Background
Effective 1 January 2010 the EU has adopted the accounting principle IFRIC 15, which deals with the accounting treatment of agreements for the construction of real estate. As previously reported, Veidekke will implement the new rules with effect from 1 January 2010.
The introduction of new rules will have a material impact on the reporting of Veidekke's property development activities in its financial statements. This announcement describes Veidekke's implementation of the new principles and contains restated historical accounting figures for 2008 and 2009.
Change in principles
In accordance with previous accounting practice among Scandinavian listed companies, revenue and earnings on property development projects were recognised in the income statement using the percentage of sales and percentage of completion methods. This was in accordance with the accounting standard IAS 11, Construction Contracts.
The new principle (IFRIC 15) clarifies which activities come under the rules for construction contracts (IAS 11) and which activities are to be treated like sales of goods (IAS 18). It also clarifies the point in time at which revenue and earnings from property development projects may be recognised in the accounts. As a consequence of this principle, revenue and earnings from the developer's sale of housing units shall not be recognized until the point in time the unit has been contractually delivered to the buyer (pass of legal title).
Consequences for Veidekke's reporting
For Veidekke, the new accounting principle will mean later recognition of property development projects than when applying earlier accounting principles. However, it should be stressed that it is only the time frame for recognising revenue and earnings that is affected, and the total earnings from the projects will not be changed. Cash flow and risk assessments of the property development business will also remain unchanged.
Veidekke has property development activities in Norway and Sweden. Revenue and earnings from these units will be shown itemised in interim and annual accounts. Veidekke has chosen to maintain current project reporting in line with the final forecast for the project, percentage of completion and percentage of sales as previously and incorporate the change in accordance with IFRIC 15 as a separate elimination in the segment accounts. This will be done to provide as correct a picture as possible of current value creation in the area of property development and ensure conformity with the Group's internal management reporting.
As a consequence of the market decline in 2008 and 2009, Veidekke's property development activities were substantially reduced. The number of units in production was reduced from 1660 as at 31 December 2007 to 311 as at 31 December 2009. Owing to a slight improvement in the housing market in 2009, Veidekke expects new project starts and increased activity in the housing development area for the rest of 2010. With this expected growth in activity we regard the reporting of projects as they progress as especially important for highlighting underlying value creation.
In addition, Veidekke has some activities as a commercial property developer. The new rules will have no effect compared with previous accounting principles, since revenue and earnings were also previously recognised at the time of delivery.
In the financial statements, the income statement, balance sheet and notes will be prepared in accordance with the new accounting principle (IFRIC 15).
Historical accounting figures
Attached to this announcement are restated accounting figures for 2008 and 2009. The main elements are as follows:
Income statement:
· The income statement for 2008 shows a profit before tax that has increased by NOK 193 million. The annual accounts in line with IFRIC 15 show a profit before tax (EBT) of NOK 1,009 million, compared with NOK 816 million according to previous years' accounting principles.
· The income statement for 2009 shows a profit before tax that has increased by NOK 105 million. The annual accounts in line with IFRIC 15 show a profit before tax (EBT) of NOK 628 million, compared with NOK 523 million according to previous years' accounting principles.
· The increase in profit before tax in 2008 and 2009 is due to deferred income recognition of housing projects, which in accordance with previous years' principles, were recognised in income in 2006 and 2007.
Statement of financial position:
Equity as at 31 December 2009 will be adjusted downward by NOK 32 million. The amount relates to recognised income from projects not delivered as at the same date. The amount is low compared with previous years, owing to the low number of units in production.
Total assets as at 31 December 2009 will increase by NOK 80 million to 7,860 million.
For further information, please contact:
Jørgen Wiese Porsmyr, CFO, Veidekke ASA, phone + 47 21 05 76 44,
jorgen.wiese-porsmyr@veidekke.no
Jørgen G. Michelet, Financial director, Veidekke ASA, phone +47 21 05 7722,
| Title | File type |
| IFRIC 15 |