Note 2 New IFRSs 2018

IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS

IFRS 15 Revenue from contracts with customers, replaces as of 2018 existing standards related to revenue recognition such as IAS 18 Revenue, IAS 11 Construction contracts and IFRIC 15 Agreements for the construction of real estate. According to IFRS 15 revenue is recognized when control over a product or service is transferred to a customer, which is a change from the current reporting standards that are based on the transfer of risks and benefits. Even if IFRS 15 entails a new method of determining how and when revenue is recognized it has not led to any material effects for the Peab Group.

Peab has chosen to apply IFRS 15 retroactively by recalculating the financial reports for 2017.

Until the end of 2017 there were differences between operative and legal reporting in business area Project Development. The differences have also been reflected in how executive management and the Board have followed up the Group on the whole. Peab applied IFRIC 15, Agreements for the construction of real estate, in legal reporting. This principle requires applying IAS 18, Revenue, for housing projects in Finland and Norway as well as our own home developments (villas) in Sweden, which meant revenue from projects was first recognized when the home is turned over. Operative and segment reporting was based on the percentage of completion. After implementing IFRS 15, our own home developments in Sweden are reported according to so-called “revenue over time”. IFRS 15 did not lead to any changes in reporting regarding housing projects in Finland and Norway compared to the current application since revenue was first recognized when the home is turned over to the buyer. After implementation of IFRS 15 segment reporting will mirror legal reporting. The differences between operative and legal reporting will therefore no longer exist after implementation of IFRS 15, for neither Project Development nor the Group as a whole.

According to IFRS 15 the sales price of the identified performance obligations in contracts with customers is divided up. Revenue is recognized when a performance obligation is met, which can be at a certain point in time or over time. IFRS 15 does not entail any material change in when the revenue is recognized or for what amount regarding Peab’s construction contract operations in business area Construction and Civil Engineering. Business area Industry recognizes revenue according to both IFRS 15 and IAS 17 Leases, but the shift to IFRS 15 does not entail any material change in the way revenue is recognized. In business area Project Development most revenue is recognized over time. Swedish tenant-owned projects are reported according to IFRS 15 over time, which is the same as previously. Contracts with tenant-owned associations are all signed at the same time, they are priced as one unit and considered one performance obligation. This means that revenue is recognized depending on the project’s level of completion based on expenses in relation to the project’s total calculated costs. Land is sold and buildings are constructed according to the contract with the tenant-owned association, which is an independent legal entity. Fore more information see note 3.

As previously, feared costs are expensed as soon as they are known. According to IFRS 15 the part of a feared loss that has not been worked-up is recognized as a provision. This is a change compared to IAS 11 where the part of a feared loss that has not been worked-up was recognized as Worked-up not invoiced revenue among current assets or Invoiced revenue not worked-up among current liabilities.

No material effects have been identified due to Peab’s recalculation to IFRS 15. As of 1 January 2017 the recalculation effected equity by SEK -40 million. The recalculation to IFRS 15 reduced net sales in 2017 by SEK 109 million to SEK 49,981 million and operating profit improved by SEK 13 million to SEK 2,418 million. Total comprehensive income in 2017 improved by SEK 10 million and therefore equity at the end of 2017 was SEK 10,332 million.

Cash flow was not affected by the recalculation but it caused some deferment within changes in working capital primarily because work-in-progress was reclassified to project and development property.

Reclassification of work-in-progress

In connection with the implementation of IFRS 15 the decision was made to incorporate the previous balance item Work-in-progress into balance item Project and development properties. Per 1 January 2017 the transferred amount was SEK 1,203 million.

Orders received and order backlog

Implementation of IFRS 15 Revenue from contracts with customers entails new disclosures demands. One of the disclosures demands refers to remaining performance obligations, more often called order backlog. In quarterly reports Peab has previously chosen to present information on orders received and order backlog in business areas Construction, Civil Engineering and Project Development. As of 2018 Industry will also present orders received and order backlog for product areas Asphalt, Construction System and part of Rentals.

IFRS 9 Financial instruments

IFRS 9 Financial instruments, replaces IAS 39 Financial instruments: Recognition and measurement, as of 1 January 2018. IFRS 9 differs from IAS 39 foremost regarding classification and valuation of financial assets and financial liabilities, write-downs of financial assets and hedge accounting. IFRS 9 allows a company to continue to apply the rules in IAS 39 for hedge accounting even after 1 January 2018 until IASB has finished its project on so-called “macro hedging”. Peab has chosen to apply all parts of IFRS 9 as of 1 January 2018. In addition, Peab has chosen to apply the exemption in IFRS 9 that permits not recalculating comparable information for previous periods. However, the changed principles for hedge accounting have not affected the Group. The other effects of IFRS 9 for Peab are described below.

