Note 1 Accounting principles
Compliance with standards and legislation
The consolidated accounts have been drawn up in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) which have been adopted by EU. In addition, the Swedish Financial Reporting Board recommendation RFR 1 Supplementary accounting rules for groups has also been applied.
The parent company applies the same accounting principles as the Group except in the cases stated below in the section on the parent company accounting principles.
The annual report and the consolidated accounts have been approved of by the Board and CEO for publication on 29 March 2017. The consolidated income statement and balance sheet and the parent company’s income statement and balance sheet will be presented for adoption by the AGM on 10 May 2017.
Valuation basis applied for preparation of the parent company and group financial reports
Assets and liabilities are reported at historical acquisition values except for certain financial assets and liabilities which are assessed at fair value. Financial assets and liabilities valued at fair value consist of derivatives and shares and holdings that are not subsidiaries, joint arrangements or associated companies.
Functional currency and reporting currency
The parent company’s functional currency is the Swedish krona, which is also the currency in which the accounts of the parent company and the Group are reported. Unless otherwise indicated all amounts are rounded off to the nearest million.
Estimates and assessments in the financial reports
Preparing the financial reports requires on the one hand making assessments concerning the application of the accounting policies and on the other hand estimating the value of assets, liabilities, revenues and costs. Estimates and assumptions are based on historical experience and other factors considered relevant. Estimates and assumptions are regularly reviewed and compared to the actual outcome. Important assessments are described in more detail in note 2.
Changed accounting principles
In essence the accounting principles are the same as in the Annual Report 2015.
The effect of amended IFRSs applied as of 2016 on consolidated financial reports has been immaterial.
New IFRSs and interpretations that have not yet been applied
IFRS 15 Revenue from contracts with customers will as of 2018 replace current standards related to revenue such as IAS 18 Revenue, IAS 11 Construction contracts and IFRIC 15 Agreements for the construction of real estate. Peab does not intend to prematurely apply IFRS 15. According to IFRS 15 revenue is recognized when control over a product or service is transferred to the customer, which is a change from current reporting standards that are based on the transfer of risks and benefits. IFRS 15 introduces new methods of determining how and when revenue should be recognized, requiring a new way of thinking compared to how revenue is currently recognized.
Peab is in the final phase of analyzing the effects of IFRS 15. At this point in time no material effects have been identified but the analysis must be completed before any possible final effects can be quantified. Peab has analyzed the effects of IFRS 15 by identifying and analyzing revenue flows in each business area and country. The assessment of the effects described below is based on information currently known or estimated. Regarding the choice of transition method Peab will initially implement the retrospective method.
According to the preliminary analysis revenue from certain projects previously reported at single point in time will instead be reported over a period of time. This entails recognizing revenue earlier than compared to current principles. Based on assessments made so far the periodization of revenue should not be otherwise affected. IFRS 15 also entails additional revenue disclosure demands, which will expand the contents of note information.
IFRS 9 Financial instruments, will replace IAS 39 Financial instruments: Recognition and measurement, as of 2018. IFRS 9 deals with classification and valuation of financial assets and financial liabilities and hedging accounting. IFRS 9 has been approved for application by the EU but Peab does not plan to prematurely apply the standard. Peab is working on an analysis of the consequences IFRS 9 will have on the Group’s result and position as well as additional disclosure. The standard will have some effect on the recognition of credit losses since it requires loss reserves for anticipated credit losses. This differs from current regulations that only require loss reserves if something occurs that leads Peab to believe a customer may not be able to pay the entire balance due. However, historically Peab has only had minor credit losses in daily operations, which means the effect of IFRS 9 is not expected to be significant in this aspect. IFRS 9 further requires that all holdings of unlisted shares must be reported at fair value, even in cases where it is not deemed possible to arrive at a trustworthy estimation of the fair value. This will affect Peab in regards to unlisted shares for which it was not possible to arrive at a trustworthy estimation of the fair value based on the current criteria in IAS 39 and they have therefore been valued at their acquisition price minus any write-downs. Nonetheless, even these cases, the effect on Peab will be limited. The standard is also expected to entail additional disclosure requirements.
IFRS 16 Leases will replace IAS 17 Leases as of 1 January 2019 on the condition that it is approved by EU. Peab does not plan to prematurely apply the standard. IFRS 16 will require Peab as a lessee to report all leasing contracts as assets and liabilities, representing the right to use the leased asset respectively the obligation to pay leasing fees, on the balance sheet. Regarding leasing contracts, depreciation of the leasing asset and interest costs on the leasing liability are recognized in the income statement. There are voluntary exceptions from the application of IFRS 16 for leasing contracts for smaller amounts as well as contracts with a leasing period of 12 months or less. For Peab as a lessor there are no substantial changes except for additional disclosure requirements. Peab has initiated a project to determine the effect of IFRS 16 on the Group’s result and position as well as additional disclosures. Peab’s balance sheet total is expected to increase through activating contracts that are currently classified as operational, the operating margin is expected to improve while financial costs are expected to grow. Peab estimates that the balance sheet total will increase by around two-five percent but the analysis must be completed before any possible final effects can be quantified. Furthermore, the effects will be influenced by which of the available transition methods Peab chooses to use for the transition to IFRS 16.
