YIT announces new strategy and financial targets for 2025-2029, introduces a new segment structure
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- Stock Exchange Release
- 06.04.2005 09:00 CET
YIT CORPORATION?S IFRS COMPARATIVE INFORMATION FOR THE 2004
STOCK EXCHANGE RELEASE April 6, 2005 10:00
YIT CORPORATIONS IFRS COMPARATIVE INFORMATION FOR THE 2004 FINANCIAL YEAR
YIT changed over to IFRS (International Financial Reporting Standards) on January 1, 2005. The interim report for January- March 2005, which will be published at 8:00 Finnish time on May 4, 2005, will be drafted in accordance with IFRS recognition and measurement policies.
This bulletin is intended to present the major effects of the transition to IFRS on YITs financial information for 2004. The IFRS-based financial information presented in the summary may have to be adjusted before it is included as information on the comparative period in the Groups first IFRS financial statements, which will be drafted for the financial period ending on December 31, 2005. This is due to the revisions currently being made to IFRS norms, which might have an effect on the financial statements of companies applying IFRS as from 2005. Prior to the adoption of IFRS, YITs financial reporting was based on Finnish Accounting Standards (FAS). The FAS accounting policy is presented in the 2004 Annual Report. The FAS comparative figures in this bulletin correspond to the information disclosed in previously published interim reports and financial statements. The accounting policies of the IFRS financial statements are presented at the end of this bulletin.
MAJOR EFFECTS OF THE ADOPTION OF IFRS
For YIT, the major effects of the transition to IFRS are related to the recognition method employed in the treatment of developer contracting. At the segmental level, these changes affect the financial figures of Construction Services. Significant changes in developer contracting include the elimination of "double net sales", the change in the recognition of income on the basis of the percentage of completion and changes in the treatment of developer contracting in the balance sheet. Another significant change is that the amortization according to plan of goodwill and goodwill on consolidation will be discontinued and replaced with impairment tests. On the basis of the tests carried out in 2004, there were no grounds for recognizing impairment. The transition to IFRS is an accounting measure and it has no material effect on the companys business operations or cash flow.
Under IFRS, net sales in 2004 amounted to EUR 2,780.1 million (FAS: EUR 3,033.4 million). Operating profit increased to EUR 155.7 million (FAS: EUR 135.1 million), representing 5.6 per cent of net sales (FAS: 4.5%). Profit before taxes was EUR 138.7 million (FAS: EUR 118.2 million). Earnings per share increased to EUR 1.60 (FAS: EUR 1.37). Return on investment in 2004 was 19.0 per cent (FAS: 19.6%). According to IFRS, interest-bearing net debt amounted to EUR 349.3 million at the end of 2004 (FAS: EUR 226.6 million). At the end of 2004, the gearing ratio was 78.4 per cent (FAS: 49.2%). The equity ratio remained unchanged and was 31.0 per cent (FAS: 31.1%). At the end of 2004, the uninvoiced backlog of orders increased to EUR 1,823.4 million (FAS: EUR 1,604.9 million), of which EUR 645.0 million (FAS: EUR 621.0 million) represented international orders.
Income statement
The change in recognition practices decreased net sales in 2004 by EUR 253.3 million to EUR 2,780.1 million (FAS: EUR 3,033.4 million). The major factors underlying the change in net sales in developer contracting were the elimination of double net sales, the slowdown of the income recognition of net sales due to the change in the recognition practice, and the consolidation of the affiliate Oy Botnia Mill Service Ab as a subsidiary.
Net sales from developer contracting have comprised double net sales either in full or in part, as construction contracting and sales of shares in developer contracting have been legally separated in Finland, and both functions have also been treated separately in accounting. In accordance with IAS 11 Construction Contracts, income is in no respects booked twice; rather, developer contracting comprises a single entity as part of construction operations. Developer contracting is recognized as revenue on the basis of the percentage of completion, which is derived with the formula: degree of the completion of construction multiplied by the degree of sale. Under FAS, the project margin was recognized in the income statement in accordance with the degree of completion or degree of sale, whichever was lower. The change in the recognition practice will slow down the income recognition of net sales and the profit in developer contracting in the early stages of the project. As the degree of completion increases, income recognition will be focused on the latter half of the project.
The change in the recognition of revenue from developer contracting reduced net sales by a total of EUR 280.1 million in 2004, of which EUR 203.1 million represented double net sales.
However, the elimination of the double net sales had no effect on operating profit. The change in the income recognition policy had a non-recurring effect on net sales. The consolidation of Oy Botnia Mill Service Ab increased net sales by EUR 37.0 million.
Operating profit of 2004 grew by EUR 20.6 million to EUR 155.7 million (FAS: EUR 135.1 million). The discontinuation of the amortization according to plan of goodwill and goodwill on consolidation was the greatest reason underlying the improvement in operating profit. This increased operating profit by EUR 30.4 million of which EUR 24.6 million increased operating profit of Building Systems. The change in the recognition of income on the basis of the percentage of completion (recognition of revenue by reference to the stage of completion) weakened operating profit by EUR 2.9 million. In 2004, profit before taxes improved by EUR 20.5 million to EUR 138.7 million (FAS: EUR 118.2 million). Deferred taxes cut into net profit by EUR 7.4 million. Earnings per share improved in total EUR 0.23 to EUR 1.60 (FAS: EUR 1.37). IFRS adjustments in 2004 had a total effect of EUR 15.2 million on net profit.
According to IFRS, return on investment in 2004 amounted to 19.0 per cent (FAS 19.6%).
Balance sheet
According to the IFRS opening balance sheet dated January 1, 2004, the balance sheet total declined by EUR 65.3 million to EUR 1,490.2 million (FAS, Dec. 31, 2003: EUR 1,555.5 million). At the end of 2004, the balance sheet total was EUR 1,516.2 million (FAS: EUR 1,590.3 million).
The changes in the treatment of developer contracting increased interest-bearing current liabilities by EUR 140.9 million in the opening balance sheet, but reduced the balance sheet total by about EUR 100 million. Contract receivables sold to finance companies were restated as interest-bearing current liabilities, fully in the case of unsold condominium shares, and, in the case of sold shares, to the extent that they exceeded the stage of completion portion of the liability for the shares sold. Under FAS, all the interest on the contraction-stage contract receivables sold to finance companies have already been included in net financial expenses in the income statement, which is also the case under IFRS. Debts to construction fund (which are recognised in current liabilities), a portion of advances received and current receivables are eliminated due to the change in the treatment of housing and property corporations, reducing the balance sheet total. Interest-bearing net debt rose to EUR 385.0 million in the opening balance sheet (FAS: EUR 204.4 million on Dec. 31, 2003). In addition to the changes in the treatment of developer contracting, financial lease agreements increased interest-bearing liabilities by EUR 39.6 million. At the end of 2004, interest-bearing net debt amounted to EUR 349.3 million (FAS: EUR 226.6 million). The gearing ratio was 100.9 per cent in the opening balance sheet (FAS: 49.6% on Dec. 31, 2003), and 78.4 per cent at the end of 2004 (FAS: 49.2%).
IFRS adjustments to the opening balance sheet dated January 1, 2004, reduced shareholders equity by EUR 26.6 million to EUR 381.7 million (FAS: EUR 408.3 million). Due to the change in the recognition of income from developer contracting, retained earnings were reduced by EUR 14.9 million in the transition stage.
10-year construction commitments reduced shareholders equity by EUR 18.4 million, deferred taxes increased shareholders equity by EUR 13.5 million, and other commitments and provisions cut into shareholders equity by EUR 8.5 million. At the end of 2004, shareholders equity amounted to EUR 445.4 million (FAS: EUR 457.2 million). The discontinuation of goodwill amortization increased shareholders equity. The equity ratio was 26.9 per cent in the opening balance sheet (FAS: 28.3% on Dec. 31, 2003) and 31.0 per cent at the end of 2004 (FAS: 31.1%).
In IFRS, 10-year construction commitments are recorded as provisions having an effect on earnings, whereas they were previously recorded as expenses on the basis of their realization.
This accounting change reduced shareholders equity in the opening balance sheet and increased provisions by EUR 18.4 million. Lease agreements in which the Group holds a material share of the risks and benefits of ownership are classified as financial lease agreements. They are recognized as fixed assets and interest- bearing liabilities. Lease agreements increased the opening balance sheet by EUR 39.6 million. Deferred tax liabilities and assets have been calculated from the temporary differences between the IFRS financial statements and taxation. Their net effect was to increase shareholders equity and the balance sheet by EUR 13.5 million.
Order backlog
Under IFRS, the uninvoiced backlog of orders grew at the end of 2004 and amounted to EUR 1,823.4 million (FAS: EUR 1,604.9 million). In accordance with IFRS, the share of the order backlog accounted for by operations outside Finland was EUR 645.0 million (FAS: EUR 621.0 million). The non-recurring growth in the order backlog was due to the change in the income recognition policy used in developer contracting. The treatment change increased the order backlog of Construction Services.
Impairment test of goodwill and goodwill on consolidation
The amortization according to plan of goodwill and goodwill on consolidation has been discontinued after 2003 and replaced with impairment testing. Goodwill and goodwill on consolidation have been tested for the opening balance sheet dated January 1, 2004, and the situation as at September 30, 2004. On the basis of the results, there were no grounds for impairment. In the future, testing will be carried out annually in September-November. In the IFRS opening balance sheet dated January 1, 2004, goodwill amounted to EUR 242.4 million.
Pension obligations
Due to the amendment of the Finnish occupational pension system, which was ratified by the Ministry of Social Affairs and Health on December 22, 2004, the occupational disability portion of statutory entitlement pensions has not been recorded as pension liabilities in the opening balance sheet dated January 1, 2004.