Classification and valuation of financial assets and financial liabilities

Peab has holdings of unlisted funds that under IAS 39 have been classified as “Financial assets available-for-sale” which means that the funds have been valued at fair value via other comprehensive income. The funds do not meet the criteria in IFRS 9 for equity instruments and cash flow from the funds does not consist solely of payments in capital and interest. The funds will therefore be valued at fair value via the income statement under IFRS 9. The amount of SEK 4 million in “Fair value reserve” that refers to the funds on 31 December 2017 were transferred to profit brought forward in the opening balance on 1 January 2018.

Peab also has holdings in unlisted shares and participations under IAS 39 valued at acquisition method less any write-downs since fair value could not be reliably determined. However, under IFRS 9 these shares must be valued at fair value. When transitioning to IFRS 9, fair values were re-examined and the recognized values corresponded more or less to fair value. Future changes in values will be recognized in profit/loss for the year.

IFRS 9 has not had any effect on the recognition of Peab’s financial liabilities.

The table below shows how financial assets and financial liabilities were classified under IAS 39 per 2017-12-31 as well as the new classification under IFRS 9 per 2018-01-01. For more information see note 34 Valuation of financial assets and financial liabilities at fair value.

Group, MSEK Original classification according to IAS 39 New classification according to IFRS 9 Original recognized value according to IAS 39 New recognized value according to IFRS 9
Koncernen, Mkr Ursprunglig klassificering enligt IAS 39 Ny klassificering enligt IFRS 9 Ursprungligt redovisat värde enligt IAS 39 Nytt redovisat värde enligt IFRS 9
Financial assets Finansiella tillgångar
Other securities held as fixed assets Andra långfristiga värdepapper Financial assets availabel-for-sale Valued at fair value via the income statement Finansiella tillgångar som kan säljas Värderade till verkligt värde via resultaträkningen 80 80
Interest-bearing long-term receivables Räntebärande långfristiga fordringar Accounts and loan receivables Accrued acquisition value Kund- och lånefordringar Upplupet anskaffningsvärde 1,520 1,515
Other long-term receivables Andra långfristiga fordringar Accounts and loan receivables Accrued acquisition value Kund- och lånefordringar Upplupet anskaffningsvärde 108 108
Other long-term receivables Andra långfristiga fordringar Derivatives used in hedge accounting Derivatives used in hedge accounting Derivat som används i säkringsredovisningen Derivat som används i säkringsredovisnignen 2 2
Accounts receivable Kundfordringar Accounts and loan receivables Accrued acquisition value Kund- och lånefordringar Upplupet anskaffningsvärde 8,709 8,704
Interest-bearing current receivables Räntebärande kortfristiga fordringar Accounts and loan receivables Accrued acquisition value Kund- och lånefordringar Upplupet anskaffningsvärde 411 411
Prepaid expenses and accrued income Förutbetalda kostnader och upplupna intäkter Accounts and loan receivables Accrued acquisition value Kund- och lånefordringar Upplupet anskaffningsvärde 28 28
Other current receivables Övriga kortfristiga fordringar Financial assets valued at fair value via the income statement Valued at fair value via the income statement Finansiella tillgångar värderade till verkligt värde via resultaträkningen Värderade till verkligt värde via resultaträkningen 4 4
Other current receivables Övriga kortfristiga fordringar Accounts and loan receivables Accrued acquisition value Kund- och lånefordringar Upplupet anskaffningsvärde 96 96
Liquid funds Likvida medel Accounts and loan receivables Accrued acquisition value Kund- och lånefordringar Upplupet anskaffningsvärde 595 595
Total financial assets Summa finansiella tillgångar 11,553 11,543
Financial liabilities Finansiella skulder    
Interest-bearing long-term liabilities Räntebärande långfristiga skulder Other financial liabilities Other financial liabilities Övriga finansiella skulder Övriga finansiella skulder 2,573 2,573
Other long-term liabilities Övriga långfristiga skulder Derivatives used in hedge accounting Derivatives used in hedge accounting Derivat som används i säkringsredovisningen Derivat som används i säkringsredovisningen 44 44
Other long-term liabilities Övriga långfristiga skulder Other financial liabilities Other financial liabilities Övriga finansiella skulder Övriga finansiella skulder 136 136
Other long-term liabilities Övriga långfristiga skulder Financial liabilities valued at fair value via the income statement Valued at fair value via the income statement Finansiella skulder värderade till verkligt värde via resultaträkningen Värderade till verkligt värde via resultaträkningen 23 23
Interest-bearing current liabilities Räntebärande kortfristiga skulder Other financial liabilities Other financial liabilities Övriga finansiella skulder Övriga finansiella skulder 1,169 1,169
Accounts payable Leverantörsskulder Other financial liabilities Other financial liabilities Övriga finansiella skulder Övriga finansiella skulder 4,882 4,882
Accrued expenses and deferred income Upplupna kostnader och förutbetalda intäkter Other financial liabilities Other financial liabilities Övriga finansiella skulder Övriga finansiella skulder 14 14
Other current liabilities Övriga kortfristiga skulder Derivatives used in hedge accounting Derivatives used in hedge accounting Derivat som används i säkringsredovisningen Derivat som används i säkringsredovisningen 2 2
Other current liabilities Övriga kortfristiga skulder Other financial liabilities Other financial liabilities Övriga finansiella skulder Övriga finansiella skulder 141 141
Other current liabilities Övriga kortfristiga skulder Financial liabilities valued at fair value via the income statement Valued at fair value via the income statement Finansiella skulder värderade till verkligt värde via resultaträkningen Värderade till verkligt värde via resultaträkningen 11 11
Total financial liabilities Summa finansiella skulder 8,995 8,995

