
Provisions, conditional liabilities and conditional assets
According to the IFRS 37 standard, provisions are entered as a liability in the
balance sheet when a company has a current obligation as the result of an earlier
event and the magnitude of the obligation can be reliably estimated. Kyro Group
recognises as a obligatory provision the statutory severance pay of an Italian
subsidiary, guarantee provisions for project activity as well as pension
obligations.
Changes resulting from the adoption of IFRS reporting at the beginning of 2005
Financial instruments
As of 1 January 2005, the Kyro Group is applying classification and valuation
rules for financial assets as well as hedge accounting of foreign currency and
electricity derivatives in accordance with the IAS 32 and IAS 39 standards.
Emissions trading
Emission rights relating to emissions trading, which began in 2005, are been
treated according to the IFRIC interpretation.
KYRO CORPORATION
Further information: Chief Financial Officer, Vesa Hopia, tel. +358 3 382 3111
Distribution: Helsinki Exchanges and key media
FAS IFRS
Income statement 2004 Change 2004
EUR million
1) Net sales 231.7 -0.3 231.4
2) Increase/decrease in inventories of
finished products and work in progress 3.5 -0.9 2.6
3) Production for own use 0.2 0.4 0.6
Other operating income 1.1 1.1
4) Materials and services 114.1 -0.2 113.9
5) Personnel expenses 52.7 1.3 54.0
6) Other operating expenses 41.0 -2.1 38.9
7) Depreciation without amortisation
of consolidated goodwill 6.9 1.5 8.4
Operating profit before amortisation of
consolidated goodwill 21.8 -1.3 20.5
of net sales, % 9.4 8.8
8) Amortisation of consolidated goodwill 2.9 -2.9
Operating profit 18.8 1.6 20.5
of net sales, % 8.1 8.8
9) Net financial income and expenses 2.1 -0.1 2.1
Profit before taxes 21.0 1.5 22.5
of net sales, % 9.1 9.7
10) Income tax -7.5 -0.4 -7.9
11) Minority interest -1.9 1.7 -0.2
Profit for the financial year 11.6 2.9 14.5
Earnings per share 0.15 0.03 0.18
FAS IFRS FAS IFRS
Balance sheet 31.12.2004 Change 31.12.2004 31.12.2003 Change 31.12.2003
EUR million
Fixed assets
12) Consolidated goodwill 49.5 2.9 52.4 53.5 0.0 53.5
13) Intangible assets 3.6 4.5 8.1 4.0 3.1 7.1
14) Tangible assets 54.1 0.5 54.5 56.0 0.5 56.5
15) Investments 4.2 -1.0 3.3 5.2 -1.0 4.2
Fixed assets, total 111.4 7.0 118.4 118.6 2.7 121.3
Current assets
16) Inventories 34.7 28.6 63.3 32.2 29.7 61.9
17) Deferred tax asset 5.7 4.5 10.2 8.3 5.1 13.5
Receivables
18) Accounts receivable 53.8 -17.5 36.3 49.6 -20.2 29.4
19) Other receivables 8.5 -0.2 8.3 8.2 8.2
Marketable securities
and cash equivalents 11.5 11.5 29.1 29.1
Current assets,total 114.2 15.4 129.6 127.4 14.6 142.1
Balance sheet total 225.6 22.4 248.0 246.1 17.3 263.4
20)Shareholders' equity 130.5 -8.8 121.6 135.9 -12.1 123.7
21) Minority interest 4.1 -3.6 0.5 2.2 -1.8 0.4
22) Obligatory provision 5.9 0.9 6.8 5.6 1.4 7.0
Liabilities
23) Interest-bearing
liabilities 19.8 0.5 20.3 33.3 0.8 34.1
24) Non-interest-bearing
liabilities 58.1 32.8 91.0 60.6 28.4 89.0
25) Deferred tax liability
7.2 0.6 7.8 8.4 0.8 9.2
Balance sheet total 225.6 22.4 248.0 246.1 17.3 263.4
CHANGES
EUR million
INCOME STATEMENT 2004
1) Change in revenue recognition policy -0.3
2) Change in revenue recognition policy,
inclusion of fixed expenses in inventories -0.9
3) Capitalisation of Group internal product development 0.4
4) Change in revenue recognition policy -0.2
5) Option scheme and defined-benefit
pension scheme expenses 1.3
6) Change in revenue recognition policy,