Other new or amended IFRSs together with interpretations are not expected to have any material effect on Group accounting.
Operating segments
An operating segment is an entity in the Group that engages in business activities that generate revenues and expenses and the result of which is regularly reviewed by executive management.
Classification
Fixed assets and long-term liabilities consist of amounts which may be expected to be recovered or defrayed later than 12 months after the balance sheet date. Current assets and current liabilities consist of amounts which may be expected to be recovered or defrayed within 12 months of the balance sheet date.
Consolidation principles
Subsidiaries
Subsidiaries are entities over which Peab AB exercises a direct or indirect controlling influence. Controlling influence exists if the parent company has direct or indirect influence over investment objects, is exposed to or has the right to variable yields from its interest in investment objects and can use its influence over investment objects to affect the size of its yield.
Subsidiary financial reports are recognized in the consolidated accounts from the day controlling influence occurs until it no longer exists.
Business combinations
Business combinations are recognized using the purchase accounting method. The method is applied from the point in time the Group has a controlling influence over the acquisition. The purchase accounting method means acquisitions are regarded as transactions through which the Group indirectly acquires the assets of the subsidiary and takes over its liabilities. The consolidated acquisition value is calculated in an acquisition analysis in conjunction with the acquisition. The analysis establishes the acquisition value of the participations or the business, the fair value on acquisition date of the acquired identifiable assets and the liabilities taken over. If ownership and controlling influence is successive a remeasuring of previous holdings to fair value at the point in time the company has controlling influence over the acquisition is performed and this change in value is reported in the profit/loss.
Goodwill is calculated as the sum of payment for the shares or the business and the fair value of previously acquired shares (in step acquisitions) less the fair value of the subsidiary’s identifiable assets and overtaken liabilities. Where the difference is negative this is recognized directly in profit/loss for the year. Transaction costs for business combinations are charged immediately upon acquisition.
Contingent consideration is measured at fair value at the time of acquisition and subsequent changes in fair value are recognized in profit/loss as they occur.
Net assets attributable to owners of non-controlling interests (the minority) are recognized either as the fair value of all net assets excluding goodwill or the fair value of all assets including goodwill. The choice of principle is made for each acquisition individually.
When control has been achieved the change in ownership is reported as a transfer in equity between the parent company and the non-controlling interests, without remeasuring the subsidiary’s net assets.
If partial disposal of a subsidiary results in the loss of control any residual holding is recognized at fair value and the amount of the change is recognized in profit/loss.
Asset acquisition
When acquisitions of subsidiaries involve the acquisition of net assets which do not comprise operations, the acquisition cost of each identifiable asset and liability is divided up based on its fair value at the time of acquisition. Transaction costs are added to the purchase price of the acquired net assets when assets are acquired and the change in contingent payments after acquisition are added to the purchase price of the acquired assets. If the acquisition of a subsidiary is successive and an asset acquisition no remeasuring of previous acquisitions is performed when controlling influence occurs. If ownership diminishes through partial divestiture of shares in subsidiaries in an asset divestiture, unlike a transfer of operations, the remaining holdings are not remeasured if the remaining holdings constitute a joint venture or associated company. Any internal gain is eliminated against the remaining owned shares.
Joint ventures
For accounting purposes, joint ventures are entities where the Group through cooperation agreements with one or more partners exercises a joint controlling influence, where the Group has the right to net assets instead of direct right to assets and obligations for liabilities.
Associated companies and joint ventures are consolidated in accordance with the equity method. The equity method means that the booked value of shares corresponds to the Group’s share of the company’s equity as well as Group goodwill and any other Group deficit and surplus values. The Group’s share of the profit/loss in holdings after tax and minorities adjusted for depreciation, write-downs or dispersal of acquired deficit and surplus values are recognized in consolidated profit/loss. Received dividends reduce the booked value of the investment.
The equity method is applied until the time the joint controlling influence ceases.
Joint operations
Joint operations, usually run as a company, are joint arrangements where Peab and one or more partners have the right to all the financial advantages related to the assets of the operations. How the liabilities of the operations are settled depends on the partners’ purchases of output from them or capital infusions to them. Joint operations are reported according to the proportional method which means each party in a joint operation recognizes their respective share in assets, liabilities, income and expenses.