Write-downs of financial assets

IFRS 9 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. Historically Peab has only had small credit losses in current operations. Implementation of IFRS 9 will therefore only raise Group reserves for credit losses to a certain extent. The loss reserve per item affected as of 1 January 2018 is shown in the table below. The increase in loss reserves due to the transition to IFRS 9 has been charged to profit brought forward in the opening balance on 1 January 2018 by SEK -7 million net after reductions for deferred tax.

Group, MSEK
Koncernen, Mkr
Loss reserve per 31 December 2017 according to IAS 39 Förlustreserv per 31 december 2017 enligt IAS 39 46
Further write-downs per 1 January 2018 for: Ytterligare nedskrivning per 1 januari 2018 för:
Accounts receivable and other receivables Kundfordringar och andra fordringar 5
Interest-bearing long-term receivables Långfristiga räntebärande fordringar 5
Loss reserve per 1 January 2018 according to IFRS 9 Förlustreserv per 1 januari 2018 enligt IFRS 9 56

Report on group balance sheet in summary, 2017-01-01

Group, MSEK Reported balance sheet Reclassification work-in-progress Adjustment IFRS 15 Adjusted balance sheet
2016-12-31 2017-01-01 2017-01-01 2017-01-01
Koncernen, Mkr Rapporterad balansräkning Omklassificering pågående arbeten Justering IFRS 15 Justerad balansräkning
2016-12-31 2017-01-01 2017-01-01 2017-01-01
Assets Tillgångar
Intangible assets Immateriella anläggningstillgångar 2,036 2,036
Tangible assets Materiella anläggningstillgångar 4,277 4,277
Interest-bearing long-term receivables Räntebärande långfristiga fordringar 1,762 1,762
Other financial fixed assets Övriga finansiella tillgångar 1,757 1,757
Deferred tax recoverables Uppskjuten skattefordran 69 69
Total fixed assets Summa anläggningstillgångar 9,901 – – 9,901
Project and development properties Projekt- och exploateringsfastigheter 7,007 1,203 -292 7,918
Inventories Varulager 364 364
Work-in-progress Pågående arbete 1,203 -1,203 –
Interest-bearing current receivables Räntebärande kortfristiga fordringar 336 336
Other current receivables Övriga kortfristiga fordringar 11,736 32 11,768
Liquid funds Likvida medel 1,062 1,062
Total current assets Summa omsättningstillgångar 21,708 – -260 21,448
Total assets Summa tillgångar 31,609 – -260 31,349
Equity and liabilities Eget kapital och skulder
Equity Eget kapital 9,380 – -40 9,340
Liabilities Skulder
Interest-bearing long-term liabilities Räntebärande långfristiga skulder 2,728 2,728
Deferred tax liabilities Uppskjuten skatteskuld 372 -12 360
Other long-term liabilities Övriga långfristiga skulder 776 776
Total long-term liabilities Summa långfristiga skulder 3,876 – -12 3,864
Interest-bearing current liabilities Räntebärande kortfristiga skulder 2,294 2,294
Other current liabilities Övriga kortfristiga skulder 16,059 -208 15,851
Total current liabilities Summa kortfristiga skulder 18,353 – -208 18,145
Total liabilities Summa skulder 22,229 – -220 22,009
Total equity and liabilities Summa eget kapital och skulder 31,609 – -260 31,349

