European Energy A/S: New accounting standard for recognition of revenue has been adopted

5 januari 2017

Company announcement 1/2017

European Energy A/S has decided to early adopt the International Financial Reporting Standard (IFRS) 15 in the annual report for 2016. This leads to an adjustment of the expectations for 2016.

European Energy A/S now expects revenue in the level of 100 mEUR for 2016 compared to the previously announced expectations of a higher level than in 2015 (59 mEUR). Profit is now expected in the level of 13-15 mEUR compared to previously announced expectation of same level as in 2015 (6 mEUR). The equity is expected to be in the level of 61-63 mEUR end of 2016.

Compared to the interim financial report for Q3 2016, published 30 November 2016, the impact from the adoption of IFRS 15 can be illustrated as follows:

 

Unaudited ('000 EUR)		YTD Reported			YTD applying IFRS 15
		Revenue	Net result	Equity	Revenue	Net result	Equity
Q3 2016		69.797	2.221	68.438	80.099	12.761	60.737

 

The increase in revenue and profit in 2016 follows the delay in revenue recognition especially from 2015. The decrease in the equity in Q3 follows the delay in revenue recognition resulting in results from one solar and wind power plant being deferred to 4 ^th quarter 2016 and results from one solar and wind power plant being deferred until 1 ^st quarter 2017 (expected).

The early adoption of IFRS 15 is based on a dialogue with the Danish Business Authority (Erhvervsstyrelsen) regarding the company's current accounting policy for recognition of revenue from sale of solar and wind power plants under IAS 18. The Danish Business Authority disagrees with the Company's interpretation of IAS 18.

The company has so far recognized income from sale of solar and wind power plant when all material risks and rewards have been transferred to the buyer. In accordance with the company's interpretation of IAS 18, all material risks and rewards related to the sale of a solar and wind power plant have  been considered transferred when all of the following criteria were met:

a) All permits for the construction are in place

b) All financing is in place

c) The delivery of the wind and solar power generating asset for the construction has been confirmed

d) The share or asset purchase agreement with no significant conditions precedents has been signed by both parties

The company has considered that the vast majority of the value creation has taken place when these criteria have been fulfilled. There have never been projects that have fulfilled these criteria where the sales have not finally been concluded. 

The company notes that the Danish Business Authority assesses that these criteria are not sufficient under IAS 18. The Danish Business Authority finds that the selling company has not fulfilled its performance obligations towards the buyer before the asset has been constructed and the buyer has accepted the acquisition (which happens at closing/completion of the sale).

Knud-Erik Andersen, CEO, says: "To align the company's reporting with the Danish Business Authority's assessment, the company has decided to early adopt IFRS 15."

The adoption of IFRS 15 means that revenue from contracts regarding sale of solar and wind power plants will be recognized on the basis of contractual performance obligations. For previous contracts this will normally be the case when the asset is constructed and delivered to the buyer and the buyer has accepted the acquisition (closing/completion of the sale has taken place).

The effect of adoption of IFRS 15 is that revenue will be recognized at a later date, typically 3-9 months.

On 28 February 2017 the interim financial report for Q4 will be released including the adoption of the IFRS 15 standard. The report will include a detailed analysis of the IFRS 15 adoption.

European Energy A/S will release its full year 2016 financial report on 30 April 2017.

  

Contact information: 
Jens-Peter Zink, chairman of the board
jpz@europeanenergy.dk 
ph. + 45 2047 8220

 

 

---