Net sales and profit
Translated comparative figures after changed accounting principles
As of fiscal year 2020 Peab consolidates projects with Swedish tenant-owned housing associations at the time the final homebuyers take possession of their apartments. This means that Peab recognizes the projects on the balance sheet as work-in-progress under the asset item project development properties, and as interest-bearing liabilities. Revenue and costs for the projects will be recognized as homebuyers take possession of their apartments. In conjuncture with this change Peab now recognizes all our own developed housing projects in Sweden, Norway and Finland according to the completion method. According to previous principles Peab did not consolidate projects with Swedish tenant-owned housing associations from the time land transfer and turnkey contracts were signed, and revenue and expenses were recognized over time as the projects were successively completed.
To create clarity and enable the market to follow Peab’s development regarding our own housing developments, in segment reporting revenue and expenses will continue to be 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-owned housing associations and own single homes, Norwegian condominiums and share housing and Finnish residential limited companies. Revenue and expenses for our own housing developments 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. Financial key ratios such as capital employed, the equity/assets ratio, net debt and the debt/equity ratio as well as earnings per share are presented in segment reporting with consideration taken to the above prerequisites. Net debt in segment reporting includes the unsold portion of housing projects. Segment reporting is also the model Peab uses for its internal steering.
In conjuncture with changing segment reporting for housing projects Peab has also changed the segment reporting of additional leases according to IFRS 16 (previously operational leases). The change means that leasing fees are recognized in operating profit as a cost linearly over the leasing period in segment reporting for all business areas and application of IFRS 16 for additional leases is only given as a total for the Group.
In the following report amounts and comments are based on segment reporting if not otherwise specified. All comparative figures for 2019 are translated if not otherwise specified. For more information concerning translated comparative figures see note 1 as well as www.peab.com/ifrs.
Annehem Fastigheter
In February 2020 Peab’s Board proposed, in addition to the ordinary dividend, an extra distribution of all the shares in a newly founded company, Annehem Fastigheter, containing all Peab’s wholly owned, fully developed commercial properties. As a result of the spread of the coronavirus, its effects on external circumstances and on financial markets, Peab’s Board decided to withdraw the proposal to the AGM. The Board intends to summon an extraordinary General Meeting to decide on distribution of the real estate company when the situation has stabilized and conditions are more favorable. Annehem Fastigheter is therefore reported as a separate unit outside of segment reporting. Previously Annehem Fastigheter was included in business area Project Development and the unit Property Development. The change applies per January 1, 2020 and no comparative figures have been translated. For more information, see the section Annehem Fastigheter.
Acquisition of Nordic paving and mineral aggregates operations
On July 4, 2019 Peab signed a contract to acquire YIT’s paving and mineral aggregates operations in the Nordic region. The transaction was conditional on approval from competition authorities as well as the fulfillment of certain contractual conditions. At the end of March 2020 the transaction was approved by the competition authorities and the acquisition was finalized on April 1, 2020. Through the acquisition Peab expands its presence in Sweden, Norway and Finland and become established in the paving business in Denmark. The operations are consolidated into the business area Industry as of April 1, 2020.
The transaction is a combination of an asset deal and a share purchase. The purchase price (including redemption of shareholder loans to the seller) amounted to SEK 3,184 million for a debt-free business and is fully financed. The acquired business had net sales of SEK 5,878 million with an adjusted EBITDA of SEK 282 million in 2019.
For more information see the sections Business area Industry, Other information and note 2.
Net sales and profit
April – June 2020
Group net sales for the second quarter 2020 increased by seven percent and amounted to SEK 15,518 million (14,527), of which SEK 1,741 million are related to the acquisition of paving and mineral aggregates operations. Not including the acquired operations net sales contracted by five percent. Net sales in business area Construction decreased by eight percent while net sales in business area Civil Engineering increased by two percent compared to second quarter 2019. Business area Industry presented an increase in net sales of 45 percent. Not including the acquired operations net sales contracted in business area Industry by three percent. Net sales in business area Project Development decreased compared to the second quarter last year. The decrease stemmed from both Property Development and Housing Development. Of the quarter’s net sales SEK 4,390 million (2,506) were attributable to sales and production outside Sweden. The increase is primarily due to operations acquired within business area Industry.
Operating profit for the second quarter 2020 amounted to SEK 661 million (784). Not including the acquired operations operating profit was SEK 620 million. The second quarter 2019 included an income contribution of SEK 170 million from the divestiture of property in the partially owned company Acturum. The operating margin was 4.3 percent (5.4). Not including the acquired operations the operating margin was 4.6 percent.
The acquisition of the paving and mineral aggregates operations was finalized on April 1 2020, which meant the acquisition occurred when the season started. The underlying operations in the acquired companies contributed by SEK 149 million in the second quarter. Depreciation on surplus values for, among other things, customer contracts in the order backlog taken over and fixed assets amounted to SEK -63 million. Depreciation on surplus values for customer contracts in the order backlog taken over will be high throughout 2020 and part of 2021. In addition, acquisition costs and transfer tax in Finland have charged profits in total by SEK -45 million. All in all operating profit for the second quarter was positively affected by SEK 41 million related to the acquired operations.
