Note 5 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.
IFRS 15 Revenue from contracts with customers, has as of 2018 replaced previous standards related to revenue recognition 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. IFRS 15 has not entailed any material change in when, or for what amount, revenue is recognized regarding Peab’s construction contracts in business areas Construction and Civil Engineering. Business area Industry recognizes revenue according to both IFRS 15 and IAS 17 but the changeover to IFRS 15 has not entailed any material change in the way revenue is recognized. Business area Project Development recognizes most of its revenue as revenue over time. Swedish tenant-owned housing projects will continue to be recognized as previously through revenue over time while our own home developments in Sweden are now recognized according to revenue over time due to the implementation of IFRS 15. IFRS 15 has not led to any changes in recognition regarding housing projects in Finland and Norway since revenue is first recognized when the home is turned over to the buyer. After implementation of IFRS 15 segment reporting mirrors legal reporting. For more information regarding accounting principles as well as important estimates and assessments, see note 1 and note 3.
Business area Construction recognizes net sales and profit referring to the construction contract part of our own housing developments, rental project developments and other property development projects to business area Project Development. Recognition takes place over time as the project is completed. Net sales for both the developer part and the construction contract part of our own housing developments are recognized in business area Project Development. The recognized profit/loss consists of the profit/loss in the developer part recognized over time. The underlying sales value of property projects on our own balance sheet, recognized as project and development property, that are sold in the form of a company via shares is recognized as net sales and the recognized value on the balance sheet is recognized as an expense. When property projects recognized as operations property or investment property are divested the net effect on profit/loss is recognized as other operating income or other operating cost. 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/loss referring to the construction contract 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 assets 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 have an interest in the realization of the transactions.
Segments’ operating profit includes directly attributable items and items that can be reasonably and reliably allocated to a segment. Non-allocated items consist of financial income and expenses, and taxes.
The Group consists of the following operating segments:
- Construction: Business area Construction comprises Group resources in construction related services. Construction works for both external and internal customers, primarily business area Project Development. Operations are run through twelve regions in Sweden, three in Norway and two in Finland. There are three specialized housing production regions located in Stockholm, Gothenburg and the Öresund region respectively. Construction maintenance operations are run in a nationwide region in Sweden focused on the big city areas. The other regions perform all kinds of construction projects within their geographic area.
- Civil Engineering: Business area Civil Engineering works with the construction of large 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 six product areas; Asphalt, Concrete, Gravel and Rock, Transportation and Machines, Rentals and Construction System. 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, management and divestiture of commercial properties. The business includes projects in wholly owned and partly owned companies. Included in partly owned companies are among others Peab’s holdings in Fastighets AB Centur (ownership, management and development of commercial property and homes), Tornet Bostadsproduktion AB (conctruction and ownership of rentals), Fastighets AB ML4 (ownership and management of the research facility Max IV in Lund) and Point Hyllie Holding AB (ownership and development of the office building The Point as well as ownership and management of the hotel property Värdshuset 5). Projects in wholly owned subsidiaries consist 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 2018‚ MSEK||Construction||Civil Engineering||Industry||Project Development||Group functions||Elimination||Group|
|Koncernen 2018. Mkr||Bygg||Anläggning||Industri||Projekt-utveckling||Koncern- gemensamt||Eliminering||Koncernen|
|External sales||Extern försäljning||22,850||12,032||9,474||7,775||102||52,233|
|Internal sales||Intern försäljning||5,490||1,713||3,810||69||941||-12,023||–|
|Total revenue||Summa intäkter||28,340||13,745||13,284||7,844||1,043||-12,023||52,233|
|Other operating income||Övriga rörelseintäkter||12||68||81||35||1||19||216|
|Other operating costs||Övriga rörelsekostnader||-2||-6||-9||-25||-5||-47|
|Operating margin, %||Rörelsemarginal, %||2.4||3.0||7.4||10.0||4.9|
|Financial income||Finansiella intäkter||100|
|Financial expenses||Finansiella kostnader||-155|
|Pre-tax profit||Resultat före skatt||2,518|
|Profit for the year||Årets resultat||2,100|
|Write-downs in operating profit||Nedskrivningar inom rörelseresultatet||-5||-29||-34|
|Other significant non-cash items||Övriga väsentliga icke kassaflödespåverkande poster||9||6||-91||119||12||19||74|
|Capital employed on 31 December||Sysselsatt kapital per 31 december||-1,215||192||6,432||12,984||-33 1)||18,360|
|Group 2017‚ MSEK||Construction||Civil Engineering||Industry||Project Development||Group functions||Elimination||Group|
|Koncernen 2017. Mkr||Bygg||Anläggning||Industri||Projekt-utveckling||Koncern- gemensamt||Eliminering||Koncernen|
|External sales||Extern försäljning||22,073||10,319||9,206||8,282||101||49,981|
|Internal sales||Intern försäljning||4,653||1,506||3,555||61||892||-10,667||–|
|Total revenue||Summa intäkter||26,726||11,825||12,761||8,343||993||-10,667||49,981|
|Other operating income||Övriga rörelseintäkter||15||42||68||167||9||4||305|
|Other operating costs||Övriga rörelsekostnader||-1||-5||-19||0||0||-25|
|Operating margin, %||Rörelsemarginal, %||2.3||3.2||6.8||9.6||4.8|
|Financial income||Finansiella intäkter||191|
|Financial expenses||Finansiella kostnader||-151|
|Pre-tax profit||Resultat före skatt||2,458|
|Profit for the year||Årets resultat||2,067|
|Write-downs in operating profit||Nedskrivningar inom rörelseresultatet||-1||-8||-33||-11||-53|
|Other significant non-cash items||Övriga väsentliga icke kassaflödespåverkande poster||104||-7||5||-98||8||12|
|Capital employed on 31 December||Sysselsatt kapital per 31 december||-856||200||5,781||9,986||-1,037 1)||14,074|
1) Non-allocated capital employed.
Comments on the tables
A favorable construction and civil engineering market has had a positive effect on the business areas in both 2018 and 2017. In business areas Construction and Civil engneering, which perform contract work, net sales increased and margin levels were stable in 2018. Net sales and operating profit increased in business area Industry compared to 2017 and the operating margin improved. Net sales and operating profit was lower in business area Project Development in 2018 compared to 2017. Fewer production starts in Sweden, particularly around Stockholm, reduced both net sales and operating profit in Housing Development, and in addition income recognition from projects in Norway and Finland was lower. Net sales in Property Development contracted but operating profit improved through higher profit contributions from wholly owned and partially owned companies. In January 2017 Peab sold a number of assets in Arenastaden and Ulriksdal in Solna to Fabege which affected net sales by SEK 577 million. The transactions had no net effect on profit/loss since the divestitures in Ulriksdal had a positive effect on operating profit by SEK 180 million and the sales of assets in Arenastaden had a negative effect of SEK 180 million. In 2017 Property Development also included capital gains of SEK 75 million from the divestiture of Peab’s share in joint venture companies to Catena.
Income from external customers is related to the countries customers are located in. The information concerning intangible and tangible assets is divided into the countries the assets are located in.
|External sales||Extern försäljning||41,936||40,892||5,880||5,743||4,398||3,331||19||15||52,233||49,981|
|Intangible and tangible assets and investment property||Immateriella- och materiella anläggningstillgångar samt förvaltningsfastigheter||7,046||7,334||594||586||939||626||1||–||8,580||8,546|
|Parent company, MSEK||2018||2017||2018||2017||2018||2017||2018||2017|