Group business is divided into operating segments based on how the company’s highest decision makers, i.e. executive management and the Board of Directors, follow the business. Peab believes segment reporting best describes Peab’s business regarding internal steering and risk profile for both the business areas and the Group as a whole. The Group is reported in the four business areas Construction, Civil Engineering, Industry and Project Development. The business areas correspond to operating segments.

As of the financial year 2020 Peab consolidates according to IFRS projects with Swedish tenant-owner associations until the time the final homebuyers take over their apartments. This means that projects are reported on the balance sheet as work-in-progress in the asset item project and development property and as interest-bearing liabilities (project financing). Revenue and costs for the projects are recognized as homebuyers take over their homes. As a result of the change Peab recognizes all own housing development projects in Sweden, Norway and Finland according to the completion method.

To create clarity and enable the market to follow Peab’s development regarding our own housing development projects, in segment reporting revenue and expenses are recognized over time as the projects are successively completed. This applies to the business area Project Development and the unit Housing Development and refers to Swedish tenant-​owner associations and our own single homes, Norwegian condominiums and share housing as well as Finnish residential limited companies. Revenue and expenses for our own housing development projects in Norway and Finland along with our own single homes in Sweden were previously recognized at one point in time in segment reporting as well.

As of the January 1, 2020 in segment reporting leasing fees for all business areas are recognized linearly over the leasing period for additional leasing contracts according to IFRS 16 (previously operational leasing contracts). IFRS 16, Leases is applied in the consolidated accounts according to IFRS only as a total for the Group.

Financial key ratios such as capital employed, balance sheet total, equity, equity/assets ratio, net debt, debt/equity ratio and cash flow before financing are reported in segment reporting taking into consideration the above prerequisites. Net debt according to segment reporting includes the unsold portion of housing projects in ongoing production. For more information regarding accounting principles and important estimates and assessments, see note 1 and note 2.

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 and return on 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.

Operating segments

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. Customers are in both the private and public sectors. Operations are run through thirteen regions in Sweden, three in Norway and two in Finland. There are three specialized housing production units located in Stockholm, Gothenburg and the Öresund region. Construction maintenance operations are run in a nationwide organization in Sweden focused on the big city regions. 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, foundation works 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 and Norway. Customers are the Swedish Transport Administration, municipalities and local businesses.
• Industry: Business area Industry offers everything from mineral aggregates, concrete, paving and temporary electricity to prefabricated concrete elements. Industry also assists with crane and machine rental, distribution of binder to the concrete industry, transportation as well as recycles production waste and excavation soil. The business is run in six product areas; Mineral aggregates, Paving, Concrete, Transportation and Machines, Rentals and Construction System. All of them operate 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 development of housing as well as commercial property and public buildings in Sweden, Norway and Finland. The business is run in two units, 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 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 (development, ownership and management of commercial property and homes), Tornet Bostadsproduktion AB (development, construction and ownership of rentals), Fastighets AB ML4 (ownership and management of the research facility Max IV in Lund), Skiab Invest AB (development, own and manage property in the Scandinavian mountains) and Point Hyllie Holding AB (ownership and management of the office building The Point and hotel property Värdshuset 5). Projects in wholly owned subsidiaries consist of a large number of holdings that include everything from land for development where zoning is being worked out to completed projects ready for divestiture. 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 participations in partly owned companies.

Other operations are reported under Group functions and consist of central companies and Group functions.

Comments on the tables

Group net sales according to segment reporting increased during 2021 by five percent to SEK 60,026 million (57,417). Of the net sales SEK 17,298 million (17,005) were attributable to sales and production outside Sweden. Operating profit for 2021 according to segment reporting amounted to SEK 3,098 million (3,541). Last year included the effect of the distribution of Annehem Fastigheter by SEK 952 million, of which SEK 896 million was recognized in business area Project Development and SEK 56 million in Group functions. Operating profit for 2021 includes the repayment of AGS premiums of SEK 179 million recognized in Group functions. The operating margin for the Group was 5.2 percent (6.2). Excluding the effect of the distribution of Annehem Fastigheter the operating margin in 2020 was 4.5 percent.

Net sales in business area Construction were unchanged compared to last year and the operating margin improved to 2.6 percent (2.5). Net sales in business area Civil Engineering increased by ten percent and the operating margin improved to 3.3 percent (3.0). Net sales in business area Industry were largely unchanged compared to last year. Operating profit was lower in business area Industry compared to last year and the operating margin was 5.0 percent (5.9). Peab acquired YIT’s Nordic paving and mineral aggregates operations on April 1, 2020. The acquired operations have a very clear seasonal pattern which means the first quarter carries considerable deficits since the season starts in the second quarter. If the acquisition had taken place on January 1, 2020 profit in the first quarter would have been affected by SEK -297 million. In business area Project Development net sales increased by 27 percent and the increase is primarily due to Housing Development. Operating profit in Project Development was lower compared to 2020 but excluding the effect of the distribution of Annehem Fastigheter by SEK 896 million in Property Development in 2020, operating profit improved. A strong housing market in all three countries contributed to a higher operating profit in Housing Development and the operating margin improved to 11.2 percent (9.6).

Geographic areas

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. The table below shows the amounts allocated per geographic region according to IFRS.