In business area Construction operating margin was unchanged at 2.6 percent and in business area Civil Engineering the operating margin was 3.7 percent (3.6). Business area Industry showed a margin of 5.7 percent (7.0). Not including the acquired operations the operating margin improved to 7.3 percent. The improvement is mainly due to an increase in higher operating profit in Paving and Mineral aggregates. Operating profit in Project Development contracted in the second quarter. Property Development was charged by SEK -32 million related to Ängelholm Airport, of which SEK -20 million refers to writing down goodwill. During the second quarter 2019 an income contribution of SEK 170 million from the sales of property in the partially owned company Acturum was included in Property Development. The operating profit in Housing Development in Project Development improved and the margin was 8.3 percent (7.2).
Depreciation and write-downs for the second quarter were SEK -392 million (-270), of which SEK -137 million is related to acquired business. Net financial items amounted to SEK 0 million (-2) of which net interest was SEK -22 million (-16). The higher net interest is primarily due to higher debt as a consequence of acquisitions made. Pre-tax profit was SEK 661 million (782). Profit for the second quarter amounted to SEK 508 million (661).
Operating profit and operating margin, per quarter
January – June 2020
Group net sales for the first half-year 2020 amounted to SEK 27,156 million (26,190), which was an increase of four percent. After adjustments for acquired and divested units net sales decreased by three percent.
Net sales in business area Construction reduced by five percent and the decrease was related to our Swedish operations while net sales increased in our Norwegian and Finnish operations. In business area Civil Engineering net sales were unchanged compared to same period last year. Net sales in business area Industry grew by 28 percent. Not including the acquired operations net sales in business area Industry contracted by two percent. The reduction stems from Rentals and Construction System. In business area Project Development net sales shrunk in both Property Development and Housing Development.
Of the period’s net sales SEK 7,041 million (4,431) were attributable to sales and production outside Sweden. Most of the increase is related to the acquired paving and mineral aggregates operations in business area Industry.
Operating profit for the first half-year 2020 amounted to SEK 872 million (1,050). Not including the acquired operations the operating profit was SEK 841 million. The comparable period included an income contribution of SEK 170 million from the divestiture of property in the partially owned company Acturum. The operating margin was 3.2 percent (4.0). Not including the acquired operations the operating margin was 3.3 percent. The operating margin for the latest rolling 12 month period was 4.3 percent compared to 4.7 percent for the entire year 2019.
The acquisition of the paving and mineral aggregates operations was finalized on April 1 2020, which meant the acquisition occurred when the season started. The underlying operations in the acquired companies contributed by SEK 149 million. Depreciation on surplus values for, among other things, customer contracts in the order backlog taken over and fixed assets amounted to SEK -63 million. Depreciation on surplus values for customer contracts in the order backlog taken over will be high throughout 2020 and part of 2021. In addition, acquisition costs and transfer tax in Finland have charged profits in total by SEK -55 million. All in all operating profit for the period was positively affected by SEK 31 million related to the acquired operations. Because the acquired operations have a very clear seasonal pattern the first quarter is characterized by 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 and the underlying operations would have had an accumulated operating profit per June 30, 2020 of SEK -148 million.
The operating margin in business area Construction was unchanged with 2.4 percent during the first half-year 2020. In business area Civil Engineering the operating margin was 2.7 percent (2.5). The operating margin in business area Industry was 3.1 percent (3.6). Not including the acquired operations the operating margin was 3.5 percent. The lower operating margin in Industry is due to a lower margin in Rentals and Construction System. The operating margin in Project Development was lower than the corresponding period last year when an income contribution of SEK 170 million from Acturum had a positive effect on Property Development. During January-June 2020 some operations in Property Development were affected negatively by SEK 45 million due to the corona pandemic, where SEK 35 million was related to Ängelholm Airport, of which SEK 20 million refers to writing down goodwill. The operating profit in Housing Development increased during the first half-year and the operating margin improved to 8.2 percent (7.0).
Eliminations and reversal of internal profit in our own projects have affected operating profit by SEK -10 million (-55). Last year several of our own major office complex projects were under construction. Elimination is reversed in connection with the external divestment of a project.
Depreciation and write-downs for the period were SEK -658 million (-518), of which SEK -137 million is related to acquired business.
Net financial items amounted to SEK -70 million (8), of which net interest amounted to SEK -25 million (-28). Net financial items included currency exchange rate differences of SEK -69 million (15). Currency exchange rate differences have for the most part occurred in accounting as a revaluation effect on receivables in subsidiaries in Norway and Finland, and have no effect on cash flow.
Pre-tax profit was SEK 802 million (1,058).
Profit for the period was SEK 629 million (889).
Seasonal variations
Group operations, particularly in Industry and Civil Engineering, are affected by fluctuations that come with the cold weather during the winter half of the year. Normally the first quarter is weaker than the rest of the year.