Associated companies
Associated companies are those companies in which the Group has a significant but not controlling influence over operating and financial control usually through shareholdings of between 20 and 50 percent. Associated companies are reported according to the equity method.
Transactions which must be eliminated upon consolidation
Intra-group receivables and liabilities, revenues or costs or unrealized gains or losses stemming from intra-group transactions are eliminated completely when preparing the consolidated accounts.
Unrealized gains arising from transactions with joint ventures, joint operations and associated companies are eliminated to the extent these refer to the Group’s ownership participation in the company. Unrealized losses are eliminated in the same way as unrealized gains but only to the extent there is no write-down requirement. When subsidiaries considered to be operational become joint ventures or associated companies the residue holding is remeasured to fair value according to the principles above concerning presentation when controlling influence ceases.
Foreign currency
Transactions in foreign currency
Transactions in foreign currency are converted to the functional currency at the exchange rate on the transaction date. The functional currency is the currency of the primary financial surroundings where the company operates. Monetary assets and liabilities in foreign currency are converted to the functional currency at the exchange rate applying on the balance sheet day. Exchange rate differences arising during translation are recognized in profit/loss for the year. Non-monetary assets and liabilities which are recognized at historical acquisition value are converted at the exchange rate applying at the time of the transaction. Non-monetary assets reported at fair value are recalculated to the functional currency at the exchange rate current at the time of valuation at fair value.
The financial reports of foreign business
Assets and liabilities in foreign entities including goodwill and other Group deficit and surplus values are converted from the foreign company’s functional currency to the Group’s reporting currency, Swedish crowns, at the exchange rate applying on balance sheet day. Earnings and costs in a foreign entity are converted to Swedish crowns at an average rate approximating to the rates applying on the respective transaction dates. Translation differences arising when converting the currency of foreign companies are recognized in other comprehensive income and are accumulated in a separate component in equity as a translation reserve.
Net investment in a foreign company
Translation differences arising from the translation of a foreign net investment are recognized via other comprehensive income in the translation reserve in equity. Translation differences also comprise exchange rate differences from loans which form a part of the parent company’s investment in foreign subsidiaries (so-called extended investment). When a foreign subsidiary is divested, the accumulated translation differences attributable to the company are reclassified from equity to profit/loss for the year.
Income
Construction contracts
Current construction contracts are reported in accordance with IAS 11, Construction contracts. Income and expenses must be recognized as the contract is completed. This principle is known as the percentage of completion method. Income and expenses are recognized in profit and loss in proportion to the percentage completion of the contract. The percentage of completion of the contract is determined based on the defrayed project costs compared to the project costs corresponding to the project income for the whole contract. The application of the percentage of completion method is prerequisite on it being possible to calculate the outcome in a reliable manner. In case of contracts where the outcome cannot be reliably calculated, income is calculated in proportion to the costs defrayed. Feared losses are charged to income as soon as they become known.
In the balance sheet, construction contracts are entered project by project either as Recognized but not-invoiced income under current assets or as Invoiced income not yet recognized under current liabilities. Those projects with higher accumulated income than invoiced are recognized as assets whilst those projects which have been invoiced in excess of the accumulated income are recognized as liabilities.
Swedish tenant-owned housing projects are reported according to IAS 11 Construction contracts, which entails applying the percentage of completion method based on the degree to which the project is completed through expenses that have occurred in relationship to the project’s calculated total cost. A contract is drawn up which regulates the sales of land and construction of the property with the tenant-owned association, which is an independent legal entity.
Own developed housing projects for sales
In Peab’s housing projects in Finland and Norway as well as our own home developments in Sweden Peab does not have an external independent other party at the start of a project, which means that the projects are reported according to IAS 18 Revenue and income from these projects is recognized first when the projects are handed over to the buyer. Expenses are recognized as work-in-progress in the balance sheet. On account invoices to customers are reported as non-interest-bearing liabilities, and loans to finance housing projects are reported as interest-bearing liabilities.
Sales of property projects
The underlying sales value of project and development property directly or that are sold in the form of a company via shares is recognized as net sales.
Other income
Other income excluding construction contracts is recognized in accordance with IAS 18 Revenue. Income from the sale of goods is recognized in profit/loss for the year when the material risks and benefits associated with ownership of the goods has been transferred to the buyer. Crane and machinery hire income is recognized linearly over the hiring period.
Leasing costs
Operational leasing agreements
Expenses for operational leasing agreements where the Group is the lessee are recognized linearly in profit/loss for the year over the leasing period. Benefits obtained from the signing of an agreement are recognized linearly in profit/loss for the year over the term of the leasing agreement. Variable costs are expensed in the periods they occur.
Revenues relating to operational leasing agreements where the Group is the lessor are recognized in a straight line over the life of the lease agreement. Costs arising from leasing agreements are recognized as they occur.
