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Veidekke
Veidekke is a Scandinavian contractor and property developer, with corporate headquarters in Oslo. The company operates nation-wide in Norway and Denmark, and has extensive operations in Sweden's central regions. Veidekke is listed on the Oslo Stock Exchange. The consolidated financial statements were approved by the Board of Directors on 25 March 2010.
Statement of financial framework
The consolidated accounts have been prepared in accordance with EU approved International Financial Reporting Standards (IFRS) and appurtenant Interpretations, together with the additional informational requirements follow- ing the Norwegian Accounting Act. Only standards that have entered into force for accounts closed on 31 December 2009 have been applied.
Historical costs
The consolidated accounts have been prepared on a historical cost basis, with the exception of financial instruments and investments available for sale which have been measured at fair value. Pensions are entered in accordance with IAS 19.
Implementation of new accounting standards and interpretations
The following new standards are implemented from 1 January 2009
IFRS 8 – Operating Segments – identification of segments
The Group's business segments are presented as internal financial reporting is presented to the group's top operative decision-maker, the CEO.
The Group concluded that the operating segments determined in accordance with IFRS 8 are the same as the business segments previously identified under IAS 14.
IAS 1 (Amendment) – Presentation of Financial Statements
What is new is that the Group only records transactions with owners in the statement of changes in equity. Other changes in equity are presented in the comprehensive income statement. The change in accounting policy will have no impact on earnings per share.
IAS 23 (Amendment) – Accounting for Borrowing Cost
Borrowing cost that occur after 1 January 2009 and which are directly attributable to the acquisition, manufacture or production of a qualifying asset, are capitalised as part of the current asset's original cost. Previously, loan expenses were expensed as they accrued, except loan expenses on non-residential projects for own account. The amendment has mainly affected accounting of the Group's own-account projects within property, as ordinary construction projects have payment plans in step with progress. For own-account projects in Sweden, property is often sold in the form of a "cooperative model" (borettslagmodel). As a customer, the cooperative pays in step with progress, which means that there is no significant interest expense to be activated. Total activated interest expenses as of 31 December 2009 were MNOK 9.8. See note 5.
IFRS 7 (Amendment) – Disclosures of Financial Instruments
The amendment is presentation-related in nature and relates to the introduction of a valuation hierarchy for valuation of financial instruments. See note 30.
IFRIC 12 – Accounting for Public and Private Cooperation
Veidekke participates in a major PPP project (public and private partnerships) regarding construction of a road between Lyngdal and Flekkefjord, with a subsequent operation and maintenance period of 25 years. The standard requires that the accounting be made as a financial asset according to amortised costs over the contract period. The adopted interpretation has no affect for Veidekke as these principles have mainly been used in previous years.
IFRS 2 (Amendment) – Share-based Payment Transactions - Vesting Conditions and Cancellations
The amendment will not affect the accounting of Veidekke's employee share scheme.
IFRIC 13 – Customer Loyalty Programs
Veidekke does not use loyalty programs towards its customers.
Other policy amendments
In connection with the Group's share program for senior executives, loans are provided to the employees. These loans are accounted for in accordance with IAS 39 at amortised cost. Interest income is measured using the effective interest method based on estimated market interest rates. The loans are currently interest-free, and the difference between the nominal value of the loans and their fair value based on discounted future cash flows at the estimated market rate, represents prepaid employee benefits. The prepaid benefits are expensed over the period from the time loans are granted until they are repaid.
In previous years, interest income and income recording of compensation have been presented in net terms in the profit and loss account. After being reviewed, it was deemed appropriate to classify compensation as wage expense and interests as a financial item. This was done on the basis that the Group's share ownership scheme is closely connected to the Group's plan and strategy to ensure that Group leaders focus in their daily work on value creation for the Group's shareholders. For 2009, this means that NOK 7.5 has been reclassified from financial items to wage expense. The corresponding figures for 2008 and 2007 are MNOK 14.2 and MNOK 10.2 respectively. See note 5.
Subsidiaries in which there is a minority interest, where there is an agreement entailing a right and obligation to purchase the remain-ing shares in a subsidiary, this subsidiary is recognised in the accounts as a wholly-owned subsidiary. The estimated purchase price is then entered under long-term liabilities, while 100 percent of goodwill on purchase is entered as an asset. No minority interest is recognised. This has been based on an assessment of the extent to which Veidekke has rights equivalent to full ownership or not. In previous years, the conclusion has been that Veidekke had rights equivalent to full ownership and thus they were consolidated as a wholly-owned subsidiary. There has been a renewed consideration of this principle and, from 1 January 2009, assessments shall attach particular importance to the high likelihood that options will be exercised in the option period. The amendment means that the subsidiary Seby AS, in which Veidekke has a 70 percent stake, has been reclassified as a company for which the minority share of earnings and shareholders' equity are presented. The agreed purchase price is recorded as a liability in the accounts. The liability, reduced according to the minority's share of equity, is recorded against the majority's share of equity until the option period expires.
Material accounting assessments, estimates and assumptions
Veidekke's operations consist mainly of construction work for the client's account and building of residential and non-residential buildings for sale for its own account, i.e. execution of projects. For its projects, Veidekke applies successively income reporting (percentage of completion method) based on the anticipated final profit (final prognosis) and degree of completion. This means that income is entered in step with the execution of the work.
Successively income reporting entails uncertainty, since it is based on estimates and assessments. For projects under construction, the uncertainty is attached to progress of ongoing work, disputes, final prognosis, etc. The final profit may therefore differ from the anticipated profit. For completed projects, the uncertainty is linked with hidden deficiencies, including warranty, and the outcome of possible disputes with the client.
Other items that are affected by estimates are assumed service life of operating equipment, impairment of goodwill, actuarial assumptions of pensions and the use of deferred tax assets. In addition, the estimates relate to impairment of unsold apartments and land.
Reference is made to the following notes which describe areas characterised by significant estimation uncertainty: