Note 1 Accounting principles
Compliance with standards and legislation
The consolidated accounts have been draw up in accordance with those 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 in the section below on Parent company accounting principles.
The Annual Report and the consolidated accounts have been approved of by the Board and CEO for publication on 27 March 2018. The consolidated income statement and balance sheet and parent company income statement and balance sheet will be presented for adoption by the AGM on 7 May 2018.
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 accounting principles 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.
Amended accounting principles
In essence the accounting principles are the same as in the Annual Report 2016.
After a revision of Peab’s property portfolio it was decided that some property previously reported as project and development property, i.e. inventory properties, will instead be classified as investment property or operations property, in the case where there is no plan to divest the property and it is expected to remain in the Group for the foreseeable future. The properties were reclassified as of 1 January 2017 and IAS 40 Investment property was therefore applied for the first time to the property reclassified as investment property. Reclassification of the properties is forward looking and therefore no comparable figures have been calculated. Peab has chosen to recognize investment property according to the cost method, the same way operations property is recognized. The reported value of the reclassified property did not change at the time of reclassification.
The effect of amended IFRSs applied as of 2017 on consolidated financial reports has been immaterial.
New IFRSs and interpretations that have not yet been applied
IFRS 15 Revenue from contracts with customers
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. No material effects have been identified. The changes wrought by IFRS 15 are described in note 46.
IFRS 9 Financial instruments
IFRS 9 Financial instruments, will replace IAS 39 Financial instruments: Recognition and measurement, as of 2018. Compared to IAS 39 IFRS 9 entails changes in the classification and valuation of financial assets and financial liabilities, write-downs of financial assets and hedging accounting. The effects of IFRS 9 are described in note 46.
IFRS 16 Leases
IFRS 16 Leases will replace IAS 17 Leases as of 1 January 2019. 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 twelve months or less. For Peab as a lessor there are no substantial changes except for additional disclosure requirements. Peab is running a special project to implement, and determine the effect of, IFRS 16 on the Group’s profit 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 profit 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, a choice Peab has not yet made.
Other new or amended IFRSs together with interpretations that have been adopted by IASB are not expected to have any material effect on Group accounting.
An operating segment is a section of the Group engaged in similar business activities that generates revenues and expenses and the result of which is regularly reviewed by executive management.
Fixed assets consist of amounts which are expected to be recovered or paid more than twelve months after the balance sheet date. Long-term liabilities consist of amounts which are due for payment more than twelve months after the balance sheet date as well as other amounts the company has an unconditional right to defer payment on until a point in time more than twelve months after the balance sheet date.Other assets and liabilities are recognized as current assets and current liabilities. Inventories in the form of project and development properties with a normal operating cycle that is longer than twelve months are also recognized as current assets.
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 an investment object, is exposed to or has the right to variable yields from its interest in an investment object and can use its influence over an investment object 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 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 in step acquisitions together with the fair value of previously acquired shares less the fair value of the subsidiary’s identifiable assets and overtaken liabilities. When 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 holdings 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.
Issued sales options referring to shares held by holdings of non-controlling interests are recognized according to the Anticipated Acquisition Method. According to the method no holdings of non-controlling interests are recognized in the Group’s total equity. Instead a financial liability is recognized that corresponds to the current estimated exercise price. The consequent changes in the value of the liability are recognized in profit/loss for the year, attributable to parent company owners.
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 revalued to fair value and the amount of the change is recognized in profit/loss.
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 the holding 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. Holdings of non-controlling interests in subsidiaries recognized as asset acquisitions are reported according to the same principles as for business combinations but without the inclusion of goodwill.
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 indirect right to net assets.
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, 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, 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 are those companies in which the Group has a significant but not controlling influence over operating and financial governance 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.
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 bases the company operates in. 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 their historical acquisition value are converted to 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.
Foreign company financial reports
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 krona, at the exchange rate applying on balance sheet day. Revenue and costs in a foreign entity are converted to Swedish krona at an average rate that approximates the rates 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.
Ongoing construction contracts are reported in accordance with IAS 11, Construction contracts. Income and costs are recognized as the contract work proceeds. This principle is known as the percentage of completion method. Income and costs are recognized in profit/loss in proportion to the percentage completion of the contract. The percentage of completion of the contract is determined based on paid project costs compared to the project costs corresponding to the project income for the whole contract. A prerequisite for use of the percentage of completion method is being able to calculate the outcome reliably. In cases where the outcome cannot be reliably calculated, income is calculated in proportion to expenditures. Feared losses are charged to income as soon as they become known.