Financial leasing agreements
Assets that are rented under a financial leasing agreement are depreciated over their estimated useful life. Minimum leasing charges are divided between interest costs and amortization of the outstanding debt. Interest costs are distributed over the leasing term such that an amount corresponding to a fixed interest rate for the debt accounted in the respective period is recognized in each accounting period. Contingent rents are carried as expenses in the periods it occurs. See also Leased assets under heading Tangible fixed assets below.
Financial income and expenses
Financial income and expenses consist of interest income on cash at bank, receivables and interest-bearing securities, interest expenses on loans, dividend revenues, realized and unrealized gains and losses on financial investments and derivatives used within the financial business.
Interest income on receivables and interest expenses on liabilities are calculated in accordance with the effective interest rate method. The effective interest rate is the discount rate for estimated future payments and disbursements during the expected life of a financial instrument to the financial asset’s or liability’s initial book value. Interest income and interest expenses include accrued transaction costs and possible discounts, premiums and other differences between the original value of the receivable or liability and the amount received when it falls due.
Dividend income is recognized when the right to payment is established.
The results of sales of financial investments are recognized when the risks and benefits associated with ownership of the instrument are materially transferred to the buyer and the Group no longer has control of the instrument.
Interest costs are charged to income during the period to which they refer except to the extent that they are included in that asset’s acquisition value. An asset for which interest is included in the acquisition price is an asset which must necessarily require considerable time to prepare for the intended use or sale. Interest rate swaps and hedge accounting are used to hedge against interest risks connected to Group loans. Interest rate swaps are valued at fair value in the balance sheet. The coupon rate part is recognized on a current basis in profit/loss for the year as a correction of the interest expense. Unrealized changes in the fair value of rate swaps are recognized in other comprehensive income and are part of the hedging provision until the hedged item affects profit/loss for the year and as long as the criteria for hedge reporting is met.
Taxes
Income tax consists of current tax and deferred tax. Income tax is recognized in profit/loss for the year except when the underlying transaction is recognized in other comprehensive income or equity, in which case the relevant tax is recognized in other comprehensive income respectively in equity.
Current tax is tax that must be paid or will be received during the current year. This also includes current tax attributable to earlier periods. Current and deferred tax is calculated applying the tax rates and tax rules resolved upon or in practice resolved upon on the balance sheet day.
Deferred tax is calculated according to the balance sheet method based on temporary differences between the accounted and tax values of assets and liabilities. Valuation of deferred tax is based on how the underlying value of assets or liabilities is expected to be realized or regulated. Temporary differences are not taken into account for the temporary difference generated by the acquisition of subsidiaries that are so-called asset acquisitions.
When shares in subsidiaries are acquired such acquisition either refers to business combinations or an asset purchase. An asset purchase refers to, for example, acquiring a company that only owns one or more properties with tenancy agreements but the acquisition does not comprise the processes required to operate a business. In business combinations deferred tax is recognized as a nominally valid tax rate with no discount according to the principles presented above. When an asset is acquired deferred tax is not recognized separately at the time of acquisition. Instead the asset is recognized at a purchase value corresponding to the asset´s fair value after deductions for discounts for deferred tax.
Deferred tax assets in the form of deductible temporary differences and deficits are recognized only when use of them is probable. The value of deferred tax assets is reduced when being able to use them deemed no longer probable.
Financial instruments
On the assets side, financial instruments entered to the balance sheet include liquid funds, short-term investments, accounts receivable, securities holdings, loan receivables and derivatives. On the liabilities side, they include accounts payable, borrowing and derivatives.
Recognition in and removal from the balance sheet
Financial assets and financial liabilities are entered to the balance sheet when the company becomes involved in accordance with the instrument’s contractual terms. Accounts receivable are recognized when the company has performed and the other party has a contractual responsibility to pay, even if the invoice has not yet been sent. Accounts receivable are entered into the balance sheet when the invoice has been sent. Liabilities are recognized when the counterparty has performed the service and there is a contractual payment obligation even if the invoice has not been received. Accounts payable are recognized when the invoice is received.
Financial assets are removed from the balance sheet when the rights of the agreement have been realized, fall due or the company loses control of them. The same applies to parts of financial assets. Financial liabilities are removed from the balance sheet when contractual obligations are discharged or have been otherwise extinguished. The same applies to parts of financial liability.
Financial assets and financial liabilities are offset and recognized at a net amount in the balance sheet only where there is a legal right to offset the amounts and it is intended to adjust the items with a net amount or to at the same time capitalize the asset and adjust the liability.
On-demand acquisitions and on-demand sales of financial assets are reported on the transaction date, which is the date the company undertakes to acquire or sell the asset.