Report on group income statement, Jan-dec 2017

Group, MSEK Reported income statement Adjustment IFRS 15 Adjusted income statement
Koncernen, Mkr Rapporterad resultaträkning Justering IFRS 15 Justerad resultaträkning
Net sales Nettoomsättning 50,090 -109 49,981
Production costs Kostnader för produktion -45,345 116 -45,229
Gross profit Bruttoresultat 4,745 7 4,752
Sales and administrative expenses Försäljnings- och administrationskostnader -2,620 6 -2,614
Other operating income Övriga rörelseintäkter 305 305
Other operating costs Övriga rörelsekostnader -25 -25
Operating profit Rörelseresultat 2,405 13 2,418
Financial income Finansiella intäkter 191 191
Financial expenses Finansiella kostnader -151 -151
Net finance Finansnetto 40 – 40
Pre-tax profit Resultat före skatt 2,445 13 2,458
Tax Skatt -388 -3 -391
Profit for the year Årets resultat 2,057 10 2,067
Profit for the year attributable to: Årets resultat hänförligt till:
Shareholders in parent company Moderbolagets ägare 2,057 10 2,067
Non-controlling interests Innehav utan bestämmande inflytande 0 0
Profit for the year Årets resultat 2,057 10 2,067

Report on group balance sheet in summary, 2017-12-31 respectively 2018-01-01

Group, MSEK Reported balance sheet Reclassification work-in-progress Adjustment IFRS 15 Adjusted balance sheet Adjustment IFRS 9 Adjusted balance sheet
2017-12-31 2017-12-31 2017-12-31 2017-12-31 2018-01-01 2018-01-01
Koncernen, Mkr Rapporterad balansräkning Omklassificering pågående arbete Justering IFRS 15 Justerad balansräkning Justering IFRS 9 Justerad balansräkning
2017-12-31 2017-12-31 2017-12-31 2017-12-31 2018-01-01 2018-01-01
Assets Tillgångar
Intangible assets Immateriella anläggningstillgångar 2,167 2,167 2,167
Tangible assets Materiella anläggningstillgångar 5,508 5,508 5,508
Investment property Förvaltningsfastigheter 871 871 871
Interest-bearing long-term receivables Räntebärande långfristiga fordringar 1,520 1,520 -5 1,515
Other financial fixed assets Övriga finansiella tillgångar 1,147 1,147 1,147
Deferred tax recoverables Uppskjuten skattefordran 15 -2 13 13
Total fixed assets Summa anläggningstillgångar 11,228 – -2 11,226 -5 11,221
Project and development properties Projekt- och exploateringsfastigheter 6,439 1,349 -176 7,612 7,612
Inventories Varulager 399 399 399
Work-in-progress Pågående arbete 1,349 -1,349 – –
Interest-bearing current receivables Räntebärande kortfristiga fordringar 411 411 411
Other current receivables Övriga kortfristiga fordringar 11,855 27 11,882 -5 11,877
Liquid funds Likvida medel 595 595 595
Total current assets Summa omsättningstillgångar 21,048 – -149 20,899 -5 20,894
Total assets Summa tillgångar 32,276 – -151 32,125 -10 32,115
Equity and liabilities Eget kapital och skulder
Equity Eget kapital 10,362 – -30 10,332 -7 10,325
Liabilities Skulder
Interest-bearing long-term liabilities Räntebärande långfristiga skulder 2,573 2,573 2,573
Deferred tax liabilities Uppskjuten skatteskuld 211 -10 201 -3 198
Other long-term liabilities Övriga långfristiga skulder 840 840 840
Total long-term liabilities Summa långfristiga skulder 3,624 – -10 3,614 -3 3,611
Interest-bearing current liabilities Räntebärande kortfristiga skulder 1,169 1,169 1,169
Other current liabilities Övriga kortfristiga skulder 17,121 -111 17,010 17,010
Total current liabilities Summa kortfristiga skulder 18,290 – -111 18,179 – 18,179
Total liabilities Summa skulder 21,914 – -121 21,793 -3 21,790
Total equity and liabilities Summa eget kapital och skulder 32,276 – -151 32,125 -10 32,115