The net amount of the pension liabilities and the deferred tax asset calculated therefrom would have been about EUR 37 million.
In the case of supplementary pension insurance policies, liabilities are recorded in pension liabilities and the share of deferred taxes is entered in tax receivables. Their effect is not material in amount.
IAS/IFRS standards
The financial information presented in this bulletin has been prepared in accordance with the IAS/IFRS standards that were in force on March 31, 2005. The transition date is January 1, 2004, with the exception of IAS 32 and 39, for which the transition date is January 1, 2005. In the comparative information for 2004, Finnish accounting standards have been applied to the reporting of financial instruments covered by IAS 32 and 39.
The annexes to the bulletin are the opening IFRS balance sheet dated January 1, 2004, quarterly figures for 2004 in accordance with IFRS and FAS, supplementary notes to the income statement and balance sheet and the accounting policy applied in the IFRS financial statements. This bulletin is unaudited.
YIT CORPORATION
Veikko Myllyperkiö Vice President, Corporate Communications
For additional information, contact: Esko Mäkelä, Executive Vice President, +358 20 433 2258, esko.makela@yit.fi Petra Thorén, Manager, Investor Relations, +358 20 433 2635, petra.thoren@yit.fi Veikko Myllyperkiö, Vice President, Corporate Communications, +358 20 433 2297, veikko.myllyperkio@yit.fi
Distribution: Helsinki Stock Exchange, principal media, www.yit.fi
Information session April 7, 2005
A briefing on the IFRS changes will be held for analysts and portfolio managers at 9:00 on Thursday, April 7, 2005, at YITs head office. The address is Panuntie 11, 00620 Helsinki. A presentation on the effects of IFRS on YITs financial figures will be available on the companys Internet site, www.yit.fi on April 7, 2005.
IFRS OPENING CONSOLIDATED BALANCE SHEET JAN 1, 2004 (EUR million)
Note IFRS FAS Difference Jan 1, Dec 31, 2004 2003 ASSETS Non-current assets Property, plant and 6 107.2 66.8 40.4 equipment Goodwill 7 242.4 246.9 -4.5 Other intangible assets 12.1 11.8 0.3 Investments 4.3 6.2 -1.9 Receivables 7.2 7.2 - Deferred tax assets 4 24.4 7.0 17.4 Current assets 8 Inventories 545.7 380.8 164.9 Trade and other receivables 485.4 768.4 -283.0 Cash and cash equivalents 61.5 60.4 1.1 Total assets 1,490.2 1,555.5 -65.3 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital 61.0 61.0 - Other equity 316.8 347.3 -30.5 Minority interest 3.9 3.4 0.5 Total equity 9 381.7 411.7 -30.0 Non-current liabilities Deferred tax liabilities 4 11.0 7.1 3.9 Pension liabilities 10 5.4 - 5.4 Provisions 37.6 21.8 15.8 Non-current interest- 235.2 202.6 32.6 bearing liabilities Other non-current 3.0 1.2 1.8 liabilities Current liabilities Trade and other payables 8 592.4 843.4 -251.0 Provisions 12.6 5.5 7.1 Current interest-bearing 211.3 62.2 149.1 liabilities Total equity and 1,490.2 1,555.5 -65.3 liabilities
KEY FIGURES
IFRS FAS Difference Jan 1, 2004 Dec 31, 2003 Equity per share, EUR 6.19 6.69 -0.50 Net interest-bearing debt at 385.0 204.4 180.6 end of period, EUR million Equity ratio, % 26.9 28.3 - Gearing ratio, % 100.9 49.6 -
QUARTERLY COMPARATIVE INFORMATION FOR 2004 IN ACCORDANCE WITH IFRS AND FAS (Unaudited)
1) COMPARATIVE INFORMATION FOR JANUARY - MARCH 2004
CONSOLIDATED INCOME STATEMENT (EUR million)
Note IFRS FAS Difference Jan- Jan- Mar/2004 Mar/2004 Revenue 1 669.9 713.1 -43.2 - of which international 264.5 267.2 -2.7 activities - double net sales - 64.1 -64.1 Operating income and 2 -626.0 -673.8 47.8 expenses Depreciation and write- -6.4 -3.9 -2.5 downs excluding goodwill amortization Operating profit before 37.5 35.4 2.1 amortization of goodwill and goodwill on consolidation (EBITA) % of net sales 5.6 5.0 - Amortization of goodwill 3 - -7.4 7.4 and goodwill on consolidation Operating profit (EBIT) 37.5 28.0 9.5 % of net sales 5.6 3.9 - Financial income 0.7 0.7 - Financial expenses -4.8 -4.4 -0.4 Profit before taxes 33.4 24.3 9.1 Income taxes 4 -11.2 -7.8 -3.4 Minority interests - -0.1 0.1 Profit for the report 5 22.2 16.4 5.8 period % of net sales 3.3 2.3 - Attributable to Equity holders of the 22.1 16.4 5.7 parent company Minority interests 0.1 - 0.1 Earnings per share attributable to the equity holders of the parent company Earnings per share, EUR 0.36 0.27 0.09 Diluted earnings per share, 0.36 0.27 0.09 EUR
CONSOLIDATED BALANCE SHEET (EUR million)
Note IFRS FAS Difference Mar/2004 Mar/2004 ASSETS Non-current assets Property, plant and 6 103.6 64.3 39.3 equipment Goodwill 7 242.4 239.3 3.1 Other intangible assets 12.7 12.7 - Investments 3.9 6.0 -2.1 Receivables 6.8 6.8 - Deferred tax assets 4 23.4 8.4 15.0 Current assets 8 Inventories 534.4 362.1 172.3 Trade and other receivables 482.5 767.4 -284.9 Cash and cash equivalents 55.6 53.0 2.6 Total assets 1,465.3 1,520.0 -54.7 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital 61.0 61.0 - Other equity 302.6 327.2 -24.6 Minority interest 4.0 3.5 0.5 Total equity 9 367.6 391.7 -24.1 Non-current liabilities Deferred tax liabilities 4 12.2 7.0 5.2 Pension liabilities 10 5.5 - 5.5 Provisions 22.9 9.3 13.6 Non-current interest- 265.5 236.2 29.3 bearing liabilities Other non-current 3.1 1.3 1.8 liabilities Current liabilities 8 Trade and other payables 598.0 822.9 -224.9 Provisions 21.3 14.3 7.0 Current interest-bearing 169.2 37.3 131.9 liabilities Total equity and 1,465.3 1,520.0 -54.7 liabilities
KEY FIGURES
IFRS FAS Difference Mar/2004 Mar/2004 Equity per share, EUR 5.96 6.36 -0.40 Net interest-bearing debt at 379.1 220.5 158.6 end of period, EUR million Return on investment, from the - 20.8 - last 12 months, % Equity ratio, % 26.7 27.7 - Gearing ratio, % 103.1 56.3 - Gross capital expenditures on 7.3 6.1 1.2 non-current assets, EUR million -% of net sales 1.1 0.9 - Order backlog at end of 1,585.2 1,478.2 107.0 period, EUR million - of which international 582.8 580.4 2.4 orders
FINANCIAL FIGURES BY SEGMENT
As in FAS reporting, business segments have been defined as YITs primary IFRS reporting segments.
In 2004, the net sales of Construction Services were reduced by the changes in the income recognition policy employed in developer contracting. The discontinuation of double net sales did not affect operating profit, and thereby improved relative profitability. The effect of the change in the income recognition of developer contracting on net sales was non-recurring. Change in recognition of revenue did not have a significant effect on operating profit. The non-recurring growth in the order backlog was due to the change in the income recognition policy used in developer contracting.
The affiliates Oy Botnia Mill Service Ab and Kiinteistö Oy Leppävirta were consolidated and defined as subsidiaries in accordance with IFRS, because the YIT Group holds responsibility for their business operations, which affected the growth in the net sales and the operating profit of Services for Industry.
The discontinuation of the amortization of goodwill and goodwill on consolidation affected the operating profit of all the segments. The discontinuation of the amortization of goodwill and goodwill on consolidation had the most significant effect on the operating profit margin in Building Systems and Data Network Services.