Classification and valuation
Financial instruments are initially recorded at acquisition value corresponding to the instrument’s fair value with the addition of transaction costs for all financial instruments except for those classified as financial assets, which are recognized at fair value in profit for the year which are recorded minus transaction costs. Financial instruments are classified upon first recognition based on the purpose for which the instrument was acquired. Classification determines how financial instruments are valued after first recognition as described below.
Liquid funds consist of cash and immediately available balances at banks and equivalent institutes and current liquid investments with maturities from the acquisition date of less than three months and which are exposed to only insignificant value fluctuation risks.
Financial assets valued at fair value via profit/loss
Financial assets in this category are constantly valued at fair value with value changes recognized in profit/loss for the year. This category consists of two sub-groups: financial assets held for trading and other financial assets which the company initially chooses to place in this category with the support of the so called fair value option. The first sub-group includes derivatives with positive fair value except for derivatives which are identified and effective hedge instruments. The other sub-group, “fair value option”, is not currently being used.
Financial assets available for sale
Included in the category financial assets available for sale are financial assets not classified in any other category or financial assets that the company has chosen to initially classify in this category. Shareholdings and participation which are not subsidiaries, associated companies or joint ventures, are reported in this category. Assets in this category are valued at fair value with the changes in value for the period reported in other comprehensive income. Accumulated changes in value are reported in a separate component of equity. Received dividends and any write-downs are reported in profit/loss for the year. When the asset is divested the accumulated profit/loss, which was previously reported in other comprehensive income, is reported in profit/loss for the year.
Holdings of unlisted shares and participation valued at purchase price less any write-downs because the fair value could not be established with sufficient reliability are also reported in this category.
Loan receivables and accounts receivable
Loan receivables and accounts receivable are financial assets that are not derivatives and have fixed payments and which are not listed in an active market. These assets are valued at amortized cost. Accounts receivable are recognized at the estimated impact amount, i.e. after deduction of distressed debts.
Financial liabilities valued at fair value via profit/loss
Financial liabilities in this category are valued at fair value with the changes in value reported in profit/loss for the year. The Group uses this valuation category solely for valuing derivatives with negative fair value except for derivatives for which hedge reporting is applied.
Other financial liabilities
Loans and other financial liabilities, e.g. accounts payable, are included in this category. Liabilities are recognized at accrued acquisition value.
Derivatives and hedge accounting
The Group’s derivatives consist of interest, exchange and raw materials derivatives utilized to hedge risks of changes in exchange rates, interest rate changes and changes in the price of raw materials. Derivatives not used for hedge accounting are classified as financial assets or financial liabilities held for trading and are valued at fair value. Value changes are recognized in profit/loss.
Derivatives are initially recognized at fair value, and consequently transaction costs are charged to profit/loss for the period. After first recognition derivatives are recognized as described below. If the derivative is used for hedge accounting and to the extent this is effective, the value change to the derivative is recognized on the same line in profit/loss for the year as the hedged item. Even if hedge accounting is not applied, the value gain or reduction to the derivative is recognized as income or expenses in operating profit or in net financial items depending on the purpose for which the derivative is used and whether its use relates to an operating item or a financial item. In hedge accounting, any non-effective part is recognized in the same way as value changes to derivatives that are not used in hedge accounting.
The derivatives used to hedge future cash flow, so-called cash flow hedges, are recognized at fair value in the balance sheet. The value changes for the period are recognized in other comprehensive income and the accumulated value changes in a separate component of equity (the hedging reserve) until the hedged flow matches profit/ loss for the year where upon accumulated value changes of the hedge instrument are reclassified to profit/loss for the year. Regarding hedge accounting of interest swaps see also the section on “Financial income and expenses” above.
The Group has holdings of shares listed on foreign stock exchanges that are classified as financial assets available for sale. To a certain extent the value of these holding has been hedged through forward exchange contracts. The hedge is identified as a fair value hedge. The hedges are accounted for through the correspondence of the exchange rate effects that occur when the shares are translated into functional value to changes in the hedging instrument’s fair value. Any ineffective parts are recognized in profit/loss for the year.
Hedge accounting of net investments
To a certain extent measures have been taken to reduce exchange risks connected to investments in operations abroad. This has been done by taking out loans in the same currency as the net investments. These loans are recognized at the translated rate on balance sheet day. The effective part of the period’s exchange rate changes in relation to hedge instruments is recognized in other comprehensive income and the accumulated changes in a separate component of equity (the translation reserve), in order to meet and partly match the translation differences that affect other comprehensive income concerning net assets in the hedged operations abroad. In the cases where the hedge is not effective, the ineffective part is recognized directly in profit for the year as a financial item.
Tangible fixed assets
Owned assets
Tangible fixed assets are recognized in consolidated accounts at acquisition value minus accumulated depreciation and any write-downs. The acquisition value consists of the purchase price and costs directly attributable to putting the asset in place in the condition required for utilization in accordance with the purpose of the acquisition. Borrowing costs are included in the acquisition value of internally produced fixed assets. The accounting principles applying to impairment loss are listed below.