Construction contracts are entered on the balance sheet project by project either as Worked-up but not invoiced income under current assets or as Invoiced income not yet worked-up under current liabilities. Projects with higher accumulated income than invoiced are recognized as assets while 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 means applying the percentage of completion method based on the degree to which the project is completed based on expenditures in relationship to the project’s calculated total cost. A contract is drawn up which regulates the sales of land and construction of the building with the tenant-owned association, which is an independent legal entity.
Own developed housing projects for sales
Peab does not have an external independent other party at the start of a project in our housing projects in Finland and Norway as well as our own home developments in Sweden, 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 on 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.
Property project divestitures
Income from property divestitures is normally reported on the takeover date unless the buyer has taken possession of the risks and benefits at an earlier date.
The underlying sales value of project and development property divested directly or indirectly in the form of a company via shares is recognized as net sales.
The net effect on profit from the divestiture of operations property or investment property is recognized as other operating income or other operating cost.
Rent from property
Rent from investment property is recognized linearly in profit for the year. Rent rebates are spread linearly as a reduction in rent over the contract period, except for rebates given because certain factors temporarily curtail a renter’s ability to fully utilize an already rented premise (for example, delayed customization to a renter). These rebates are recognized during the period the curtailment exists.
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 rent is recognized linearly over the rental period.
Operational leasing agreements
Costs 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 signing an agreement are recognized linearly in profit/loss for the year over the term of the leasing agreement. Variable costs are expenced in the periods 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 so that an amount corresponding to a fixed interest rate for the calculated debt in the respective period is recognized in each accounting period. Variable costs are expensed in the period they occur. See also Leased assets under heading Tangible fixed assets below.
Financial income and expenses
Financial income and expenses consist of interest income on cash in 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 recognized 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 profit/loss 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.
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 will be paid or 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 valid on or in practice valid on the balance sheet day.
Deferred tax is calculated according to the balance sheet method based on temporary differences between the reported and fiscal 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 for the difference generated by recognition of consolidated goodwill or the temporary difference from the acquisition of subsidiaries that are so-called asset acquisitions are not taken into account.
When shares in subsidiaries are acquired such acquisitions are either 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 at the nominally valid tax rate with no discount according to the principles presented above. When an asset is acquired deferred tax is not recognized at the time of acquisition. Instead the asset is recognized at a purchase value corresponding to the asset´s fair value after deductions for a discount received in the transaction for the current value of the fiscal value of future fiscal deductions regarding the difference between recognized and fiscal value that do not materialize. After the acquisition only deferred tax on temporary differences that occur after the acquisition is recognized.
Deferred tax assets in the form of deductible temporary differences and tax loss carry-forwards are recognized only when use of them is probable. The value of deferred tax assets is reduced when use of them is deemed no longer probable.
Financial instruments recognized on the balance sheet include on the assets side 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 on and removal from the balance sheet
Financial assets and financial liabilities are recognized on the balance sheet when the company becomes involved according to the instrument’s contractual terms. 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 reported on 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 in 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 have been met or otherwise extinguished. The same applies to parts of financial liability.
Financial assets and financial liabilities are offset and recognized at a net amount on the balance sheet only where there is a legal right to offset the amounts and the intention is to clear the items with a net amount or to at the same time capitalize the asset and settle 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 that are recognized at fair value in profit/loss for the year, which are recorded minus transaction costs. The first time they are recognized financial instruments are classified based on the purpose for which the instrument was acquired. Classification determines how financial instruments are valued after initial recognition as described below.
Liquid funds consist of cash, immediately available balances at banks and equivalent institutes and current liquid investments that mature less than three months from the acquisition date 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 continuously 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 Group 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 are effective hedge instruments. The other sub-group, “fair value option”, is not currently in use.
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 Group has chosen to initially classify in this category. Shareholdings and participations which are not subsidiaries, associated companies or joint ventures, are reported in this category. Assets in this category are valued at fair value on a current basis 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, have fixed payments and are not listed in an active market. These assets are valued at accrued acquisition value. 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 on a current basis at fair value with 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 where 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 initial 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 cost 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.
Hedging future cash flows
The derivatives used to hedge future cash flows, 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.
Fair value hedges
Holdings of shares in foreign currency that are classified as financial assets available-for-sale can from time to time be hedged through forward exchange contracts. The hedge is identified as a fair value hedge. The hedges are accounted for by corresponding the exchange rate effects that occur when the shares are translated into functional value with 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 cases where the hedge is not effective, the ineffective part is recognized directly in profit/loss for the year as a financial item.
Group property holdings are recognized as follows:
- Operations property among tangible fixed assets
- Investment property among tangible fixed assets
- Project and development properties as inventory among current assets
Properties used in the Group’s own operations consisting of office buildings, production buildings and other operations properties are recognized as buildings and land among tangible fixed assets. They are measured at cost minus accumulated depreciation and possible write-downs.