NET SALES BY BUSINESS SEGMENT (EUR million)
IFRS FAS Difference Jan- Jan- Mar/2004 Mar/2004 Building Systems 316.1 316.9 -0.8 Construction Services 288.3 338.3 -50.0 - double net sales - 64.1 -64.1 Services for Industry 50.4 42.7 7.7 Data Network Services 24.4 24.4 - Other items -9.3 -9.2 -0.1 YIT Group, total 669.9 713.1 -43.2
OPERATING PROFIT BEFORE AMORTIZATION OF GOODWILL AND GOODWILL ON CONSOLIDATION (EBITA) BY BUSINESS SEGMENT (EUR million)
IFRS FAS Difference Jan- Jan- Mar/2004 Mar/2004 Building Systems 4.5 4.7 -0.2 Construction Services 32.7 30.5 2.2 Services for Industry 0.1 0.2 -0.1 Data Network Services 1.3 1.3 - Other items -1.1 -1.3 0.2 YIT Group, total 37.5 35.4 2.1
OPERATING PROFIT (EBIT) BY BUSINESS SEGMENT (EUR million)
IFRS FAS Difference Jan- Jan- Mar/2004 Mar/2004 Building Systems 4.5 -1.3 5.8 Construction Services 32.7 30.1 2.6 Services for Industry 0.1 -0.1 0.2 Data Network Services 1.3 0.6 0.7 Other items -1.1 -1.3 0.2 YIT Group, total 37.5 28.0 9.5
ORDER BACKLOG BY BUSINESS SEGMENT AT END OF PERIOD (EUR million)
IFRS FAS Difference Mar/2004 Mar/2004 Building Systems 557.2 557.2 - Construction Services 842.6 735.6 107.0 Services for Industry 76.0 76.0 - Data Network Services 109.4 109.4 - YIT Group, total 1,585.2 1,478.2 107.0
2) COMPARATIVE INFORMATION FOR JANUARY - JUNE AND APRIL - JUNE 2004
CONSOLIDATED INCOME STATEMENT (EUR million)
Note IFRS FAS Diff IFRS FAS Diff Jan- Jan- eren Apr- Apr- eren Jun Jun ce Jun Jun ce /2004 /2004 /2004 /2004 Revenue 1 1,399.1 1,504.4 105.3 729.2 791.3 -62.1 - of which international activities 574.0 581.8 -7.8 309.5 314.6 -5.1 - double net sales - 107.8 -107.8 - 43.7 -43.7 Operating income and expenses 2 -1,311.9 -1,421.0 109.1 -685.9 -747.2 61.3 Depreciation and write- downs excluding goodwill amortization -12.2 -8.3 -3.9 -5.8 -4.4 -1.4 Operating profit before amortization of goodwill and goodwill on consolidation (EBITA) 75.0 75.1 -0.1 37.5 39.7 -2.2 % of net sales 5.4 5.0 - 5.1 5.0 - Amortization of goodwill and goodwill on consolidation 3 - -14.9 14.9 - -7.5 7.5 Operating profit (EBIT) 75.0 60.2 14.8 37.5 32.2 5.3 % of net sales 5.4 4.0 - 5.1 4.1 - Financial income 1.5 1.6 -0.1 0.8 0.9 -0.1 Financial expenses -9.7 -8.9 -0.8 -4.9 -4.5 -0.4 Profit before taxes 66.8 52.9 13.9 33.4 28.6 4.8 Income taxes 4 -22.4 -17.3 -5.1 -11.2 -9.5 -1.7 Minority interests -0.6 0.6 0 -0.5 0.5 Profit for the report period 5 44.4 35.0 9.4 22.2 18.6 3.6 % of net sales 3.2 2.3 - 3.0 2.4 - Attributable to Equity holders of the 43.8 35.0 8.8 21.7 18.6 3.1 parent Minority interests 0.6 - 0.6 0.5 - 0.5 Earnings per share attributable to the equity holders of the parent Earnings per 0.72 0.57 0.15 0.36 0.30 0.06 share, EUR Diluted earnings per share, EUR 0.71 0.57 0.14 0.35 0.30 0.05
CONSOLIDATED BALANCE SHEET (EUR million)
Note IFRS FAS Difference 30 30 Jun/2004 Jun/2004 ASSETS Non-current assets Property, plant and 6 103.5 65.2 38.3 equipment Goodwill 7 248.2 237.6 10.6 Other intangible assets 12.5 12.4 0.1 Investments 3.9 6.2 -2.3 Receivables 5.9 5.9 - Deferred tax assets 4 22.5 8.0 14.5 Current assets 8 Inventories 572.6 402.3 170.3 Trade and other receivables 499.0 813.2 -314.2 Cash and cash equivalents 38.0 36.8 1.2 Total assets 1,506.1 1,587.6 -81.5 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital 61.2 61.2 - Other equity 325.3 346.2 -20.9 Minority interest 4.2 3.6 0.6 Total equity 9 390.7 411.0 -20.3 Non-current liabilities - Deferred tax liabilities 4 14.4 6.1 8.3 Pension liabilities 10 5.6 - 5.6 Provisions 27.6 14.9 12.7 Non-current interest- 244.1 233.4 10.7 bearing liabilities Other non-current 3.3 1.4 1.9 liabilities Current liabilities 8 Trade and other payables 613.8 866.4 -252.6 Provisions 15.3 7.9 7.4 Current interest-bearing 191.3 46.5 144.8 liabilities Total equity and 1,506.1 1,587.6 -81.5 liabilities
KEY FIGURES
IFRS FAS Difference 30 Jun/2004 30 Jun/2004 Equity per share, EUR 6.32 6.66 -0.34 Net interest-bearing debt at 397.4 243.1 154.3 end of period, EUR million Return on investment, from the - 16.5 - last 12 months, % Equity ratio, % 27.6 28.1 - Gearing ratio, % 101.7 59.1 - Gross capital expenditures on 19.0 17.0 2.0 non-current assets, EUR million -% of net sales 1.4 1.1 - Order backlog at end of 1,722.2 1,569.8 152.4 period, EUR million - of which international 639.4 626.6 12.8 orders
FINANCIAL FIGURES BY SEGMENT
NET SALES BY BUSINESS SEGMENT (EUR million)
IFRS FAS Differ IFRS FAS Differ Jan- Jan- ence Apr- Apr- ence Jun Jun Jun Jun /2004 /2004 /2004 /2004 Building Systems 651.8 652.9 -1.1 335.7 336.0 -0.3 Construction Services 603.8 726.0 -122.2 315.5 387.7 -72.2 - double net sales - 107.8 -107.8 - 43.7 -43.7 Services for Industry 109.8 91.9 17.9 59.4 49.2 10.2 Data Network Services 55.2 55.2 - 30.8 30.8 - Other items -21.5 -21.6 0.1 -12.2 -12.4 0.2 YIT Group, total 1,399.1 1,504.4 -105.3 729.2 791.3 -62.1
OPERATING PROFIT BEFORE AMORTIZATION OF GOODWILL AND GOODWILL ON CONSOLIDATION (EBITA) BY BUSINESS SEGMENT (EUR million)
IFRS FAS Differ IFRS FAS Differ Jan- Jan- ence Apr- Apr- ence Jun Jun Jun Jun /2004 /2004 /2004 /2004 Building Systems 11.9 12.4 -0.5 7.4 7.7 -0.3 Construction Services 58.1 57.8 0.3 25.4 27.3 -1.9 Services for Industry 2.8 2.6 0.2 2.7 2.4 0.3 Data Network Services 5.1 5.1 - 3.8 3.8 - Other items -2.9 -2.8 -0.1 -1.8 -1.5 -0.3 YIT Group, total 75.0 75.1 -0.1 37.5 39.7 -2.2
OPERATING PROFIT (EBIT) BY BUSINESS SEGMENT (EUR million)
IFRS FAS Differ IFRS FAS Differ Jan- Jan- ence Apr- Apr- ence Jun Jun Jun Jun /2004 /2004 /2004 /2004 Building Systems 11.9 0.3 11.6 7.4 1.6 5.8 Construction Services 58.1 56.9 1.2 25.4 26.8 -1.4 Services for Industry 2.8 2.3 0.5 2.7 2.4 0.3 Data Network Services 5.1 3.5 1.6 3.8 2.9 0.9 Other items -2.9 -2.8 -0.1 -1.8 -1.5 -0.3 YIT Group, total 75.0 60.2 14.8 37.5 32.2 5.3
ORDER BACKLOG BY BUSINESS SEGMENT AT END OF PERIOD (EUR million)
IFRS FAS Difference Jun/2004 Jun/2004 Building Systems 566.5 566.5 - Construction Services 963.0 810.6 152.4 Services for Industry 73.5 73.5 - Data Network Services 119.2 119.2 - YIT Group, total 1,722.2 1,569.8 152.4
3) COMPARATIVE INFORMATION FOR JANUARY - SEPTEMBER AND JULY - SEPTEMBER 2004
CONSOLIDATED INCOME STATEMENT (EUR million)