The value of a tangible fixed asset is derecognized from the balance sheet upon scrapping or divestment or when no future financial benefits are expected. Gains and losses arising from divestment or scrapping of an asset consist of the difference between the sale price and the asset’s booked value minus direct costs of sale.
Leased assets
Leasing is classified in the consolidated accounts either as financial or operational leasing. Financial leasing applies in circumstances where the financial risks and benefits associated with ownership are substantially transferred to the lessee. Where such is not the case, the leasing contract is operational.
Assets which are rented under financial leasing agreements are recognized as assets in the consolidated balance sheet. Payment obligations associated with future leasing charges have been recognized as long-term and current liabilities. The leased assets are depreciated according to plan while leasing payments are entered as interest and amortization of liabilities.
Assets which are rented under operational leasing agreements have not been recognized as assets in the consolidated balance sheet. Leasing charges for operational leasing agreements are charged to income in a straight line over the life of the lease.
Additional expenses
Additional expenses are only added to the acquisition value if it is likely that the future financial benefits associated with the asset will benefit the company and the acquisition value can be reliably estimated. All other future expenses are recognized as costs as they occur.
Borrowing costs
Borrowing costs which are directly attributable to the purchase, construction or production of an asset and which require considerable time to complete for the intended use or sale are included in the acquisition value of the asset.
Depreciation principles
Depreciation is based on the original acquisition value minus the calculated residual value. Depreciation is made linearly over the assessed useful life of the asset.
| Buildings (operating buildings) | 25-100 years |
| Land improvements | 25-50 years |
| Asphalt and concrete factories | 10-15 years |
| Vehicles and construction machinery | 5-10 years |
| Other equipment and inventories | 3-10 years |
The useful life and residual value of assets are assessed annually.
Gravel and rock quarries are written down based on substance depletion, i.e. the amount of gravel and rock removed in relation to the calculated total amount of substance deemed recoverable in the gravel and rock quarry.
Real estate
Group real estate holdings are divided as follows:
- Buildings and land entered under tangible fixed assets
- Project and development properties as inventories among current assets
Properties used in the Group’s own operations consisting of office buildings, production buildings and operational buildings are entered as buildings and land under tangible fixed assets. Valuation is made in accordance with IAS 16, Tangible fixed assets, at acquisition value deducted for accumulated depreciation and possible write-downs.
Direct and indirect holdings of undeveloped land and redeveloped tracts for future development, developed investment properties for project development, improvement and subsequent sale and which are expected to be realized during our normal operational cycle are entered as project and development property under current assets. Valuation is made in accordance with IAS 2, Inventories, at the lowest of either acquisition value or net sales value.
Intangible assets
Goodwill
Goodwill is valued at acquisition value minus any accumulated write- downs. Goodwill is divided between cash-generating units and is tested at least once a year for write-down needs. Goodwill stemming from the acquisition of joint ventures and associated companies is included in the recognized value of participations in joint ventures and associated companies.
Research and development
Research costs intended to acquire new scientific or technological knowledge are reported as costs as they arise. Development costs where the results of research or other knowledge is applied to the production of new or improved products or processes are reported as an asset in the balance sheet if the product or process is technically or commercially useful and the company has adequate resources for completing development and then applying or selling the intangible asset. The recognized value includes all directly attributable expenses, including for materials and services, payroll costs, the registration of legal rights, depreciation of patents and licenses, and borrowing costs. Other development costs are reported in profit for the year as costs as they arise. Development costs are recognized in the balance sheet at acquisition value minus accumulated depreciation and possible write-downs.
Other intangible assets
Other intangible assets acquired by the Group are recognized at acquisition value minus accumulated depreciation and write-downs.
Depreciation policies
Depreciation is linearly recognized in profit/loss for the year over the estimated useful life of the intangible asset provided the useful life can be determined. Goodwill and other intangible assets with an indeterminate useful life is not depreciated but is tested for the need for write-down annually or as soon as there are indications that the asset in question has declined in value. Depreciable intangible assets are depreciated from the date when the asset became available for use.
The estimated useful lives are:
| Brands | 5-10 years |
| Customer relations | 3-5 years |
| Site leasehold agreements | During the term of the agreement |
The useful life and residual value of assets are assessed annually.
Inventories
Inventories are valued at the lowest of acquisition value and net sale value. The acquisition value of stocks are calculated using the first-in, first-out method and include expenses arising with the acquisition of the stock assets and their transport to their current location and condition. For manufactured goods the acquisition value includes a reasonable share of the indirect costs based on a normal capacity.
The net sale value is the estimated sale price in the current business minus estimated costs of completion and bringing about the sale.
