Hexagon Annual Report 2019

(NOK 1 000) 2019 1 JANUARY 2019 Trade receivable 438 562 148 703 Contracts assets (accrued revenue) 3 962 13 486 Contract liabilities (incl. prepayment from customers) 94 540 47 185 CONTRACT BALANCES FOR THE YEAR ENDED 31 DECEMBER 2019 Trade receivables are non-interest bearing and are generally on terms of 30 to 45 days. The acquisition of a subsidiary resulted in increase in trade receivables of TNOK 350 813 in 2019 (Note 5). In 2019, TNOK 14 574 (2018 TNOK 1 439) was recognized as provision for dubious debtors on trade receivables. Contract assets are initially recognized for revenue earned from installation and project services as receipt of consideration is conditional on successful completion of installation or project. Upon completion and acceptance by the customer, the amounts recognized as contract assets are reclassified to trade receivables. The lower amount in contract assets in 2019 is the result of normal fluctuations in this part of the business at the end of the year. Contract liabilities include short-term advances received for funded services & development and paid not delivered goods to external customers. The outstanding balances of these accounts increased in 2019 due to increasing activities in services & funded development projects. Information related to the Group´s performance obligations and related revenue recognition is summarized below: PERFORMANCE OBLIGATIONS The performance obligation is generally satisfied upon delivery of cylinders and other equipment. The normal credit term is 30 to 45 days upon delivery. Recognition of revenue at the point of delivery is only recognized for an amount of the consideration that reflects the estimated variable consideration the Group is expected to ultimately be entitled. The variable consideration is re-assessed at the end of each reporting period and recognized as (or when) the uncertainty is subsequently resolved and is estimated based on the expected value approach. Sale of goods The Group provides services in relation to reinspection and testing of products and non-recurring engineering and design or development. These may be sold separately or bundled together with the sale of goods. The Group has determined that these services should be accounted for as a separate performance obligation as the services are separately identifiable. The performance obligation is satisfied over time because the customer simultaneously receives and consumes the benefits provided by the Group. The Group recognizes revenue on the basis of the labor hours incurred relative to the total expected labor hours to complete the installation. When a contract includes separate performance obligations in relation to both sale of goods and installation, the consideration is allocated between the performance obligations based on observable stand-alone selling prices. Sale of services The Group has entered into contracts with a limited number of customers for development services. As the inputs (raw materials, labor hours etc.) are integrated into a combined output, the combined product has been determined to constitute one performance obligation. Further, the customization process & integration significantly modifies the assets under construction until delivery. Sale of funded development contracts The Group assessed that the performance obligation is satisfied over time because it has at all times an enforceable right to payment for performance completed to date, including a reasonable margin. Additionally, the asset has no alternative use for the Group as it is limited practically from readily directing the asset in its completed state, as the Group would suffer a significant loss from modifying the asset before it could be sold to another customer. The Group measures progress based on costs incurred relative to the total expected costs to complete the project as this measurement most faithfully depicts the Group's progress towards complete satisfaction of the performance obligation. 25 111 2019 AT A GLANCE FROM THE BOARD ROOM FINANCIAL STATEMENTS