Note IFRS FAS Diff IFRS FAS Diff Jan- Jan- eren Jul- Jul- eren Sep Sep ce Sep Sep ce /2004 /2004 /2004 /2004 Revenue 1 2,058.0 2,223.9 -165.9 658.9 719.5 60.6 - of which international activities 858.1 875.6 -17.5 284.1 293.8 -9.7 - double net sales - 143.2 -143.2 - 35.4 -35.4 Operating income and expenses 2 -1,920.2 -2,091.4 171.2 -608.3 -670.4 62.1 Depreciation and write- downs excluding goodwill amortization -15.9 -12.7 -3.2 -3.7 -4.4 0.7 Operating profit before amortization of goodwill and goodwill on consolidation (EBITA) 121.9 119.8 2.1 46.9 44.7 2.2 % of net sales 5.9 5.4 - 7.1 6.2 - Amortization of 3 - -22.6 22.6 - -7.7 7.7 goodwill and goodwill on consolidation Operating profit (EBIT) 121.9 97.2 24.7 46.9 37.0 9.9 % of net sales 5.9 4.4 - 7.1 5.1 - Financial income 1.9 1.9 - 0.4 0.3 0.1 Financial expenses -14.4 -14.0 -0.4 -4.7 -5.1 0.4 Profit before taxes 109.4 85.1 24.3 42.6 32.2 10.4 Income taxes 4 -32.4 -25.4 -7.0 -10.0 -8.1 -1.9 Minority interests -0.9 0.9 - -0.3 0.3 Profit for the report period 5 77.0 58.8 18.2 32.6 23.8 8.8 % of net sales 3.7 2.6 - 4.9 3.3 - Attributable to Equity holders of the parent 76.0 58.8 17.2 32.2 23.8 8.4 Minority interests 1.0 - 1.0 0.4 - 0.4 Earnings per share attributable to the equity holders of the parent Earnings per share, EUR 1.24 0.96 0.28 0.52 0.39 0.13 Diluted earnings per share, EUR 1.23 0.95 0.28 0.52 0.38 0.14
CONSOLIDATED BALANCE SHEET (EUR million)
Note IFRS FAS Difference 30 30 Sep/2004 Sep/2004 ASSETS Non-current assets Property, plant and 6 80.3 66.9 13.4 equipment Goodwill 7 248.8 231.3 17.5 Other intangible assets 12.1 12.1 - Investments 4.2 6.6 -2.4 Receivables 3.8 4.2 -0.4 Deferred tax assets 4 21.1 8.3 12.8 Current assets 8 Inventories 624.5 451.1 173.4 Trade and other receivables 477.4 798.0 -320.6 Cash and cash equivalents 41.8 40.2 1.6 Total assets 1,514.0 1,618.7 -104.7 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital 61.2 61.2 - Other equity 357.7 370.2 -12.5 Minority interest 3.9 3.3 0.6 Total equity 9 422.8 434.7 -11.9 Non-current liabilities Deferred tax liabilities 4 14.9 6.3 8.6 Pension liabilities 10 6.4 - 6.4 Provisions 31.3 14.9 16.4 Non-current interest- 227.8 217.2 10.6 bearing liabilities Other non-current 2.9 2.4 0.5 liabilities Current liabilities 8 Trade and other payables 613.3 861.0 -247.7 Provisions 10.6 7.8 2.8 Current interest-bearing 184.0 74.4 109.6 liabilities Total equity and 1,514.0 1,618.7 -104.7 liabilities
KEY FIGURES
IFRS FAS Difference 30 Sep/2004 30 Sep/2004 Equity per share, EUR 6.85 7.05 -0.20 Net interest-bearing debt at 370.0 251.4 118.6 end of period, EUR million Return on investment, from the - 15.8 - last 12 months, % Equity ratio, % 30.2 29.5 - Gearing ratio, % 87.5 57.8 - Gross capital expenditures on 24.3 21.4 2.9 non-current assets, EUR million -% of net sales 1.2 1.0 - Order backlog at end of 1,708.2 1,521.0 187.2 period, EUR million - of which international 613.6 596.8 16.8 orders
FINANCIAL FIGURES BY SEGMENT
NET SALES BY BUSINESS SEGMENT (EUR million)
IFRS FAS Differ IFRS FAS Differ Jan- Jan- ence Jul- Jul- ence Sep Sep Sep Sep /2004 /2004 /2004 /2004 Building Systems 962.7 969.3 -6.6 310.9 316.4 -5.5 Construction Services 869.8 1,055.6 -185.8 266.0 329.6 -63.6 - double net sales - 143.2 -143.2 - 35.4 -35.4 Services for Industry 167.7 141.3 26.4 57.9 49.4 8.5 Data Network Services 90.4 90.4 - 35.2 35.2 - Other items -32.6 -32.7 0.1 -11.1 -11.1 - YIT Group, total 2,058.0 2,223.9 -165.9 658.9 719.5 -60.6
OPERATING PROFIT BEFORE AMORTIZATION OF GOODWILL AND GOODWILL ON CONSOLIDATION (EBITA) BY BUSINESS SEGMENT (EUR million)
IFRS FAS Differ IFRS FAS Differ Jan- Jan- ence Jul- Jul- ence Sep Sep Sep Sep /2004 /2004 /2004 /2004 Building Systems 20.4 19.1 1.3 8.5 6.7 1.8 Construction Services 86.0 84.4 1.6 27.9 26.6 1.3 Services for Industry 5.9 5.8 0.1 3.1 3.2 -0.1 Data Network Services 14.0 14.0 - 8.9 8.9 - Other items -4.4 -3.5 -0.9 -1.5 -0.7 -0.8 YIT Group, total 121.9 119.8 2.1 46.9 44.7 2.2
OPERATING PROFIT (EBIT) BY BUSINESS SEGMENT (EUR million)
IFRS FAS Differ IFRS FAS Differ Jan- Jan- ence Jul- Jul- ence Sep Sep Sep Sep /2004 /2004 /2004 /2004 Building Systems 20.4 1.0 19.4 8.5 0.7 7.8 Construction Services 86.0 82.9 3.1 27.9 26.0 1.9 Services for Industry 5.9 5.3 0.6 3.1 3.0 0.1 Data Network Services 14.0 11.5 2.5 8.9 8.0 0.9 Other items -4.4 -3.5 -0.9 -1.5 -0.7 -0.8 YIT Group, total 121.9 97.2 24.7 46.9 37.0 9.9
ORDER BACKLOG BY BUSINESS SEGMENT AT END OF PERIOD (EUR million)
IFRS FAS Difference Sep/2004 Sep /2004 Building Systems 564.6 564.6 - Construction Services 940.0 752.8 187.2 Services for Industry 115.5 115.5 - Data Network Services 88.1 88.1 - YIT Group, total 1,708.2 1,521.0 187.2
4) COMPARATIVE INFORMATION FOR JANUARY - DECEMBER AND OCTOBER - DECEMBER 2004
CONSOLIDATED INCOME STATEMENT (EUR million)
Note IFRS FAS Diffe IFRS FAS Diffe Jan- Jan- rence Oct- Oct- rence Dec/ Dec / Dec/ Dec / 2004 2004 2004 2004 Revenue 1 2,780.1 3,033.4 -253.3 722.1 809.5 -87.4 - of which international activities 1,183.2 1,212.7 -29.5 325.1 337.1 -12.0 - double net sales - 203.1 -203.1 - 59.9 -59.9 Operating income and expenses 2 -2,602.1 -2,850.6 248.5 -681.9 759.2 -77.3 Depreciation and write- downs excluding goodwill amortization -22.3 -17.1 -5.2 -6.4 -4.4 -2.0 Operating profit before amortization of goodwill and goodwill on consolidation (EBITA) 155.7 165.7 -10.0 33.8 45.9 -12.1 % of net sales 5.6 5.5 - 4.7 5.7 - Amortization of 3 - -30.6 30.6 - -8.0 8.0 goodwill and goodwill on consolidation Operating profit (EBIT) 155.7 135.1 20.6 33.8 37.9 -4.1 % of net sales 5.6 4.5 - 4.7 4.7 - Financial income 3.9 3.5 0.4 2.0 1.6 0.4 Financial expenses -20.9 -20.4 -0.5 -6.5 -6.4 -0.1 Profit before taxes 138.7 118.2 20.5 29.3 33.1 -3.8 Income taxes 4 -39.5 -32.8 -6.7 -7.1 -7.4 0.3 Minority interests -1.4 1.4 0.0 -0.5 0.5 Profit for the report period 5 99.2 84.0 15.2 22.2 25.2 -3.0 % of net sales 3.6 2.8 - 3.1 3.1 - Attributable to Equity holders of the parent 97.8 84.0 13.8 21.8 25.2 -3.4 Minority interests 1.4 - 1.4 0.4 - 0.4 Earnings per share attributable to the equity holders of the parent Earnings per share, EUR 1.60 1.37 0.23 0.36 0.41 -0.05 Diluted earnings per share, EUR 1.58 1.36 0.22 0.35 0.41 -0.06
CONSOLIDATED BALANCE SHEET (EUR million)
Note IFRS FAS Difference 31 31 Dec/2004 Dec/2004 ASSETS Non-current assets Property, plant and 6 81.0 68.4 12.6 equipment Goodwill 7 248.8 224.2 24.6 Other intangible assets 13.1 12.3 0.8 Investments 4.1 6.7 -2.6 Receivables 7.8 7.8 - Deferred tax assets 4 26.1 12.2 13.9 Current assets 8 Inventories 629.3 421.6 207.7 Trade and other receivables 469.9 802.2 -332.3 Cash and cash equivalents 36.1 34.9 1.2 Total assets 1,516.2 1,590.3 -74.1 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital 61.3 61.3 - Other equity 380.0 395.9 -15.9 Minority interest 4.1 3.5 0.6 Total equity 9 445.4 460.7 -15.3 Non-current liabilities Deferred tax liabilities 4 19.9 12.9 7.0 Pension liabilities 10 9.8 - 9.8 Provisions 26.5 12.4 14.1 Non-current interest- 224.0 214.0 10.0 bearing liabilities Other non-current 3.7 2.9 0.8 liabilities Current liabilities 8 Trade and other payables 601.9 826.3 -224.4 Provisions 23.6 13.6 10.0 Current interest-bearing 161.4 47.5 113.9 liabilities Total equity and 1,516.2 1,590.3 -74.1 liabilities
