Impacts of the adoption of the IFRS 16 standard at YIT and change in reporting practices
YIT Corporation Stock exchange release April, 18 2019 at 3:00 p.m.
Impacts of the adoption of the IFRS 16 standard at YIT and change in reporting practice
YIT will change its reporting practices from 2019. This release describes the impacts of the adoption of the IFRS 16 “Leases” standard that entered into force on January 1, 2019. In addition, going forward, the company will not report figures under the percentage of completion (POC) principle.
Impacts of the adoption of the IFRS 16 standard
The new IFRS 16 “Leases” standard entered into force on January 1, 2019. The adoption of the standard will not have an impact on the company’s financial targets or guidance for 2019, in which the adoption of the IFRS 16 standard is already taken into account. Furthermore, the adoption of the standard has no negative impacts in respect of the company’s financial covenants.
The adoption of the IFRS 16 standard will have an impact on several key indicators reported by YIT: gearing ratio will increase and equity ratio decrease, among others. In order to improve comparability, the company will present the net debt, gearing ratio and equity ratio adjusted without lease agreement items. The company’s adjusted net debt on January 1, 2019, was EUR 545.1 million (reported EUR 863.5 million), adjusted gearing ratio 51.9% (reported 82.3%) and adjusted equity ratio 38.6% (reported 34.4%).
The annual impact on EBITDA is expected to be approximately EUR 45 million positive and on operating profit approximately EUR 10 million positive, of which approximately half is allocated to the Housing Finland and CEE segment. It is estimated that the impact on the Group’s result before taxes is approximately EUR 8 million negative and on the result for the financial year approximately EUR 6 million negative. The application of the standard will not have a material impact on the Group’s revenue or earnings per share.
The adoption of the standard will have an impact on the company’s capital employed. The most significant items increasing the capital employed are leased plots, leased properties as well as machinery and equipment. Leased plots increase the capital employed by approximately EUR 190 million, leased properties by approximately EUR 90 million and machinery and equipment approximately by EUR 30 million. The company’s lease plot reserve is mainly located in Finland. The table below specifies the impacts of the adoption of the IFRS 16 standard on the capital employed by segments. It is estimated that the annual effect on the result will be distributed between the segments approximately in the same proportion.
|EUR million||Housing Finland and CEE||Housing Russia||Business premises||Infra projects||Paving||Partnership Properties||Other functions and eliminations||Group, IFRS|
|Capital employed after the adoption of the IFRS 16 standard on January 1, 2019||755.7||307.3||44.6||90.2||155.4||145.0||403.6||1,901.8|
|from which the impact of the adoptionof the IFRS 16 standard||170.8||13.0||6.4||7.2||31.7||0.0||71.5||300.6|
The adoption of the standard will also have an impact on the company’s interest-bearing net debt. Borrowings and lease liabilities are included in the interest-bearing debt. Borrowings will not increase due to the application of the standard. The amount of the lease liabilities is approximately EUR 300 million. Furthermore, the cash flow from operating activities will improve and cash flow from financing activities will decrease as repayment of the principal portion of the lease liabilities is classified as cash flows from financing activities.
The IFRS 16 standard replaced the previous IAS 17 Leases standard and related interpretations. Under the new standard, all leases are recognised on the balance sheet, with the exception of leases for which the underlying asset is of low value and short-term leases. Leases other than finance leases were previously reported as off-balance sheet minimum lease payment obligations. Following the adoption of the IFRS 16 standard, both items are reported as lease liabilities. The company will not adjust the figures of the comparison period or year retrospectively.
The attached tables present the opening balance sheet 2019 and the most significant key indicators calculated on the basis of the opening balance sheet in accordance with the IFRS 16 standard as well as the definitions of the most significant key indicators. Furthermore, the key accounting policies related to the IFRS 16 standard are published as an appendix to this release.
Terminating the reporting under the percentage of completion (POC) principle
In future, YIT will be reporting only in accordance with IFRS. The company previously reported certain figures for the Housing Finland and CEE segment and the Housing Russia segment under the percentage of completion (POC) principle in addition to IFRS reporting. In IFRS reporting, revenue is recognised for consumer housing projects when the projects are completed.
For further information, please contact:
Hanna Jaakkola, Vice President, Investor Relations, YIT Corporation, tel. +358 (0)40 566 6070, email@example.com
Ilkka Salonen, CFO, YIT Corporation, tel. +358 (0)45 359 4434, firstname.lastname@example.org
IFRS 16 adoption and accounting principles
Vice President, Investor Relations
Distribution: Nasdaq Helsinki, major media, www.yitgroup.com
YIT is the largest Finnish and significant North European construction company. We build and develop
apartments and living services, business premises and entire areas. We are also specialised in demanding infrastructure construction and paving. Together with our customers, our almost 10,000 professionals are creating more functional, more attractive and more sustainable cities and environments. We work in 11 countries: Finland, Russia, Scandinavia, the Baltic Countries, the Czech Republic, Slovakia and Poland. The new YIT was born when over 100-year-old YIT Corporation and Lemminkäinen Corporation merged on February 1, 2018. Our pro forma revenue for 2018 was approximately EUR 3.8 billion. YIT Corporation's share is listed on Nasdaq Helsinki Oy. www.yitgroup.com