Impairment loss
The recognized value of Group assets is checked each balance sheet day to assess whether there is a write-down requirement. IAS 36 is applied to the testing of write-down requirements for other assets besides;
- Financial assets which are tested in accordance with IAS 39
- Assets for sale and divestment groups recognized which are tested in accordance with IFRS 5
- Inventories
- Plan assets used for financing of remuneration to employees
- Deferred tax recoverables.
The recognized value of the above-mentioned excepted assets is tested applying the respective standards.
Impairment test of tangible and intangible assets and participation in subsidiaries,
joint ventures, associated companies etc.
If write-down requirements are indicated, the recovery value of the asset is estimated in accordance with IAS 36. Moreover, the recovery value of goodwill, other intangible assets of indeterminate useful life and intangible assets which are not yet ready for use is estimated each year. If it is not possible to establish materially independent cash flows for a certain asset, when testing for write-down needs the assets are grouped at the lowest level where it is possible to identify materially independent cash flow – a so-called cash-generating unit.
Write-downs are recognized when the book value of an asset or a cash generating unit exceeds the recovery value. Write-downs are expensed in profit/loss for the year. Write-downs of assets attributable to a cash-generating unit, or a group of units, are firstly allocated to goodwill, followed by the proportional write-down of the other assets in the unit (group of units).
The recovery value is the highest of utility value and fair value minus cost of sale. When calculating utility value, future cash flows are discounted with a discount factor that takes into consideration the risk-free interest rate and the risks which are associated with the specific asset.
Impairment test for financial assets
Each time reports are drawn up the company assesses whether there are objective indications that a financial asset or a group of financial assets need to be written down. Objective indications partly consist of occurred observable circumstances which have a negative impact on possibilities of recovering the acquisition value and partly on significant or lengthy decreases in the fair value of an investment in a financial placing classified as a financial asset available for sale.
Accounts receivable that need to be written down are reported as the present value of the anticipated future cash flows. Current receivables are, however, not discounted. Write-downs charge profit for the year.
Equity instruments classified as financial instruments available for sale are written down if the fair value is significantly lower than the acquisition value, or when the decline in value has been a long, drawn out process.
When an equity instrument classified as a financial instrument available for sale is written down, previously reported accumulated remeasured losses in equity via other comprehensive income is reclassified to profit/loss for the year. The amount of accumulated loss that is reclassified from equity via other comprehensive income to profit/loss for the year consists of the difference between the acquisition cost and the current fair value after reductions for any write-downs on a financial asset which has already been reported in profit/loss for the year.
Reversed write-downs
A write-down is reversed if there are both indications that write-down requirements no longer exist and assumptions upon which the calculation of the recovery value were based have changed. However, write-downs of goodwill are never reversed. Reversing is only performed to the extent that the recognized value after reversing of the asset does not exceed the recognized value which would have been recognized deducted for depreciation where necessary if write-down had not been made.
Write-downs of investments held to maturity or loans and receivables recognized at amortized cost are reversed if a subsequent rise in the recovery value may objectively be attributed to a circumstance occurring after write-down was made.
Write-downs of equity instruments classified as financial instruments available for sale are reversed via other comprehensive income and not via profit/loss for the year. All revaluations that follow are based on the written down value and are reported in other comprehensive income.
Equity
Repurchase of own shares
Holdings of own shares and other equity instruments are recognized as a reduction in equity. Liquid funds from the divestment of such equity instruments are recognized as an increase in equity. Any transaction costs are charged directly to equity.
Dividends
Dividends are entered as liabilities after they have been approved by the AGM.
Earnings per share
The calculation of earnings per share is based on consolidated profit for the year attributable to the shareholders of the parent company and on the weighted average number of outstanding shares during the year. When calculating earnings per share after dilution, profit and the average number of shares are adjusted to allow for the effects of the diluting potential of shares which in the reported periods stem from convertible certificates of claim and options issued to the employees. Earnings per share after dilution are calculated by increasing the number of shares with the total number shares the convertibles represent and increasing profit with the reported interest cost after tax.
Employee benefits
Defined contribution pension plans
Pension plans are only classified as defined contribution pension plans where the company’s obligations are limited to the contributions the company has undertaken to pay to an insurance company or to another independent legal entity. In such cases the size of an employee’s pension depends on the size of the contributions the company pays to this legal entity and the yield it generates on the capital. The company’s obligations concerning contributions to defined contribution plans are expensed in profit/loss for the year as they are earned by the employee performing work for the company during the period.