The accounting principles involved are described below under “Tangible assets”.
Investment properties are property classified as fixed assets held to earn rentals or for capital appreciation or a combination of both. Even properties under development and redevelopment which are intended to be used as investment property when completed are classified as investment property. Like operations property, investment property is recognized at cost less accumulated depreciation and possible write-downs. Other accounting principles are presented under “Tangible fixed assets”.
Information is presented regarding the fair value of investment property. The valuation is based on an internal valuation model. As a complement to this valuation annual external market valuations are obtained for a number of objects. External valuation of properties is performed every third year.
Project and development property
Project and development property is recognized under current assets and consists of undeveloped land and redeveloped tracts for future development and developed investment properties for project development, improvement and subsequent sale as well as indirect holdings. The property is expected to be realized during our normal operational cycle. Valuation is made in accordance with IAS 2, Inventories, at the lowest of either acquisition value or net sales value, see below under “Inventories”.
Tangible fixed assets
Tangible fixed assets are recognized in consolidated accounts at cost 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.
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. Any recognized values of exchanged components, or parts of components, that are not depreciated are scrapped and expensed in connection with the exchange.
Gains and losses arising from divestment or scrapping of an asset consist of the difference between the sale price and the asset’s recognized value less direct sales costs.
Write-downs are described in separate sections below.
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 this is not the case, the leasing contract is operational.
Assets rented under financial leasing agreements are recognized as assets on the consolidated balance sheet. Payment obligations associated with future leasing charges are recognized as long-term and current liabilities. Leased assets are depreciated according to plan while leasing payments are recognized as interest and amortization of liabilities.
Assets rented under operational leasing agreements have not been recognized as assets on 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 costs are only added to the acquisition value if it is likely that the future financial benefits associated with the asset will benefit the Group and the acquisition value can be reliably estimated. Additional costs include the cost of exchanging entire, or parts of, identifiable components as well as the cost of creating new components. Costs that do not meet asset criteria are recognized as costs as they occur.
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. Borrowing costs are included in the purchase price of our own developed real estate.
Depreciation is based on the original acquisition value minus the calculated residual value. Depreciation is linear over the assessed useful life of the asset.
|Buildings (operations property and investment property)||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.
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.
Balanced development costs
Development costs are primarily derived from developing IT systems and are reported as an asset on the balance sheet, if the application is technically or commercially useful and the Group is believed to have adequate resources for completing development and then applying the intangible asset. The recognized value includes all directly attributable expenses, for example for software, purchased services, personnel and, in cases where projects run for more than twelve months, loan costs. Other development costs are reported in profit/loss for the year as costs as they arise. Balanced development costs are recognized on the balance sheet at cost less accumulated depreciation and possible write-downs.
Other intangible assets
Other intangible assets refer to acquired assets recognized at cost less accumulated depreciation and write-downs. These intangible assets consist of:
- Customer relations
- Utilization rights, primarily quarries
Depreciation is linearly recognized in profit/loss for the year over the estimated useful life of the intangible asset. Goodwill and other intangible assets with an indeterminate useful life is not depreciated but is tested for impairment 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 that refer to business area Industry when repurchased by Peab 2008||20 years|
|Brands, other||5-10 years|
|Customer relations||3-5 years|
|Balanced development costs||5-10 years|
|Utilization rights||The term of the contract|
The useful life of assets are assessed annually.
Inventories are comprised of raw materials and consumables, products in progress, finished products and goods for resale. Project and development properties are recognized according to the principles for inventories but are presented as a separate item on the balance sheet under current assets.
Inventories are valued at the lowest of acquisition value and net sale value. The acquisition value of stock is calculated using the first-in, first-out method and includes expenses connected to the acquisition of the stock assets and transportation 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 sales price in the current business minus estimated costs for completion and bringing about the sale.
The recognized value of Group assets is checked every balance sheet day to assess whether there is a write-down requirement.
Impairment tests of tangible/intangible assets, investment property and participation in subsidiaries,
joint ventures, associated companies etc.
If a write-down requirements is indicated, the recovery value of the asset is estimated according to IAS 36. Moreover, the recovery value of goodwill, other intangible assets of indeterminate useful life and intangible development 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 impairment the assets are grouped at the lowest level where it is possible to identify materially independent cash flows – a so-called cash-generating unit.
Write-downs are recognized when the recognized value of an asset or a cash generating unit exceeds its 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 first allocated to goodwill, followed by a proportional write-down of the other assets in the unit (group of units).
The recovery value is the highest of fair value minus sales costs and useful value. When calculating useful value, future cash flows are discounted by a discount factor that takes into consideration the risk-free interest rate and the risks which are associated with the specific asset.
