Note 4 Operating segments
Group business is divided into operating segments based on how the company’s highest decision makers, i.e. executive management, follow the business.
The Group is reported into four business areas; Construction, Civil Engineering, Industry and Project Development. The business areas are also operating segments.
Segments are reported according to the percentage of completion in projects since that reflects the way executive management and the Board monitors operations. Peab applies IFRIC 15, Agreements for the construction of real estate, in legal accounting. IAS 18, Revenue, is applied for housing projects in Finland and Norway as well as our own home developments in Sweden. Revenue from these projects is first recognized when the home is handed over to the buyer. A bridge has therefore been created in segment reporting between operative reporting according to the percentage of completion method and legal reporting. For more information regarding principles for housing production, see note 1.
Business area Construction reports net sales and profit referring to the subcontractor part of our own housing, rental project developments and other property development projects to business area Project Development. Net sales and profit are reported according to the percentage of completion method. Net sales for both the general contractor part and the subcontractor part of our own housing developments are reported in business area Project Development. Reported profit is the result in the general contractor part reported according to the percentage of completion method. The underlying sales value of property projects on our own balance sheet that are sold in the form of a company via shares is recognized as net sales and the booked value is recognized as an expense on the balance sheet. Internal net sales between business area Construction and business area Project Development regarding the construction cost of our own housing developments are eliminated in consolidated reporting. Net sales and profit referring to the subcontractor part of property development projects on our own balance sheets are eliminated on Group level. Internal profit is returned when the project is divested.
The Group’s internal reporting is constructed so that executive management follows every business area up to and including operating profit and operating margin. For business area Industry and Project Development executive management also follows the development of capital employed. The capital employed in the business areas consists of the business area’s total capital reduced by deferred tax recoverables and internal receivables from the internal bank Peab Finans with deductions for non-interest-bearing liabilities and deferred tax liabilities.
Internal pricing between Group segments is based on the “arm’s length principle”, in other words, by well informed parties who are independent of each other and interested in the realisation of the transactions.
Segments’ operating profit includes attributable items which can be reasonably and reliably allocated to the segments. Non-allocated items consist of financial income and expenses, and taxes.
Operating segments
The Group consist of the following business areas:
- Construction: Business area Construction comprises Group resources in construction related services. Construction builds for external customers and internally, primarily for business area Project Development. Operations are run through 11 regions in Sweden, two in Norway and two in Finland. Three of the Swedish regions are focused on housing production. These are in Stockholm, Gothenburg and the Öresund region. Construction maintenance operations are run in a nationwide region primarily focused on the big city areas. The other regions do all kinds of construction in their geographic areas.
- Civil Engineering: Business area Civil Engineering works with the construction of larger infrastructure and civil engineering projects and smaller projects on the local market. Civil Engineering also operates and maintains roads and municipal facilities. The operations are run in geographical regions in Sweden, Norway and Finland. Customers are the Swedish Transport Administration, municipalities and local businesses.
- Industry: Business area Industry is run in seven product areas; Asphalt, Concrete, Gravel and rock, Transportation and machines, Rentals, Foundations and Industrial construction. All of them work on the Nordic construction and civil engineering markets. Customers are mainly Nordic construction and civil engineering companies.
- Project Development: Business area Project Development comprises Peab’s developments in housing and property in Sweden, Norway and Finland. The business is run in two segments, Housing Development and Property Development. Housing development develops all kinds of housing such as apartment buildings in tenancy ownership, ownership and rental form as well as single homes. Operations in Property Development revolve around the acquisition, development and divestiture of commercial property in the Nordic region. The business includes projects in wholly owned and partly owned companies. Partly owned companies consist of, among other things, Peab’s ownership in Tornet Bostadsproduktion AB (ownership of apartments for rent) and in Fastighets AB Centur (ownership and development of commercial property). In 2016 companies connected to the development of Arenastaden in Solna, which were then divested in the first quarter of 2017, were included in partially owned companies. Wholly owned subsidiaries and projects consists of a number of holdings that include everything from land for development where zoning is being worked out to completed projects ready for sale. Net sales and operating profit from operations are derived from running our wholly owned property, shares in the profit from partly owned companies as well as capital gains from the divestiture of completed property and shares in partly owned companies.
Other operations are reported under “Group functions” and consist of central companies and group functions.
| Group 2016, MSEK | Construction | Civil Engineering | Industry | Project Development | Group functions | Elimination | Total operative for the Group 1) | Adjustment for different accounting principles for housing production 2) | Group |
| External sales | 20,459 | 9,461 | 8,876 | 7,589 | 104 | 0 | 46,489 | -152 | 46,337 |
| Internal sales | 3,662 | 1,279 | 3,285 | 50 | 793 | -9,069 | – | – | |
| Total income | 24,121 | 10,740 | 12,161 | 7,639 | 897 | -9,069 | 46,489 | -152 | 46,337 |
| Operating costs | -23,585 | -10,396 | -11,478 | -7,068 | -1,018 | 8,994 | -44,551 | 175 | -44,376 |
| Other operating income | 8 | 15 | 74 | 52 | 149 | 149 | |||
| Other operating costs | -2 | -4 | -4 | -1 | -1 | -12 | -12 | ||
| Operating profit | 542 | 355 | 753 | 622 | -122 | -75 | 2,075 | 23 | 2,098 |
| Operating margin, % | 2.2 | 3.3 | 6.2 | 8.1 | 4.5 | 4.5 | |||
| Financial income | 195 | ||||||||
| Financial expenses | -243 | ||||||||
| Pre-tax profit | 2,050 | ||||||||
| Tax | -323 | ||||||||
| Profit for the year | 1,727 | ||||||||
| Depreciation | -17 | -36 | -699 | -18 | -14 | -784 | |||
| Write-downs within operating profit | -18 | -60 | -78 | ||||||
| Capital gains/losses | 3 | 4 | 44 | 136 | -1 | 186 | |||
| Other significant non-cash items | -19 | -3 | -2 | 30 | 44 | 50 | |||
| Capital employed on 31 December | -949 | -302 | 5,416 | 10,281 | -44 3) | 14,402 |
| Group 2015, MSEK | Construction | Civil Engineering | Industry | Project Development | Group functions | Elimination | Total operative for the Group 1) | Adjustment for different accounting principles for housing production 2) | Group |
| External sales | 19,668 | 9,394 | 7,565 | 7,565 | 60 | 0 | 44,252 | 124 | 44,376 |
| Internal sales | 4,177 | 1,054 | 3,235 | 40 | 776 | -9,282 | – | – | |
| Total income | 23,845 | 10,448 | 10,800 | 7,605 | 836 | -9,282 | 44,252 | 124 | 44,376 |
| Operating costs | -24,076 | -10,068 | -10,216 | -7,222 | -930 | 9,232 | -43,280 | -167 | -43,447 |
| Other operating income | 8 | 15 | 72 | 15 | 2 | 112 | 112 | ||
| Other operating costs | -2 | -14 | -8 | -8 | -32 | -32 | |||
| Operating profit | -225 | 381 | 648 | 398 | -100 | -50 | 1,052 | -43 | 1,009 |
| Operating margin, % | -0.9 | 3.6 | 6.0 | 5.2 | 2.4 | 2.3 | |||
| Financial income | 157 | ||||||||
| Financial expenses | -260 | ||||||||
| Pre-tax profit | 906 | ||||||||
| Tax | -108 | ||||||||
| Profit for the year | 798 | ||||||||
| Depreciation | -18 | -28 | -659 | -17 | -13 | -735 | |||
| Write-downs within operating profit | -5 | -96 | -6 | -107 | |||||
| Capital gains/losses | 3 | 7 | 50 | 32 | -9 | 83 | |||
| Other significant non-cash items | -711 | -29 | -93 | -67 | -28 | -928 | |||
| Capital employed on 31 December | -1,264 | -302 | 4,885 | 10,838 | 319 3) | 14,476 |
1) According to the percentage of completion method (IAS 11).
2) Adjustment in accounting principle for own single homes in Sweden as well as housing in Finland and Norway according to the completed contract method (IAS 18).
3) Non allocated capital employed.
Comments on the tables
A strong housing market has contributed to favorable development in the business areas in both 2016 and 2015. During 2016 business area Project Development included an effect on profit of SEK 104 million regarding the partial sale of a hotel property and development rights for offices at the Hyllie Station Square in Malmö. In business area Construction the write-down of the project Mall of Scandinavia in Solna in 2015 has affected both net sales and operating profit by SEK -800 million.
Geografic areas
Income from external customers are grouped to geografic areas according to where customers are located. Information concerning intangible and tangible assets is based on geografic areas grouped according to where assets are located.
| Sweden | Norway | Finland | Other markets | Total | ||||||
| Group, MSEK | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| External sales | 38,607 | 36,780 | 5,157 | 4,923 | 2,538 | 2,636 | 35 | 37 | 46,337 | 44,376 |
| Intangible and tangible fixed assets | 5,324 | 4,858 | 633 | 506 | 356 | 284 | – | – | 6,313 | 5,648 |
| Sweden | Norway | Finland | Total 1) | |||||
| Parent company, MSEK | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| Net sales | 224 | 246 | 13 | 12 | 5 | 9 | 242 | 267 |
1) Included in Group functions.