Net sales and profit
New accounting principles for income
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. Up until the end of 2017 there were differences between operative and legal accounting in Project Development. This difference was also reflected in the way executive management and the Board followed up the Group as a whole. The operative and segment accounting was based on the percentage of completion. Swedish tenant-owned housing projects will continue to be recognized as previously through revenue over time while our own home developments in Sweden will, as of the implementation of IFRS 15, change over to revenue over time. IFRS 15 will not lead to any changes in reporting regarding housing projects in Finland and Norway compared to the current application since revenue is first recognized when the home is handed over to the buyer. As of implementation of IFRS 15 segment reporting mirrors legal reporting. The differences between operative and legal reporting therefore no longer exist for either business area Project Development or the Group as a whole. For business area Project Development this has entailed recalculating comparable figures in Housing Development. Peab has chosen to apply IFRS 15 retroactively by recalculating the financial reports for 2017. The recalculations have not had any material effect on either business area Project Development or the Group as a whole. All comparable figures for 2017 and 2016 in subsequent reports are recalculated if not otherwise noted. For more information regarding IFRS 15 and comparable figures please see note 1 or www.peab.com/ifrs.
Net sales and operating profit
July – September 2018
Group net sales for the third quarter 2018 increased by seven percent and amounted to SEK 12,445 million (11,595).
Net sales in business area Construction increased by eight percent spread over all the business area’s countries. Net sales in business area Civil Engineering increased by 17 percent and stemmed from Local market and Infrastructure. Business area Industry presented an increase in net sales of nine percent spread over all product areas except Transportation and Machines where net sales shrunk. Net sales in business area Project Development were slightly lower compared to the third quarter last year. Net sales increased in Property Development compared to the same period last year while net sales in Housing Development contracted by seven percent due to slowdown in the housing market.
Of the quarter’s net sales SEK 2,585 million (2,408) were attributable to sales and production outside Sweden.
Operating profit for the third quarter 2018 amounted to SEK 743 million (714) and the operating margin was 6.0 percent (6.2). In business area Construction operating margin was 2.3 percent (2.1) and in business area Civil Engineering the operating margin was 3.0 percent (3.2). Business area Industry showed an operating margin of 9.5 percent (10.0). Operating profit in business area Project Development contracted compared to the third quarter last year as a result of lower operating profit in Housing Development. The operating margin in Housing Development amounted to 7.6 percent (9.9). The increase in the operating profit in Property Development is due to improved profit in both wholly owned and partially owned companies along with capital gains from property divestitures.
Depreciation and write-downs for the third quarter were SEK -258 million (-261).
Net financial items amounted to SEK 7 million (-9) of which net interest was SEK -14 million (-13).
Pre-tax profit was SEK 750 million (705).
Profit for the third quarter improved to SEK 604 million (585).
Operating profit and operating margin, per quarter
January – September 2018
Group net sales for the period January-September 2018 amounted to SEK 37,388 million (35,491), which was an increase of five percent. After adjustments for acquired and divested units net sales increased by four percent.
A continued favorable construction and civil engineering market has had a positive effect on all business areas during the period. Net sales in business area Construction increased by six percent spread over all three countries. Net sales in business area Civil Engineering increased by 19 percent and activity increased in all product areas. Business area Industry presented an increase in net sales of four percent spread over all product areas except Transportation and Machines where net sales shrunk. Net sales in business area Project Development were slightly lower, Property Development showing a decrease while net sales in Housing Development rose. In the first quarter of 2017 net sales in Property Development were affected by SEK 577 million from sales of assets in Arenastaden and Ulriksdal in Solna to Fabege.
Of the period’s net sales SEK 7,461 million (6,712) were attributable to sales and production outside Sweden.
Operating profit for the period January-September 2018 amounted to SEK 1,710 million (1,665) and the operating margin was 4.6 percent (4.7). The operating margin for the latest rolling 12 month period was 4.7 percent compared to 4.8 percent for the entire year 2017.
The operating margin in business area Construction amounted to 2.3 percent compared to 2.2 percent the same period last year. The operating margin in business area Civil Engineering decreased slightly and was 2.8 percent (3.0). Business area Industry showed an operating margin of 6.1 percent (6.2). Business area Project Development had a somewhat lower operating profit during the period where the operating profit in Housing Development contracted while it increased in Property Development. The operating profit in Property Development improved through greater profit in both wholly owned and partly owned companies. The transactions regarding Arenastaden and Ulriksdal, which were carried out during the first quarter 2017 had no net effect on the result 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. The operating margin in Housing Development was 8.1 percent compared to 8.9 percent for the same period last year.
Eliminations and reversal of internal profit in our own projects has affected operating profit net by SEK -20 million (-18). Elimination is reversed in connection with the external divestment of a project.
Depreciation and write-downs for the period were SEK -743 million (-700).
Net financial items amounted to SEK -31 million (-32) of which net interest improved to SEK -35 million (-44).
Pre-tax profit was SEK 1,679 million (1,633).
Profit for the period was SEK 1,394 million (1,387).
Operating profit and operating margin, rolling 12 months
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.