KEY FIGURES
IFRS FAS Difference 31 Dec/2004 31 Dec/2004 Equity per share, EUR 7.20 7.46 -0.26 Net interest-bearing debt at 349.3 226.6 122.7 end of period, EUR million Return on investment, from the 19.0 19.6 - last 12 months, % Return on equity, from the 24.0 19.6 - last 12 months, % Equity ratio, % 31.0 31.1 - Gearing ratio, % 78.4 49.2 - Gross capital expenditures on 35.6 31.0 4.6 non-current assets, EUR million -% of net sales 1.3 1.0 - Order backlog at end of 1,823.4 1,604.9 218.5 period, EUR million - of which international 645.0 621.0 24.0 orders
FINANCIAL FIGURES BY SEGMENT
NET SALES BY BUSINESS SEGMENT (EUR million)
IFRS FAS Differ IFRS FAS Differ Jan- Jan- ence Oct- Oct- ence Dec/ Dec / Dec/ Dec / 2004 2004 2004 2004 Building Systems 1,321.2 1,331.5 -10.3 358.5 362.2 -3.7 Construction Services 1,147.2 1,427.3 -280.1 277.4 371.7 -94.3 - double net sales - 203.1 -203.1 - 59.9 -59.9 Services for Industry 232.1 195.1 37.0 64.4 53.8 10.6 Data Network Services 127.0 127.0 - 36.6 36.6 - Other items -47.4 -47.5 0.1 -14.8 -14.8 - YIT Group, total 2,780.1 3,033.4 -253.3 722.1 809.5 -87.4 OPERATING PROFIT BEFORE AMORTIZATION OF GOODWILL AND GOODWILL ON CONSOLIDATION (EBITA) BY BUSINESS SEGMENT (EUR million)
IFRS FAS Differ IFRS FAS Differ Jan- Jan- ence Oct- Oct- ence Dec/ Dec / Dec/ Dec / 2004 2004 2004 2004 Building Systems 34.1 33.6 0.5 13.7 14.5 -0.8 Construction Services 101.9 111.6 -9.7 15.9 27.2 -11.3 Services for Industry 6.9 6.8 0.1 1.0 1.0 - Data Network Services 20.7 19.7 1.0 6.7 5.7 1.0 Other items -7.9 -6.0 -1.9 -3.5 -2.5 -1.0 YIT Group, total 155.7 165.7 -10.0 33.8 45.9 -12.1
OPERATING PROFIT (EBIT) BY BUSINESS SEGMENT (EUR million)
IFRS FAS Differ IFRS FAS Differ Jan- Jan- ence Oct- Oct- ence Dec/ Dec / Dec/ Dec / 2004 2004 2004 2004 Building Systems 34.1 9.0 25.1 13.7 8.0 5.7 Construction Services 101.9 109.4 -7.5 15.9 26.5 -10.6 Services for Industry 6.9 6.3 0.6 1.0 1.0 - Data Network Services 20.7 16.4 4.3 6.7 4.9 1.8 Other items -7.9 -6.0 -1.9 -3.5 -2.5 -1.0 YIT Group, total 155.7 135.1 20.6 33.8 37.9 -4.1
ORDER BACKLOG BY BUSINESS SEGMENT AT END OF PERIOD (EUR million)
IFRS FAS Difference Dec/2004 Dec/2004 Building Systems 557.8 557.8 - Construction Services 1,066.4 847.9 218.5 Services for Industry 116.5 116.5 - Data Network Services 82.7 82.7 - YIT Group, total 1,823.4 1,604.9 218.5
5) COMPARATIVE INFORMATION BY QUARTER Q1/2004-Q4/2004
CONSOLIDATED INCOME STATEMENT (EUR million)
Note Jan- Apr- Jul- Oct- Mar/2004 Jun/2004 Sep/2004 Dec/2004 IFRS FAS IFRS FAS IFRS FAS IFRS FAS Revenue 1 669.9 713.1 729.2 791.3 658.9 719.5 722.1 809.5 - of which international activities 264.5 267.2 309.5 314.6 284.1 293.8 325.1 337.1 - double net sales - 64.1 - 43.7 - 35.4 0.0 59.9 Operating income and expenses 2 626.0 673.8 685.9 747.2 608.3 670.4 681.9 759.2 Depreciation and write- downs excluding goodwill amortization -6.4 -3.9 -5.8 -4.4 -3.7 -4.4 -6.4 -4.4 Operating profit before amortization of goodwill and goodwill on consolidation (EBITA) 37.5 35.4 37.5 39.7 46.9 44.7 33.8 45.9 % of net 5.6 5.0 5.1 5.0 7.1 6.2 4.7 5.7 sales Amortization of goodwill and goodwill on consolidation 3 - -7.4 - -7.5 - -7.7 - -8.0 Operating profit (EBIT) 37.5 28.0 37.5 32.2 46.9 37.0 33.8 37.9 % of net sales 5.6 3.9 5.1 4.1 7.1 5.1 4.7 4.7 Financial income 0.7 0.7 0.8 0.9 0.4 0.3 2.0 1.6 Financial expenses -4.8 -4.4 -4.9 -4.5 -4.7 -5.1 -6.5 -6.4 Profit before taxes 33.4 24.3 33.4 28.6 42.6 32.2 29.3 33.1 Income taxes 4 -11.2 -7.8 -11.2 -9.5 -10.0 -8.1 -7.1 -7.4 Minority interests - -0.1 0 -0.5 - -0.3 0.0 -0.5 Profit for the report period 5 22.2 16.4 22.2 18.6 32.6 23.8 22.2 25.2 % of net sales 3.3 2.3 3.0 2.4 4.9 3.3 3.1 3.1 Attributable to Equity holders of the parent 22.1 16.4 21.7 18.6 32.2 23.8 21.8 25.2 Minority interests 0.1 - 0.5 - 0.4 - 0.4 - Earnings per share attributable to the equity holders of the parent Earnings per share, EUR 0.36 0.27 0.36 0.30 0.52 0.39 0.36 0.41 Diluted earnings per share, EUR 0.36 0.27 0.35 0.30 0.52 0.38 0.35 0.41
CONSOLIDATED BALANCE SHEET (EUR million)
Note Mar/2004 Jun/2004 Sep/2004 Dec/2004 IFRS FAS IFRS FAS IFRS FAS IFRS FAS ASSETS Non-current assets Property, plant and equipment 6 103.6 64.3 103.5 65.2 80.3 66.9 81.0 68.4 Goodwill 7 242.4 239.3 248.2 237.6 248.8 231.3 248.8 224.2 Other intangible assets 12.7 12.7 12.5 12.4 12.1 12.1 13.1 12.3 Investments 3.9 6.0 3.9 6.2 4.2 6.6 4.1 6.7 Receivables 6.8 6.8 5.9 5.9 3.8 4.2 7.8 7.8 Deferred tax assets 4 23.4 8.4 22.5 8.0 21.1 8.3 26.1 12.2 Current assets 8 Inventories 534.4 362.1 572.6 402.3 624.5 451.1 629.3 421.6 Trade and other receivables 482.5 767.4 499.0 813.2 477.4 798.0 469.9 802.2 Cash and cash equivalents 55.6 53.0 38.0 36.8 41.8 40.2 36.1 34.9 Total assets 1,465.3 1,520.0 1,506.1 1,587.6 1,514.0 1,618.7 1,516.2 1,590.3 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital 61.0 61.0 61.2 61.2 61.2 61.2 61.3 61.3 Other equity 302.6 327.2 325.3 346.2 357.7 370.2 380.0 395.9 Minority interest 4.0 3.5 4.2 3.6 3.9 3.3 4.1 3.5 Total equity 9 367.6 391.7 390.7 411.0 422.8 434.7 445.4 460.7 Non-current liabilities Deferred tax liabilities 4 12.2 7.0 14.4 6.1 14.9 6.3 19.9 12.9 Pension liabilities 10 5.5 - 5.6 - 6.4 - 9.8 - Provisions 22.9 9.3 27.6 14.9 31.3 14.9 26.5 12.4 Non-current interest- bearing liabilities 265.5 236.2 244.1 233.4 227.8 217.2 224.0 214.0 Other non- current liabilities 3.1 1.3 3.3 1.4 2.9 2.4 3.7 2.9 Current liabilities 8 Trade and other payables 598.0 822.9 613.8 866.4 613.3 861.0 601.9 826.3 Provisions 21.3 14.3 15.3 7.9 10.6 7.8 23.6 13.6 Current interest- bearing liabilities 169.2 37.3 191.3 46.5 184.0 74.4 161.4 47.5 Total equity and liabilities 1,465.3 1,520.0 1,506.1 1,587.6 1,514.0 1,618.7 1,516.2 1,590.3
KEY FIGURES
Mar/2004 Jun/2004 Sep/2004 Dec/2004 FRS FAS IFRS FAS IFRS FAS IFRS FAS Equity per share, EUR 5.96 6.36 6.32 6.66 6.85 7.05 7.20 7.46 Net interest- bearing debt at end of period, EUR million 379.1 220.5 397.4 243.1 370.0 251.4 349.3 226.6 Return on investment, from the last 12 months, % 1) 20.8 1) 16.5 1) 15.8 19.0 19.6 Return on equity, from the last 12 months, % 1) 1) 1) 1) 1) 1) 24.0 19.6 Equity ratio, % 26.7 27.7 27.6 28.1 30.2 29.5 31.0 31.1 Gearing ratio, % 103.1 56.3 101.7 59.1 87.5 57.8 78.4 49.2 Gross capital expenditures on non-current assets, EUR million 7.3 6.1 19.0 17.0 24.3 21.4 35.6 31.0 -% of net sales 1.1 0.9 1.4 1.1 1.2 1.0 1.3 1.0 Order backlog at end of period, EUR million 1,585.2 1,478.2 1,722.2 1,569.8 1,708.2 1,521.0 1,823.4 1,604.9 - of which international orders 582.8 580.4 639.4 626.6 613.6 596.8 645.0 621.0
1) Comparative information on key indicators is not available.
FINANCIAL FIGURES BY SEGMENT
NET SALES BY BUSINESS SEGMENT (EUR million)
Jan-Mar/2004 Apr-Jun/2004 Jul-Sep/2004 Oct-Dec/2004 IFRS FAS IFRS FAS IFRS FAS IFRS FAS Building 316.1 316.9 335.7 336.0 310.9 316.4 358.5 362.2 Systems Construction 288.3 338.3 315.5 387.7 266.0 329.6 277.4 371.7 Services - double net - 64.1 - 43.7 - 35.4 - 59.9 sales Services for 50.4 42.7 59.4 49.2 57.9 49.4 64.4 53.8 Industry Data Network 24.4 24.4 30.8 30.8 35.2 35.2 36.6 36.6 Services Other items -9.3 -9.2 -12.2 -12.4 -11.1 -11.1 -14.8 -14.8 YIT Group, 669.9 713.1 729.2 791.3 658.9 719.5 722.1 809.5 total
OPERATING PROFIT BEFORE AMORTIZATION OF GOODWILL AND GOODWILL ON CONSOLIDATION (EBITA) BY BUSINESS SEGMENT (EUR million)
Jan-Mar/2004 Apr-Jun/2004 Jul-Sep/2004 Oct-Dec/2004 IFRS FAS IFRS FAS IFRS FAS IFRS FAS Building 4.5 4.7 7.4 7.7 8.5 6.7 13.7 14.5 Systems Construction 32.7 30.5 25.4 27.3 27.9 26.6 15.9 27.2 Services Services for 0.1 0.2 2.7 2.4 3.1 3.2 1.0 1.0 Industry Data Network 1.3 1.3 3.8 3.8 8.9 8.9 6.7 5.7 Services Other items -1.1 -1.3 -1.8 -1.5 -1.5 -0.7 -3.5 -2.5 YIT Group, 37.5 35.4 37.5 39.7 46.9 44.7 33.8 45.9 total
OPERATING PROFIT (EBIT) BY BUSINESS SEGMENT (EUR million)
Jan-Mar/2004 Apr-Jun/2004 Jul-Sep/2004 Oct-Dec/2004 IFRS FAS IFRS FAS IFRS FAS IFRS FAS Building 4.5 -1.3 7.4 1.6 8.5 0.7 13.7 8.0 Systems Construction 32.7 30.1 25.4 26.8 27.9 26.0 15.9 26.5 Services Services for 0.1 -0.1 2.7 2.4 3.1 3.0 1.0 1.0 Industry Data Network 1.3 0.6 3.8 2.9 8.9 8.0 6.7 4.9 Services Other items -1.1 -1.3 -1.8 -1.5 -1.5 -0.7 -3.5 -2.5 YIT Group, 37.5 28.0 37.5 32.2 46.9 37.0 33.8 37.9 total
ORDER BACKLOG BY BUSINESS SEGMENT AT END OF PERIOD (EUR million)
Mar/2004 Jun/2004 Sep/2004 Dec/2004 IFRS FAS IFRS FAS IFRS FAS IFRS FAS Building Systems 557.2 557.2 566.5 566.5 564.6 564.6 557.8 557.8 Construction Services 842.6 735.6 963.0 810.6 940.0 752.8 1,066.4 847.9 Services for Industry 76.0 76.0 73.5 73.5 115.5 115.5 116.5 116.5 Services 109.4 109.4 119.2 119.2 88.1 88.1 82.7 82.7 Data Network YIT Group, total 1,585.2 1,478.2 1,722.2 1,569.8 1,708.2 1,521.0 1,823.4 1,604.9
SUPPLEMENTARY NOTES TO THE INCOME STATEMENT AND BALANCE SHEET
1. NET SALES
Developer contracting is treated in accordance with IAS 11 Construction Contracts. Founded housing and property companies are treated as part of the consolidated balance sheet and income statement. Accordingly, income is in no respects booked twice; rather, developer contracting comprises a single entity as part of construction operations.
Income from developer contracting comprises the selling prices free from debts of the shares and the expenses comprise the acquisition cost of plots and the actual costs of construction.
Developer contracting will be recognized as revenue on the basis of the percentage of completion as set forth in IAS 11. The percentage of completion is derived with the formula: degree of the completion of construction multiplied by the degree of sale.
The change in the recognition practice will slow down the income recognition of the revenue and profit in the developer contracting in the early stages of the project. As the degree of completion increases, income recognition will be focused on the latter half of the project.
2. OTHER OPERATING INCOME AND EXPENSES
See note 1 regarding developer contracting.
10-year commitments
10-year commitments in the construction industry are recognized as provisions that are charged to earnings in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. 10-year provisions for commitments are calculated on the basis of experience of the materialization of commitments.
Shares in the results of affiliates and joint ventures
The affiliates Oy Botnia Mill Service Ab and Kiinteistö Oy Leppävirta have been defined as subsidiaries in accordance with IFRS, because the YIT Group holds responsibility for their business operations. Participations in excess of YITs holding are entered in minority interest, with the exception of the external share in Oy Botnia Mill Service Abs shareholders equity, which has been entered in interest-bearing non-current liabilities.
In IFRS reporting, the results of other affiliates are reported in financial items and the share of taxation is presented under taxes.
3. AMORTIZATION OF GOODWILL
The amortization according to plan of goodwill and goodwill on consolidation has been discontinued after 2003 and replaced with impairment testing. Goodwill and goodwill on consolidation have been tested for the opening balance sheet and the situation as at September 30, 2004. In the future, testing will be carried out annually in September-November.
Testing principles: In accordance with IAS 36 Impairment of Assets, the carrying amounts of asset items are evaluated for indications of impairment. If the impairment of an asset item is indicated, the recoverable amount of said asset is estimated. The recoverable amount is the net selling price of the asset item or its value in use based on estimated future cash flow, whichever is higher.
The YIT Groups goodwill has been allocated to cash-generating units:
Building Systems countries Construction Services divisions Services for Industry Data Network Services
The recoverable cash flows are based on three-year projections and on cash flows growing at a standard rate in line with these projections. A growth factor of 2% has been used in the goodwill impairment testing of the opening balance sheet dated January 1, 2004, and the situation as at September 30, 2004; the factor does not exceed the long-term actual growth of the business segments in question.
The discount factor employed is YITs latest confirmed pre-tax WACC (Weighted Average Cost of Capital), which is increased by an additional risk factor that is defined on a unit-by-unit basis. A WACC of 9% was used in the periods tested. The additional risk factors have amounted to: Data Network Services, 1%, Building Systems, 2% and International Operations in Construction Services, 3%. The risk factors are always reassessed during testing and can vary between 1-3%.
The goodwill test results are evaluated by comparing the recoverable amount (E) with the carrying amount of the cash- generating unit (T), as follows:
Ratio Estimate E < T Impairment E 0 - 20% > T Slightly above E 20 - 50% > T Clearly above E 50% - > T Substantially above
Both on January 1, 2004, and September 30, 2004, the recoverable amount exceeded the carrying amount substantially in all cash- generating units that have goodwill.
4. INCOME TAXES
In accordance with IAS 12 Income Taxes, deferred taxes are calculated on all temporary differences between the carrying amount and taxation value. The largest temporary differences arise from the depreciation differences of fixed assets, provisions deductible at a later date, voluntary provisions in Sweden and unused tax losses. No deferred tax assets have been recognized on the confirmed losses in Sweden, which will become effective after 2007. In Finland, the imputed tax rate in the opening balance sheet dated January 1, 2004, was 29% and it was 26% as from June 30, 2004. In other countries, deferred taxes have been calculated in accordance with the rate in force on the closing date.
5. PROFIT FOR THE PERIOD
RECONCILIATION OF PROFIT FOR THE PERIOD (EUR million)
Jan-Mar Jan-Jun Jan-Sep Jan-Dec /2004 /2004 /2004 /2004 Profit for the period according to FAS 16.4 35.0 58.8 84.0 IFRS adjustments Minority interests 0.1 0.6 1.0 1.4 Recognition of revenue by -2.9 reference to the stage of 1.3 -0.2 0.3 completion (IAS 11) Deferred taxes (IAS 12) -3.4 -4.9 -6.6 -6.4 Provisions (IAS 37) -0.3 0.2 -6.8 1.3 Goodwill amortization 7.3 14.9 (IAS 38) 22.5 30.4 Other items**) 0.8 -1.2 -0.3 -0.5 Total IFRS adjustments 5.8 9.4 18.2 15.2 Profit for the period according to IFRS 22.2 44.4 77.0 99.2
**) Other items affecting the determination of net profit include finance leasing, options and affiliates that become subsidiaries.
6. TANGIBLE NON-CURRENT ASSETS
Lease agreements in which the Group holds a material share of the risks and benefits of ownership are classified as financial lease agreements. A financial lease agreement is entered in the balance sheet at either the fair value of the leased asset on the starting date of the lease agreement or the current value of the minimum rents, whichever is lower. The assets are depreciated over their economic lifetime or the lease period, whichever is shorter. Lease commitments are included in interest-bearing liabilities.
7. GOODWILL
See note 3.
8. TREATMENT OF DEVELOPER CONTRACTING IN THE BALANCE SHEET
The change in the treatment of long-term projects in accordance with IAS 11 affects the opening balance sheet as follows:
a) Retained earnings will decline due to the slower rate of partial recognition of revenue.
b) The sum of the incomplete long-term projects included in inventories will grow, because the acquisition cost of plots is included in developer contracting expenditure that is partially recognized as revenue.
c) Debts to construction fund, a portion of advances received and current receivables are eliminated due to the change in the treatment of housing and property corporations. Debts to construction fund will be discontinued in the balance sheet and the contract receivables sold to finance companies will be reversed as interest-bearing current liabilities, fully in the case of unsold shares, and, in the case of sold shares, to the extent that they exceed the stage of completion portion of the liability for the shares sold.
9. SHAREHOLDERS EQUITY
RECONCILIATION OF SHAREHOLDERS EQUITY (EUR million)
Jan 1, Mar 31, Jun 30, Sep 30, Dec 31, 2004 2004 2004 2004 2004 Shareholders equity 408.3 according to FAS 388.2 407.4 431.4 457.2 IFRS adjustments Minority interests 3.9 4.0 4.2 3.9 4.1 Recognition of -14.9 -14.6 -17.8 revenue by reference to the stage of -13.6 -15.1 completion (IAS 11) Deferred taxes (IAS 13.5 10.1 8.6 12) 6.9 7.1 Provisions (IAS 37) -27.0 -27.3 -26.8 -25.7 -33.8 Goodwill -4.8 2.5 10.1 amortization (IAS 17.7 25.6 38) Other items ***) 2.7 3.7 2.3 3.2 3.0 Total IFRS -26.6 -20.6 -16.7 -8.6 -11.8 adjustments Shareholders equity 381.7 367.6 390.7 422.8 445.4 according to IFRS
***) Other items affecting the determination of shareholders equity include finance leasing, options and pension liabilities.
