Toggle main navigation Section navigation Investors Financial information Revenue recognition Revenue recognition Valmet delivers process automation, machinery, equipment and services for the pulp, paper, energy and other industries. On the capital business side, the Group’s revenue arises from projects, the scope of which ranges from delivery of complete mill facilities on a turnkey basis to single section machine rebuilds, that may or may not include process automation solutions. Service business revenue includes revenue from short-term and long-term maintenance contracts, smaller improvement and modification contracts, rebuilds, as well as sale of spare parts and consumables. Revenue is recognized to depict the transfer of promised goods or services to the customers in an amount that reflects the consideration to which Valmet expects to be entitled to in exchange for those goods or services. The timing and method as well as unit of revenue recognition are determined in accordance with the five-step model of IFRS 15 as follows: Step 1: Identification of the contract(s) with a customer Step 2: Identification of the performance obligations in the contract Step 3: Determination of the transaction price attached to the contract Step 4: Allocation of the transaction price to the performance obligations identified in the contract Step 5: Recognition of revenue when (or as) the entity satisfies a performance obligation In long-term capital projects involving delivery of both equipment and services, one or more performance obligations are identified. The identification of performance obligations depends on the scope of the project and terms of the contracts, and largely follows the level at which quotes are being requested by the customers on capital projects. In short-term service contracts that involve delivery of a combination of equipment and services, depending on the scope of the contract and terms attached thereto, one or more performance obligations are identified. When scope of the contract involves services provided at the customer site, such as installation, maintenance, technical support or mechanical audits, these are typically considered as a separate performance obligation from delivery of significant equipment and services provided off-site. On the other hand, when services in the scope of the contract are performed at Valmet premises only, such as workshop services, material and services typically cannot be identified separately, and consistently only one performance obligation is identified. In long-term service contracts where Valmet’s activities are largely performed at the customer’s site, depending on the contract and terms attached thereto, one or more performance obligations are identified. When the scope of the contract involves various service elements that are sold separately on a stand-alone basis, these elements would typically be determined to consist of performance obligations on their own. Revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service, either over time or at a point in time. When Valmet determines that control on goods or services is transferred over time, this is typically based on either that customer simultaneously receives and consumes benefits as Valmet performs, or that Valmet’s performance creates an asset with no alternative use throughout the duration of a contract and Valmet has enforceable right to payment for performance completed to date. Deliverables within Valmet’s product offering that have the characteristics of the first criterion include mill maintenance services or other field services provided under long-term contracts, in which the receipt and simultaneous consumption by the customer of the benefits of Valmet’s performance can be readily identified. Deliverables with the characteristics of the second criterion include capital projects where the scope of the contract involves design and construction of an asset according to customer specifications. The assets created in these projects do not have alternative use because the design is based on specific customer needs. When revenue is recognized over time, progress towards complete satisfaction of the performance obligation is measured using the cost-to-cost method. The cost-to-cost method is estimated to result in a revenue profile that best depicts the transfer of control on the deliverables to the customer. Recognition of revenue at a point in time is applicable, among others, in contracts where services are performed at Valmet’s premises, and deliveries of spare parts and consumables. Control of deliverables typically transfers based on the delivery terms used, at the takeover, or at a later point in time when customer acceptance is received. Critical accounting estimates and judgements For performance obligations satisfied over time, Valmet uses cost-to-cost method to recognize revenue as it best depicts the transfer of control to the customer as Valmet performs. Under cost-to-cost method, progress towards complete satisfaction of performance obligation is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated profits, are recorded proportionally as costs are incurred. Management regularly reviews the progress of and execution on performance obligations. As part of the process, management reviews information including, but not limited to, key contractual obligations outstanding, project schedule, identified risks and opportunities, as well as changes in estimates of revenues and costs. A projected loss on a customer contract is recognized in full through profit or loss when it becomes known. Valmet regularly enters into contracts where the consideration includes one or more variable elements. Variable consideration is estimated by using either the expected value or the most likely amount -method, depending on the type of the arrangement. In making judgments about variable consideration, Valmet considers historical, current and forecast information. Impact of changes in estimates is recognized in revenue in the period when the estimate is updated. Typical contract and project durations Updated; May 11, 2020 Pulp Complete pulp mills Chemical pulping Wood handling Cooking and fiber line Pulp drying and baling Chemical recovery Air emission control New value-adding processes Dissolving pulping Mechanical pulping Recycled fiber Automation for pulp Services for pulp Fiber Technology Center Pulp references Pulp news and stories Board and paper Recycled fiber Stock preparation Board and paper machines Services for board and paper Automation for board and paper Industrial Internet Service Centers References Board and paper news and stories Search for products & services Tissue Complete tissue mills solutions Machine sections and rebuilds Development and pilot trials Services for tissue producers Automation for tissue References Industrial Internet Tissue Talks Insight Sustainability Learning services Tissue News Tissue Talks Contact Tissue Local websites 中文 - Chinese Suomi - Finnish Français - French 日本語 - Japanese Português - Portuguese Pусский - Russian Español - Spanish Svenska - Swedish ไทย - Thai Australia & New Zealand North America Deutsch - German Energy Energy solutions BFB Boiler CFB Boiler Gasifier Power plants Heating plants Air emission control Industrial Internet solutions Services for energy Automation for energy Technology development Energy news and stories More industries Alternative fuels Biofuels and biomaterials Chemical industry Fiberboard Filtration Food industry Laundry industry Marine Minerals and metals Nonwovens Oil and gas Wastewater Paper converting Pharmaceutical industry Petrochemical industry Automation Distributed control system Industrial applications Quality management Analyzers and measurements Condition monitoring Industrial Internet Automation projects Automation services About Us Valmet in brief Contact us Strategy Management Code of Conduct Careers Research and development Procurement Valmet's value creation Translate Valmet product names Industrial Internet Valmet Customer Portal Learning Services Service centers References Investors Valmet as an investment Reports and presentations Sustainability for investors Valmet share Shareholders Governance Financial information Events and calendar Investor relations Sustainability Sustainability at Valmet Sustainable supply chain Health, safety and environment People and performance Sustainable solutions Corporate citizenship Climate program Circular economy Sustainability reporting Media News Articles Customer magazine Blogs Podcasts Newsletters Social media Events calendar Media contacts Image gallery Video gallery Downloads Services Services for board and paper production Services for pulp production Services for tissue making Services for energy FOLLOW US Sitemap About this site Legal notice Trademarks Privacy notice Cookie preferences Contact us Social media © 2021 Valmet We use cookies and 3rd party solutions to optimize site functionality and give you the best possible experience while browsing our site. If you are fine with this and accept all cookies just click 'Accept' button. You can also review our Privacy notice. Necessary cookies only Accept Manage cookie preferences