Impairment tests for financial assets
With each report the Group assesses whether there are objective indications that a financial asset or a group of financial assets are impaired. Objective indications consist in part of occurred observable circumstances which negatively impact the possibility to recover the acquisition value and in part of significant or long, drawn out reductions in the fair value of an investment in a financial asset classified as a financial asset available-for-sale.
Impaired accounts receivable are reported as the current value of anticipated future cash flows. Current receivables are, however, not discounted. Write-downs charge profit/loss 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.
A write-down is reversed if there are both indications that impairments no longer exist and assumptions which the calculation of the recovery value were based on 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 applicable, if write-down had not been made.
Write-downs of loans and receivables recognized at accrued acquisition value are reversed if a subsequent rise in the recovery value may objectively be attributed to a circumstance occurring after the 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.
Impairment tests for other assets
The principles for write-downs of inventories and deferred tax recoverables are presented in the respective sections above.
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 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/loss for the year attributable to the shareholders of the parent company and on the weighted average number of outstanding shares during the year. There have been no effects from diluting potential shares since 2012.
Defined contribution pension plans
Pension plans are only classified as defined contribution pension plans when the Group’s obligations are limited to the contributions the Group has undertaken to pay to an insurance Group 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 Group’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 2 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. There are no other defined benefit pension plans.
Pension plans with endowment insurance
There are pension plans where the Group has acquired endowment insurance which is hedged in favor of employees through pledges. The employees in question only have the right to compensation equal to the value of the endowment insurance at redemption. The endowment insurance is valued at its current fair value while the pension liability is revalued to the corresponding value of the endowment insurance. Endowment insurance and pension liability have been reported net. Provisions for special payroll tax are reserved calculated on the fair value of the endowment insurance, except in cases where the contract stipulates that the endowment insurance covers special payroll tax.
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 to employees is calculated without a discount and reported as an expense when the related services are received.
The expected costs of participations in profits and bonus payments are recognized as an accrued cost when the Group has a valid legal or informal obligation to make such payments for services rendered from employees and the obligations can be reliably estimated.
Provisions are recognized on the balance sheet when the Group has a legal or informal obligation due to events that have occurred and it is likely that financial resources will be required to meet the obligation, and a reliable estimate of the amount can be made.
Provisions for guarantees are recognized when the underlying products or services are sold. The provisions are based on historical data about the guarantees and an appraisal of the conceivable outcomes relative to the probabilities that the outcomes are associated with.
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 as quarrying is terminated.
A contingent liability is recognized in accounts when there is a possible obligation attributable to events that have 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 not changed compared to the annual report for 2016.
New IFRSs and interpretations that have not yet been applied are described above for the Group. IFRS 15 Revenue from contracts with customers will have no effect on parent company revenue accounting. IFRS 9 Financial instruments, entails new rules for writing down receivables based on anticipated credit losses. The parent company’s current receivables from Group companies fall within the area of application for impairment rules in IFRS 9. The receivables are overwhelmingly Group contributions that are settled shortly after the balance sheet date. On material grounds no reserve is reported for anticipated credit losses regarding these receivables. Otherwise IFRS 9 will not have any effect on accounting the first time it is used on 1 January 2018. The new standard IFRS 16 Leasing, does not effect the parent company since the standard is exempt from application in corporations and leasing in the parent company is insignificant.
Differences between the Group’s and parent company’s accounting principles are given below.
Classification and presentation
The parent company’s income statement and balance sheet are presented according to the structure in the Swedish Company Accounts Act. The departure from IAS 1 Presentation of financial statements, which is used in structuring the consolidated financial reports is primarily regarding presenting financial income and expenses, fixed assets, equity and provisions reported under a separate heading on the balance sheet.
Subsidiaries and joint arrangements
Participations in subsidiaries and joint arrangements are recognized in the parent company according to 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/loss as they occur.
The parent company’s financial guarantee agreements mainly consist of sureties for the benefit of subsidiaries and joint ventures. The parent company recognizes financial guarantee agreements as provisions on the balance sheet when the company has an obligation for which payment is likely to be required to settle the obligation.
Untaxed reserves including deferred tax liabilities are recognized in the parent company. In the Group accounting however, untaxed reserves are divided into deferred tax liabilities and equity.
Paid shareholder’s contributions are activated in shares and participations in the provider after taking into consideration any impairments.
Group contributions are recognized as appropriations whether or not the Group contribution has been given or received.
Fund for development costs
Amounts that are activated through internally generated development costs among intangible assets are transferred from non-restricted equity to the fund for development costs in restricted equity. The fund contracts as the activated costs are depreciated or written down. Provisions to the fund for development costs were first actualized in 2017 to develop the IT system.