SHARE REWARDS
Share options granted after November 7, 2002, have been entered in the balance sheet at fair value at the time granted and expensed in even instalments in the income statement over the vesting period of the rights.
10. PENSION OBLIGATIONS
Due to the amendment of the Finnish occupational pension system on December 22, 2004, the occupational disability portion of statutory entitlement pensions has not been recorded as pension liabilities in the opening balance sheet dated January 1, 2004.
The net amount of the pension liabilities and the deferred tax asset calculated therefrom would have been about EUR 37 million.
In the case of supplementary pension insurance policies, liabilities are recorded in pension liabilities and the share of deferred taxes is entered in tax receivables. Their effect is not material in amount.
ACCOUNTING POLICY APPLIED IN THE IFRS FINANCIAL STATEMENTS
Field of business
YIT Group a service company focused on building and maintaining technical structures of modern living environment. The Group provides capital investment and maintenance services for the property and construction sector as well as industry and telecom networks. YITs main market areas are the Nordic countries, the Baltic countries and Russia. The Groups business segments are: Building Systems, Construction Services, Services for Industry and Data Network Services.
Basis of preparation
The consolidated financial statements for 2005 will be drafted in line with IFRS (International Financial Reporting Standards). The Groups interim reports and financial statements for 2004 have been prepared in accordance with Finnish accounting legislation.
The comparative figures for the 2004 interim reports and financial statements have been converted to match IFRS; the standards not accounted for in the conversion are IAS 32 and 39, which will be adopted as from January 1, 2005.
The consolidated financial statements have been prepared using the original acquisition cost, with the exception of available-for- sale investments, financial assets and liabilities that are recognized at fair value in the income statement, derivative contracts and hedged items in fair value hedging, all of which are measured at their fair value.
Accounting policy applied in the consolidated financial statements
Subsidiaries
The consolidated financial statements include YIT Corporation and subsidiaries it owns either directly or indirectly and in which it has over 50% of the voting rights or in which the Group has a controlling interest otherwise. Controlling interest means the right to dictate a companys financial and business principles in order to benefit from its operations. The acquisition cost method has been used in eliminating cross-ownership of shares. Acquired subsidiaries are included in the consolidated financial statements as from the moment when the Group has assumed a controlling interest, and divested subsidiaries are included until the moment when the Group ceases to have a controlling interest. All intra- Group transactions, receivables, liabilities and profits are eliminated in the consolidation. Unrealized losses are not eliminated if they are due to impairment.
Affiliates
The consolidated financial statements include affiliates in which the YIT Group either holds 20-50% of the voting rights or in which the Group has a significant influence otherwise but not a controlling interest. Affiliates have been consolidated using the equity method. If the Groups share of the losses of affiliates exceeds the carrying amount, losses in excess of the carrying amount are not consolidated unless the Group has committed itself to fulfilling the obligations of the affiliates. Unrealized profits between the Group and affiliates have been eliminated in accordance with the Groups holding. An investment in an affiliate includes the goodwill arising from acquisition, which has been tested for impairment.
Joint ventures
Joint ventures are companies in which the YIT Group exercises a shared controlling interest with other parties. The YIT Groups holdings in joint ventures are consolidated proportionally on a line-by-line basis. The consolidated financial statements include the Groups share of joint venture assets, liabilities, profit and expenses.
Translation of items denominated in foreign currency
The income statements of foreign Group companies have been translated to euros using the average exchange rates quoted by the European Central Bank for the calendar months of the financial period, and the balance sheets have been translated using the rates on the closing date. The translation of the result for the period using different exchange rates in the income statement and balance sheet results in a translation difference, which is entered in shareholders equity. Translation differences arising from the elimination of the acquisition cost of foreign subsidiaries and the hedging result of net investment are entered in shareholders equity. When a subsidiary is sold, accumulated translation differences are recorded in the income statement as part of capital gains or losses on the sale. Translation differences arising before January 1, 2004, are recorded in retained earnings in connection with the transition to IFRS and they will not be entered in the income statement in the event of the sale of a subsidiary at a later date.
Both the goodwill arising from the acquisition of a foreign unit and the adjustments of acquired assets and liabilities to their fair values have been treated as the assets and liabilities of the foreign unit in question and translated at the rate on the closing date. The goodwill and fair value adjustments of acquisitions carried out prior to January 1, 2004, have been booked in euro amounts.
Transactions in foreign currency have been recorded in euros at the exchange rate on the date of the transaction. Monetary items denominated in foreign currency have been translated to euro amounts using the exchange rates on the closing date. Gains and losses from transactions in foreign currency and the translation of monetary items have been entered in the income statement.
Capital gains and losses on business operations are included in the corresponding items above operating profit. Exchange rate gains and losses from financing are included in financial income and expenses. Non-monetary items denominated in foreign currency that have been measured at fair value have been translated to euros at the rate on the valuation date. In other cases, non- monetary items have been measured at the rate on the transaction date.
Tangible non-current assets
Tangible non-current assets have been valued at the original acquisition cost less depreciation and impairment.
Assets are amortized on a straight-line basis over their estimated economic lifetime. Land is not amortized. The estimated economic lifetimes are:
Buildings 5-40 years Machinery and equipment 3-15 years Other fixed assets 4-40 years
The residual values and economic lifetimes of assets are checked in each financial statement. If necessary, they are adjusted to reflect the changes in the expected financial benefits.
Capital gains and losses on the sale of fixed assets are included in the operating result.
Costs of debt
Costs of debt are expensed in the financial period in which they were incurred. Construction-stage interest is not capitalized.
Transaction costs arising directly from the raising of loans and which are clearly connected with a certain loan are included in the original periodized acquisition cost of the loan and are periodized as interest expenses using the effective interest rate method.
Public grants
Public grants are recognized as decreases in the carrying amounts of tangible non-current assets. Grants are recognized as revenue through smaller depreciation over the economic life of the asset.
Investment properties
The YIT Group has no assets that are categorized as investment properties.
Intangible assets
Goodwill
In the case of companies acquired after January 1, 2004, goodwill corresponds to the share of the acquisition cost in excess of the Groups share of the fair value of the acquirees net assets at the time of acquisition. The goodwill on the consolidation of business functions prior to this date corresponds to the carrying amount as per the previously employed accounting standards, which has been used as the assumed acquisition cost. Neither the classification nor accounting treatment of these acquisitions has been adjusted when drafting the opening consolidated IFRS balance sheet. Goodwill is subjected to an annual impairment test. To this end, goodwill is allocated to cash-generating units. Goodwill is measured at the original acquisition cost less impairment.
Impairment is expensed directly in the income statement.
Research and development expenditure
Research and development expenditure is expensed in the income statement. Expenditure on the design of new or more advanced products is capitalized as intangible assets in the balance sheet as from the date when the product is technically feasible, can be utilized commercially and is expected to yield future financial benefits. Capitalized development expenditure is amortized on a straight-line basis over 5-10 years. Amortization begins when the asset is ready to be used. Incomplete assets are tested annually for impairment. Development expenses that are not expected to yield financial benefits are expensed in the income statement.
Other intangible assets
Patents and licenses are entered in the balance sheet and expensed in the income statement on a straight-line basis over their economic lifetime. The depreciation period is 7-25 years. Brands with an unlimited economic lifetime are entered in the balance sheet and subjected to an impairment test on each closing date.
Inventories
Inventories are measured either at the acquisition cost or at the net realizable value, whichever is lower. The acquisition cost is determined using the weighted average price method. The acquisition cost of finished and incomplete products comprises raw materials, direct costs of labour, other direct costs and the appropriate portion of the variable general costs of manufacture and fixed overhead at the ordinary rate of operations. The net realizable value is the estimated selling price in ordinary business operations less the estimated expenditure on product completion and sales. In measuring real estate properties held in inventories, the available market information and the level of the yield on the properties are taken into account.
Lease agreements
Lease agreements concerning tangible assets in which the Group holds a material share of the risks and benefits of ownership are classified as financial lease agreements. A financial lease agreement is entered in the balance sheet at either the fair value of the leased asset on the starting date of the lease agreement or the current value of the minimum rents, whichever is lower. Assets acquired under financial lease agreements are depreciated over their economic lifetime or the period of lease, whichever is shorter. The lease commitments of financial lease agreements are included in interest-bearing liabilities.
Lease agreements in which the risks and benefits of ownership are retained by the lessor are treated as other lease agreements.
Rents paid on other lease agreements are expensed in even instalments in the income statement over the duration of the rental period. Incentives received are deducted from the rents paid on the basis of the time pattern of the users benefit.
Impairment
At each closing date, the YIT Group evaluates whether there are indications of impairment in any asset item. If impairment is indicated, the recoverable amount of said asset is estimated. In addition, the recoverable amount is assessed annually for each of the following asset items regardless of whether impairment is indicated: goodwill, intangible assets with an unlimited economic lifetime and incomplete intangible assets.
The recoverable amount is the fair value of the asset item less selling costs or the value in use, whichever is higher. The recoverable amount of financial assets is either the fair value or the present value of future cash flows discounted at the original effective interest. An impairment loss is recognized if the carrying amount of the asset item is higher than its recoverable amount. The impairment loss is entered in the income statement. An impairment loss is reversed when the situation changes and the amount recoverable from the asset item has changed since the date when the impairment loss was recorded. However, impairment losses are not reversed beyond the carrying amount of the asset exclusive of impairment losses. Impairment losses on goodwill are never reversed.