Defined benefit pension plans
Pension plans that are not defined contribution plans are defined benefit plans, which means the employer is obligated to pay pension fees on a certain benefit level. The Group’s defined benefit plans consist of the Swedish ITP Plan for Salaried Staff which is managed through insurance with Alecta. The ITP 2 pension plan, which is secured through insurance from Alecta, is recognized as a defined benefit plan that encompasses several employers. However, the plan is recognized as a defined contribution plan since Alecta cannot provide the necessary information required for each member company to report its proportional share of the plan obligations, assets and expenses.
The Group’s recognized net obligations relating to defined benefit plans referred to Norwegian pension plans and are calculated separately for each plan through an assessment of the future payments which employees have earned. Such payment is discounted to a net present value deducted for the fair value of any plan assets. The discount rate is the market rate of corporate bonds extrapolated to a period equivalent to that of the pension obligations. Calculations of pension liabilities are performed by a qualified actuary.
Remuneration upon resignation or dismissal
A reserve for remuneration relating to the dismissal of staff is only established if the company is demonstrably subject to, without any realistic opportunity for avoidance, the termination of employment prior to the normal time and the affected groups of employees have been informed about the dismissal plan. Reserves are made for severance compensation which will be paid without requiring any service from the employee.
Short-term remuneration
Short-term remuneration to employees is calculated without discount and are reported as a cost when the related services are received.
A provision is recognized for the expected costs of participations in profits and bonus payments when the Group has an applicable legal or informal obligation to make such payments for services received from employees and the obligations can be reliably estimated.
Provisions
Provisions are entered in the balance sheet when the Group is subject to an actual or informal legal obligation as a consequence of a circumstance occurring and it is likely that financial resources will be required to meet the obligation and a reliable estimate of the amount can be made.
Guarantees
Provisions for guarantees are recognized when the underlying products or services are sold. The provisions are based on historical data about the guarantees and a weighing up of the conceivable outcomes relative to the probabilities that the outcomes are associated with.
Restoration costs
Provisions are made for estimated restoration costs for rock and gravel quarries after operations are terminated. The provision increases with the quarried amount and is reversed after restoration is completed. The reserved amount is expected to be utilized successively following completion of quarrying.
Contingent liabilities
A contingent liability is recognized in accounts when there is a possible obligation attributable to events occurred, the occurrence of which can only be confirmed by one or more uncertain future events, or when there is an undertaking not recognized as a liability or provision because it is not likely that the use of resources will be required or the amount cannot be calculated with sufficient reliability.
Parent company accounting principles
The parent company has prepared its annual report in accordance with the Swedish Company Accounts Act (1995:1554) and Swedish Financial Reporting Board recommendation RFR 2 Accounting rules for legal entities. RFR 2 requires that the parent company, in the annual report for the legal entity, use all EU adopted IFRSs and interpretations as far as possible within the framework of the Swedish Company Accounts Act, the Job Security Law and with due regard for the relationship between accounting and taxes. The recommendation states which exceptions and additions must be made to the IFRSs.
Changed accounting principles
The parent company accounting principles have changed in 2016 compared to 2015 as a result of changes in the Swedish Company Accounts Act. The changes entail that the parent company no longer reports pledged assets and contingent liabilities in connection with the balance sheet. They are instead reported in a note.
New IFRSs and interpretations that have not yet been applied are described above for the Group. The new standards regarding revenue (IFRS 15) and leasing (IFRS 16) are not expected to have any material effect on the parent company. Regarding IFRS 9 Financial instruments, the ongoing analysis has so far not revealed any material effects for the parent company.
Differences between the Group and parent company accounting principles
Differences between the Group’s and parent company’s accounting principles are given below.
Classification and design types
The parent company’s income statement and balance sheet are presented in accordance with the design in the Swedish Company Accounts Act. The difference to IAS 1 Design of financial reports which is applied to the design of the consolidated financial reports refer primarily to reporting financial income and expenses, fixed assets, equity and the presentation of provisions under a separate heading in the balance sheet.
Subsidiaries and joint arrangements
Participation in subsidiaries and joint arrangements are recognized in the parent company applying the acquisition value method. This means that acquisition costs are included in the reported value of the holding in the subsidiary. In Group accounting acquisition costs are recognized directly in profit and loss as they occur.
Financial guarantees
The parent company’s financial guarantee agreements mainly consist of personal guarantees to the benefit of subsidiaries and joint ventures. The parent company recognizes financial guarantee agreements as provisions in the balance sheet when the company has an obligation for which payment is likely to be required to adjust the obligation.
Leased assets
All leasing agreements in the parent company are recognized according to the rules for operating leasing.
Taxes
Untaxed reserves including deferred tax liabilities are recognized in the parent company. On the other hand, in the Group accounts, untaxed reserves are divided between deferred tax liabilities and equity.
Shareholder contributions
Paid shareholder’s contributions are activated in shares and participation in the provider after taking into consideration any need for write-downs.
Group contributions
Group contributions are recognized as appropriations even though the group contribution has been given or received.