Five years of IFRS Reporting how does the future look like?

Transcription

1 Five years of IFRS Reporting how does the future look like? Raimo Lind, Executive Vice President, CFO Wärtsilä Corporation May 5, Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

2 Wärtsilä shortly Publicly quoted Operates in 70+ countries Listed in Helsinki Stock exchange No need to be listed elsewhere Has worked with IFRS for 5 years now, we are still learning 31 March 2010 Number of shares Number of shareholders WRT1V Mar Mar Market capitalisation, EUR million Foreign shareholders 46.4% 43.9% 2 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

3 One core product two markets 3 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

4 Benefits for Wärtsilä /Users 4 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

5 Global presence Wärtsilä operates globally and has tight reporting deadlines, interim reports come out within calender days, annual closing within January and annual report in 3 languages by mid February. 5 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

6 Global sales and service network > 70 countries > 160 locations > 18,500 employees 6 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

7 Uniform rules needed Uniform accounting rules are needed, we would have to develop internal accounting conventions if no global standard exists. IFRS training is available on global basis, people we employ have basic skills in place. 7 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

8 Investor community Investors have a somewhat easier job to look at companies, as do the banks Balance sheet represents the true value of the companies assets better than before, especially mark to market bookings for assets available for sale make sense 8 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

9 Acquisitions Acquisitions need to analysed with more scrutiny, PPA as an idea is good. 9 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

10 Competitor follow up Somewhat easier to do competitor follow up. (although a lot of normalized figures are used). Segment reporting- makes sense with conglomerates such as, GE, MAN, ABB, Cat etc, Our business line forms one segment within our competitors. 10 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

11 Target is a principle based standard True and fair view -principle, substance over form (?) 11 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

12 12 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010 Cons

13 True operational result Some of the rules that deviate from common sense lead to companies using various operative profit figures or profit excluding non-recurring items. Even listings have taken place based on normalized figures. 13 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

14 Emphasis on the income statement or balance sheet (Statement of financial position) Income statement and cash flow are the most important parts of financial reporting, for management, board of directors, investors, bankers, rewarding, benchmarking and competitor follow up. IFRS seems to focusing on Balance Sheet (other comprehensive income). Various expanded income statements, do they add value? 14 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

15 Will we ever get there? Frequent and massive changes to the rule book cause major work for companies, require follow up, adaptation of ERP:s and consolidation systems. The only beneficiaries seem to be the academics, auditors and other consultants. Principle based and substance over form are we sliding to a massive rule book. Avoid ending with the What is not forbidden, is allowed (Enron). 15 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

16 Competence base too narrow Frequent back and forth changes cause unnecessary work, do we have any other rule book which is changing so frequently. CFO s, CEO s and audit committees do not master the rules fluently. Will time take care of this? First we figure out what has taken place / will take place, then the accounting implications are looked at. Causes interesting dialogue. 16 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

17 Management view versus actual costs Management view on valuation can cause surprises in the years to come. Which part of the assets are actually bought and what is a result of managements views? Fair value accounting could cloud the logic between cash generated cash used. 17 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

18 Management remuneration Remuneration bookings hard to see the logic to charge the income statement for something that does not impact either the equity or cash. 18 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

19 19 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010 IFRS / US Gaap

20 IFRS / US Gaap We should not try to adopt US accounting standards to IFRS. US Gaap is a Rule based book. Investors do not need it, nor do they ask for it. No need/benefit to be listed in US today Lets invest in getting China, Russia, India, other Asian countries in, the rest will follow. 20 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

21 IFRS / US Gaap (cont.) Miljardiklubi is a CFO assembly representing the largest industrial and service related listed companies in Finland. Besides Nokia, who is listed in US and has a major US shareholder base, no other Finnish companies are any longer listed in US. Yet foreign shareholdings is quite significant for all of us. 21 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

22 IFRS / US Gaap (cont.) Foreign and nominee registered Listing shareholders (%) Amersports 50,2 Nasdaq OMX Helsinki Reporting of debt according to US GAAP No Traded in US through ADRs Fortum 31,0 Nasdaq OMX Helsinki No Kesko 22,7 Nasdaq OMX Helsinki No Kone 50,2 Nasdaq OMX Helsinki No Konecranes 53,8 Nasdaq OMX Helsinki No Metso 50,7 Nasdaq OMX Helsinki No Traded in US through ADRs Neste Oil 15,9 Nasdaq OMX Helsinki No Nokia >80 Nasdaq OMX Helsinki No Frankfurter Wertpapierbörse New York Stock Exchange Outokumpu 25,6 Nasdaq OMX Helsinki No Ruukki 25,2 Nasdaq OMX Helsinki No Sanoma 11,4 Nasdaq OMX Helsinki No Stora Enso 43,2 Nasdaq OMX Helsinki No Nasdaq OMX Stockholm Traded in US through ADRs UPM 57,8 Nasdaq OMX Helsinki No Traded in US through ADRs Wärtsilä 46,4 Nasdaq OMX Helsinki No 22 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

23 Changes to be considered 23 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

24 Goodwill Goodwill is created through acquisitions - is not going to be there forever. If you buy a company, most of the products, trademark, key people and knowhow is gone / integrated beyond recognition within a 10 year period. Depreciation should be brought back, could be with a 40 year period. Current practise will lead to massive write offs and insolvencies sometime in the future. Would have to apply to US companies as well. Payback is still used as an evaluation method, this include the whole purchase price Impairment tests will eventually take care of this but it may lead to discontinued operations 24 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

25 Percentage of completion First it was mandatory, now it will be forbidden. Changes lead to history being re-written all the time. Within industries that work with major, long lead time projects, this is a must. Proposed change will only lead to new contract forms, adding no value to the reporting 25 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

26 IAS 39 effective hedging One size does not fit all. What is good / reasonable for banks becomes laborious for industries. Industrial companies spend major amount of work and effort to create documents for effective hedging. Value added very questionable. We need separate rules for banks and industries 26 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

27 Leases Minor leases to be left out; cars, copiers add little value but create a lot of work Will lead to double assets Many key figures are changing benchmarking impacted. 27 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

28 Acquisitions Cost to income statement Treatment of conditional purchase prices 28 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

29 Conclusion Its not perfect but it is a good base Slow down the speed of change Listen to the real users 29 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

30 Impacting the changes of IFRS Can the outcome be impacted? Scandinavian participation to the committees? Funding through government/central organizations. Participation to committees could be funding by the industry. 30 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010

31 Carrier path IFRS specialist should be a viable, respected carrier path with job rotation among industries and trade, audit firms, FiVa and Efrag committees. 31 Wärtsilä 03 June 2010 Raimo Lind, Five years of IFRS, May 5, 2010