5 April 2019, 09:10
In this stock exchange release, Cargotec discloses the transition impacts of the new accounting principles for the consolidated financial statements (IFRS 16, IFRIC 23), the refined definition of service business, and changes to alternative performance measures, as well as publishes the resulting opening balance sheet for the financial year 2019 and, where applicable, the restated financial information for financial year 2018.
The changes do not affect Cargotec's outlook for 2019. Cargotec reiterates its outlook published on 8 February 2019 and expects its comparable operating profit for 2019 to improve from 2018 (EUR 242.1 million).
Transition impacts of the new accounting principles
Cargotec applies the new accounting standard IFRS 16, Leases, and the new interpretation IFRIC 23, Uncertainty over Income Tax Treatments, starting from 1 January 2019 and discloses the financial impacts of the transitional adjustments related to their adoption.
The adoption of the new accounting principles resulted in a decrease of EUR 24.6 million in Cargotec's equity in the opening balance 2019, including the following adjustments:
- IFRS 16, Leases, was adopted by applying the modified retrospective transition method. Majority of the lease agreements Cargotec reported as operating leases in 2018 were converted as lease agreements recognised on balance sheet on the adoption of IFRS 16. The transition adjustments related to adoption of IFRS 16 resulted in a net decrease of EUR 9.9 million in retained earnings based on increases of EUR 178.1 million in interest-bearing liabilities, EUR 163.9 million in property, plant and equipment, and EUR 3.1 million in deferred tax assets, and a decrease of EUR 1.1 million in non-interest-bearing liabilities. The weighted average discount rate applied to determine the present value of lease liability was 4.3% on the date of transition.
- IFRIC 23, Uncertainty over Income Tax Treatments, was adopted prospectively with the allowed transitional reliefs. The interpretation clarifies how to apply the recognition and measurement requirements of IAS 12, Income taxes, when there is uncertainty over income tax treatments. The interpretation provides guidance to determine whether uncertain tax treatments should be considered separately or together as a group. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation also clarifies how to consider assumptions about the examination of uncertain tax treatments by taxation authorities and measurement methods of uncertain tax positions. The reassessment of current and deferred taxes in accordance with IFRIC 23 resulted in a reduction of EUR 14.6 million in retained earnings at transition due to decreases of EUR 13.9 million in the income tax receivables and EUR 0.7 million in deferred tax assets.
Additional information regarding the transitional adjustments is disclosed in Cargotec's Financial review 2018 under the section Accounting principles for the consolidated financial statements.
Refined definition of service business
Cargotec has refined the definition of service business for Hiab and MacGregor from the beginning of 2019 and discloses the restated comparison period figures of 2018. Accessories sold after the delivery of the equipment at Hiab as well as RoRo conversions and CargoBoost projects at MacGregor were transferred to service business.
Due to the refined definition of service business, Cargotec's service orders received in 2018 increased by EUR 46 million to EUR 1,031 million, and service sales increased by EUR 47 million to EUR 980 million. EUR 35 million was restated from equipment sales into service sales at Hiab and EUR 12 million at MacGregor in 2018.
Changes in alternative performance measures
Cargotec has made changes to alternative performance measures it uses and discloses the restated comparison period figures for 2018.
In accordance with the announcement in the financial statements review 2018, starting from 1 January 2019, Cargotec replaces the alternative performance measure of "operating profit excluding restructuring costs" with "comparable operating profit" for measuring business performance in the financial reporting. Comparable operating profit does not contain items significantly affecting comparability. In addition to restructuring costs, these items mainly include capital gains and losses, income and expenses related to business acquisitions and disposals, impairments of assets and reversals of impairments, insurance benefits, and expenses related to legal proceedings. Cargotec's comparable operating profit for 2018 was EUR 242.1 million. In 2018, only MacGregor had other items affecting comparability in addition to restructuring costs.
In addition, the calculation methods of return on equity (ROE) and return on capital employed (ROCE) have been changed in order to improve comparability between periods. Going forward, the figures are calculated by using last 12 months' income instead of annualised income. The average balance sheet value is calculated from the ending balances of the current reporting period and the reporting period ended 12 months earlier, whereas earlier it was calculated from the ending balances of the current reporting period and the previous financial year.
Outlook for 2019 unchanged
Cargotec reiterates its outlook published on 8 February 2019 and expects its comparable operating profit for 2019 to improve from 2018 (EUR 242.1 million).
The interim report for the first quarter of 2019 will be prepared in accordance with the new accounting principles. The interim report will be published on 25 April.
The restated financial information is unaudited.
Source: Cargotec Corporation