Employee benefits
Pension liabilities
The Group has different defined contribution and defined benefit pension plans in its business territories. The local regulations and practices of the countries in question are applied in these plans. Contributions to defined contribution pension plans are entered in the income statement in the financial period during which the charge applies. In defined benefit pension plans, the present value of future pension payments on the closing date is presented less the fair value of the plan-related assets on the closing date and adjusted with the actuarial profits and losses and retroactive labour costs. Pension liabilities are calculated by independent actuaries. Pension expenditure is expensed in the income statement, periodizing the costs over the time in employment of the employees. Actuarial profits and losses in excess of a certain range of variation are entered for the average remaining time in employment of the employees.
Share options
The YIT Group has applied IFRS 2 Share-based Payment to all share option schemes in which options have been granted after November 7, 2002, and to which rights have not vested before January 1, 2005. No expenses on prior share option schemes have been presented in the income statement. The fair value of share options is determined as at the time granted and expensed in even instalments in the income statement over the vesting period of the rights. The expense determined at the time of granting the option is based on the Groups estimate of the number of options to which it is assumed that rights will vest by the end of the vesting period. The fair value is determined using the Black-Scholes pricing model. When share options are exercised, the cash payments (adjusted for any transaction costs) received on the basis of share subscriptions are entered in the share capital (nominal value) and the share premium fund. A provision is recognized on the social expenses of share options when the share price is higher than the option subscription price.
Provisions
Provisions are recorded when the Group has a legal or actual obligation on the basis of a prior event, the materialization of the payment obligation is probable and the size of the obligation can be reliably estimated. If compensation for a share of the obligation can be received from a third party, the compensation is recorded as a separate asset item, but only when it is practically certain that said compensation will be received.
A guarantee provision is recorded when a completed project is recognized in the income statement. The amount of the guarantee provision is set on the basis of experience of the materialization of warranty costs.
The amount of 10-year provisions for commitments in the construction industry is set on the basis of experience of the materialization of commitments.
Provisions are booked for loss-making agreements when the obligatory expenditure required to meet obligations exceeds the benefits yielded by the agreement.
Income taxes
Tax expenses in the income statement comprise taxes on the taxable income for the financial period and the deferred tax liabilities.
Taxes on the taxable income for the financial period are calculated on the taxable income on the basis of the tax base in force in the country in question. Taxes are adjusted for the taxes of previous financial periods, if applicable.
Deferred taxes are calculated on all temporary differences between the carrying amount and taxation value. The largest temporary differences arise from the depreciation differences of tangible non-current assets, voluntary provisions in Sweden, defined benefit pension plans, provisions deductible at a later date, unused tax losses and measurement at fair value in connection with acquisitions.
No deferred taxes are calculated on goodwill impairment that is not deductible in taxation and no deferred taxes are recognized on the undistributed profits of subsidiaries to the extent that the difference is unlikely to be discharged in the foreseeable future.
Deferred taxes have been calculated using the statutory tax bases or the tax bases whose confirmed content has been announced by the closing date.
Deferred tax assets have been recognized to the extent that it is probable that taxable income against which the temporary difference can be applied will materialize in the future.
Income recognition
Services provided
Income from services is recognized when the service has been performed.
Long-term projects
The income and costs of long-term projects are recorded as revenue and expenses on the basis of the degree of completion when the end result of the project can be estimated reliably. The degree of completion is calculated on the basis of the share of the estimated total cost of a project represented by the costs realized at the time of assessment. If it is probable that the total expenditure required to complete a project will exceed the total income from the project, the expected loss is expensed immediately.
The margin on developer contracting projects is recognized as revenue on the basis of the percentage of degree of completion and the degree of sale.
Expenditure on projects that have as yet not been credited to earnings is recorded in incomplete long-term projects under inventories. If the expenditure incurred and the profits recognized exceed the amount invoiced for the project, the difference is stated in trade and other receivables in the balance sheet. If the expenditure incurred and the profits recognized are lower than the amount invoiced for the project, the difference is stated in trade and other payables.
Financial assets and liabilities
The YIT Group has applied IAS 39 Financial Instruments: Recognition and Measurement as from January 1, 2005. In 2004, financial assets and liabilities were measured in accordance with Finnish accounting norms (see the notes). As from the beginning of 2005, the YIT Groups financial assets have been broken down into the following categories in accordance with the standard: financial assets at fair value through profit or loss, loans and receivables, available-for-sale financial assets and held-to- maturity investments. Financial assets are classified in accordance with the purpose underlying the acquisition of the financial asset. The assets are categorized on initial recognition. Transaction costs are included in the original carrying amount of financial assets when the item in question is not measured at fair value through profit or loss. All acquisitions and sales of financial assets are booked on the clearing day.
Financial assets at fair value through profit or loss is divided into two subcategories: held-for-trading assets and designated items. The latter includes any financial asset that is designated on initial recognition as one to be measured at fair value with fair value changes in profit or loss. Held-for-trading financial assets have primarily been acquired for the purpose of generating profits from changes in market prices over the short term.
Derivatives that do not meet the criteria for hedge accounting have been classified as being held for trading. Held-for-trading financial assets and those maturing within 12 months are included in current assets. The items in this group are measured at fair value. The fair value of all the investments in this group has been determined on the basis of price quotations in well- functioning markets. Both realized and unrealized gains and losses due to changes in fair value are recorded in the income statement in the financial period in which they were incurred.
Loans and receivables are assets that are not included in derivative assets; their related payments are fixed or definable; they are not quoted in well-functioning markets; and the companys primary intention is not to sell them in the short term. This category includes the Groups financial assets arising from the transfer of cash, goods or services to a debtor. They are measured at the periodized acquisition cost and are included in current and non-current financial assets; they are included in the latter if they mature in over 12 months.
Available-for-sale financial assets are assets that are not included in derivative assets and which have either been expressly designated for inclusion in this group or not classified into any other group. They are included in non-current assets, unless it is intended that they will be held for less than 12 months from the closing date, in which case they are included in current assets.
Available-for-sale assets can comprise shares and interest-bearing investments and they are measured at fair value. The fair value is the price quoted on the closing date. Changes in the fair value of available-for-sale financial assets are entered in the revaluation fund in shareholders equity. Changes in fair value are transferred from shareholders equity to the income statement when the investment is sold or its value has declined such that an impairment loss must be recognized on it.
Held-to-maturity investments are financial assets that are not included in derivative assets and whose payments are fixed or definable, which mature on a specific date, and which the Group firmly intends to and is able to hold until maturity. They are valued at the periodized acquisition cost and are included in non- current assets.
Liquid funds comprise cash, bank deposits withdrawable on demand and highly liquid short-term investments. The maturity of items classified into liquid funds is no more than three months from the date of acquisition. Liquid funds are recorded in the balance sheet at the original amount. In the balance sheet, the use of Group account limits is included in current interest-bearing liabilities.
Financial liabilities are originally booked at their fair value on the basis of the consideration received. Transaction costs have been included in the original carrying amount of financial liabilities. All financial liabilities are later valued at the periodized acquisition cost using the effective interest rate method. Financial liabilities are included in non-current and current liabilities, and they may be either interest-bearing or non-interest-bearing.
The financial liabilities that are recognized in the income statement at their fair value are derivative contract-based liabilities.
Derivative contracts and hedge accounting
The YIT Group has applied IAS 39 Financial Instruments: Recognition and Measurement as from January 1, 2005. In 2004, financial assets and liabilities were measured in accordance with Finnish accounting norms (see the notes). The YIT Group treats derivative contracts as set forth in IAS 39 Financial Instruments: Recognition and Measurement. Derivative contracts are originally recognized at their acquisition cost, which corresponds to their fair value. After initial recognition, derivative contracts are measured at fair value. Gains and losses arising from measurement at fair value are treated in accounting as dictated by the purpose of the derivative contract.
The Group treats derivative contracts either as hedges for fixed- interest receivables or liabilities or the fair value of fixed commitments; hedges for variable-interest receivables or liabilities or predicted, highly probable cash flows from business operations; hedges for net investment in a foreign unit; or as derivative contracts that do not meet hedge accounting criteria.
When hedging is initiated, the Group documents the relationship between the hedged item and the hedging instruments as well as the Groups risk management objectives and hedging strategy. Both when hedging is initiated and continuously thereafter, the Group keeps a record of its estimates of whether changes in the fair value of the hedging instrument or the cash flows will reverse the fair value of the hedged item or changes in the cash flows highly effectively.
Changes in the fair value of derivative contracts that meet the effectiveness criteria of fair value hedging are recognized in the income statement, as are changes to the fair value of the asset or liability items hedged with respect to the hedged risk.
Changes in the fair value of the effective component of derivative instruments that meet the criteria for cash flow hedging are recorded directly in the revaluation fund in shareholders equity.
Gains and losses entered in shareholders equity are transferred into the income statement in the financial period during which the hedged item is recorded in the income statement.
Changes in the effective component of derivative contracts that meet the criteria for the hedging of net investment in a foreign unit and loans in foreign currency used for hedging purposes (non- derivative) are recorded directly in the Groups shareholders equity. Gains and losses from the hedging of a net investment are recorded in the income statement when the net investment is disposed of either partly or in full.
Although certain derivative contracts meet the requirements for effective hedging set by the Groups risk management, they do not in all respects meet the requirements of hedge accounting in accordance with IAS 39, even though they are effective financial hedging instruments. Revaluation of derivative contracts to which hedge accounting is not applied, such as the revaluation of embedded derivatives as set forth in IAS 39, is recognized in the income statement.
The fair values of derivatives are determined on the basis of market prices and generally used valuation models. The data and assumptions used in the valuation model are based on verifiable market prices.
The fair values of derivatives maturing within a year are presented in current receivables or liabilities. The fair values of derivatives with maturities in excess of a year are presented in non-current receivables or liabilities.