capitalisation of product development expenses -2.1
7) Amortisation of product development expenses
and fixed assets acquired by finance leases 1.5
8) Refund of amortisation of consolidated goodwill -2.9
9) Finance leasing -0.1
10)Income tax on the above changes -0.4
11)Option scheme from minority interest
to personnel expenses 1.7
Profit for the financial year 2.9
BALANCE SHEET 2004 2003
12)Refund of amortisation of consolidated goodwill 2.9 0.0
13)Capitalisation of product development expenses 4.5 3.1
14)Fixed assets acquired with
fixed assets 0.5 0.5
15)Treasury shares -1.0 -1.0
16)Change in revenue recognition policy, inclusion
of fixed expenses in inventories 28.6 29.7
17)Deferred tax asset 4.5 5.1
18)Change in accounts receivable,
change in recognition policy -17.5 -20.2
19)Change in prepaid expenses and accrued income,
change in recognition policy -0.2 0.0
22.4 17.3
20)Changes in shareholders' equity;
see table below -8.8 -12.1
21)Option scheme from minority interest
accrued expenses and deferred income -3.6 -1.8
22)Guarantee provision and defined-benefit pensions 0.9 1.4
23)Finance leasing liability 0.5 0.8
24)Non-interest-bearing liabilities, change in
recognition policy 32.8 28.4
25)Deferred tax liability 0.6 0.8
22.4 17.3
Changes in share holders' equity
- Share Share premium Treasury Translation Retained Subordin- Total
capital fund shares differences earnings ated loan
Shareholders' equity under FAS at 31.12.2003
6.3 31.6 1.0 -1.7 98.4 0.2 135.9
Effect of adoption of IFRS
-1.0 -11.0 -0.2 -12.1
Shareholders' equity under IFRS at 31.12.2003
6.3 31.6 0.0 -1.7 87.5 0.0 123.7
Shareholders' equity under FAS at 31.12.2004
12.7 25.3 1.0 -0.9 92.5 130.5
Effect of adoption of IFRS
-1.0 -7.8 -8.8
Shareholders' equity under IFRS at 31.12.2004
12.7 25.3 0.0 -0.9 84.7 0.0 121.6
2003 2004
Shareholders' equity under FAS at 31.12 135.9 130.5
Effect of adoption of IFRS
IAS 2 Inventories 2.8 1.7
IAS 12 Income taxes 4.4 3.9
IAS 17 Leases -0.1 -0.1
IAS 18 Revenue -21.5 -20.8
IAS 19 Employee benefits 0.5 0.2
IAS 37 Provisions 0.1 0.0
IAS 38 Intangible assets 3.1 4.5
IAS 32 Treasury shares, subordinated loan -1.2 -1.0
IFRS 2 Share-based payments -0.2 -0.4
IFRS 3 Business combinations 2.9
Others 0.1 0.1
IFRS adjustments, total -12.1 -8.8
Shareholders' equity under IFRS at 31.12 123.7 121.6
Key figures FAS IFRS
2004 2004
Return on capital invested, % 12.3 11.7
Return on equity, % 9.9 11.9
Equity ratio, % 62.6 59.3
Debt/equity, % 6.1 7.1
Interest-bearing net liabilities, EUR million 8.2 8.7
of net sales, % 3.5 3.8
Order book, EUR million 86.7 135.5
Equity per share, EUR 1.64 1.54
FAS IFRS
Trend by quarter
EUR million
1/04 2/04 3/04 4/04 1/04 2/04 3/04 4/04
Net sales
Glaston Technologies 44.0 49.8 39.7 69.8 52.8 53.9 47.1 49.3
Energy 7.5 6.5 6.7 7.7 7.5 6.5 6.7 7.7
Parent company, other operations
and eliminations 0.0 0.0 -0.1 0.0 -0.1 0.0
Group, total 51.5 56.3 46.3 77.5 60.3 60.4 53.7 57.0
Operating profit before amortisation of consolidated goodwill
Glaston Technologies 4.0 3.8 2.7 9.3 7.1 4.6 5.0 1.7
of net sales, % 9.0 7.6 6.8 13.3 13.5 8.5 10.5 3.4
Energy 1.7 1.2 1.0 1.7 1.7 1.2 1.0 1.7
of net sales, % 23.1 18.3 15.5 22.3 23.1 18.3 15.5 22.3
Parent company, other operations
and eliminations -0.8 0.6 -0.8 -1.4 -0.8 -0.6 -0.8 -1.3
Group. total 4.9 4.4 2.9 9.6 8.0 5.1 5.2 2.1
of net sales, % 9.5 7.7 6.3 12.4 13.3 8.5 9.8 3.6
Order book
Glaston Technologies 48.9 56.6 64.7 62.2 93.6 97.6 100.8 111.0
Energy 22.7 22.7 22.7 24.5 22.7 22.7 22.7 24.5
Group, total 71.6 79.3 87.4 86.7 116.3 120.3 123.5 135.5
