Note 1 – Accounting principles
The quarterly report has been prepared according to the IFRS standards that have been adopted by EU as well as the interpretations of the valid standards adopted by EU, IFRICs. This report for the Group has been prepared according to IAS 34, Interim financial reporting as well as applicable regulations in the Annual Accounts Act. The parent company quarterly report has been prepared according to chapter 9 in the Annual Accounts Act, Quarterly reports and RFR 2, Accounting rules for legal entities. The quarterly report has been prepared for the Group and parent company according to the same accounting principles and conditions applied in the latest Annual Report, except for the amended accounting principles described below.
In addition to the financial reports and their accompanying notes further information according to IAS 34.16A can be found in other sections of the quarterly report.
The Group began to apply IFRS 16, Leases in 2019.
IFRS 16 Leases
IFRS 16, Leases replaced IAS 17, Leases as of January 1, 2019. IFRS 16 will basically require Peab as a lessee to report all leasing contracts as assets and liabilities on the balance sheet, representing the right to use the leased asset respectively the obligation to pay leasing fees. Regarding leasing contracts, depreciation of the leasing asset and interest costs on the leasing liability are recognized in the income statement. This will not have any material effect on pre-tax profit. Affected leases primarily cover rent for offices and other premises, leaseholds, land rentals and vehicles. IFRS 16, Leases is applied in segment reporting.
When changing over to the new standard Peab has elected the modified retroactive method with the alternative to let the right-of-use asset be measured at the amount of the lease liability at the changeover with adjustments for any prepaid or accrued leasing fees. The elected changeover method does not require recalculating comparable periods.
Right-of-use leases shorter than 12 months or which end within 12 months from the changeover date are classified as current leases and therefore not included in liabilities or right-of-use assets. In addition, Peab has elected not to recognize leases for which the underlying asset has a low value as a right-of-use asset respectively a lease liability.
Existing finance leases previously recognized according to IAS 17, Leases are reclassified according to IFRS 16 for the amount they were recognized at the day immediately before application of the new standard.
An incremental borrowing rate has been determined per country, right-of-use period and type of asset per January 1, 2019.
Effects of the changeover to IFRS 16 are given below. For further information concerning the changeover to IFRS 16 see the Annual Report 2018, note 45.
| Group, MSEK | Reported balance sheet 2018-12-31 | Adjustment 2019-01-01 | Adjusted balance sheet 2019-01-01 | |
| Koncernen, Mkr | Rapporterad balansräkning 2018-12-31 | Justering 2019-01-01 | Justerad balansräkning 2019-01-01 | |
| Assets | Tillgångar | |||
| Tangible assets | Materiella anläggningstillgångar | 5,741 | 618 | 6,359 |
| Investment property | Förvaltningsfastigheter | 589 | 53 | 642 |
| Project and development properties | Projekt- och exploateringsfastigheter | 9,685 | 206 | 9,891 |
| Other current receivables | Övriga kortfristiga fordringar | 13,857 | -27 | 13,830 |
| Other assets | Övriga tillgångar | 7,444 | – | 7,444 |
| Total assets | Summa tillgångar | 37,316 | 850 | 38,166 |
| Equity and liabilities | Eget kapital och skulder | |||
| Equity | Eget kapital | 11,348 | – | 11,348 |
| Interest-bearing liabilities | Räntebärande skulder | 7,012 | 850 | 7,862 |
| Other liabilities | Övriga skulder | 18,956 | – | 18,956 |
| Total equity and liabilities | Summa skulder och eget kapital | 37,316 | 850 | 38,166 |
Recognition of additional leases according to IFRS 16
| Group, MSEK | Jan-Sep 2019 | |
| Koncernen, Mkr | Jan-sep 2019 | |
| Production costs | Kostnader för produktion | 14 |
| Sales and administrative expenses | Försäljnings- och administrationskostnader | 3 |
| Operating profit | Rörelseresultat | 17 |
| Financial expenses | Finansiella kostnader | -21 |
| Pre-tax profit | Resultat före skatt | -4 |
| Tax | Skatt | 1 |
| Profit for the period | Periodens resultat | -3 |
| Group, MSEK | 2019-01-01 | 2019-09-30 | |
| Koncernen, Mkr | 2019-01-01 | 2019-09-30 | |
| Fixed assets | Materiella anläggningstillgångar | 671 | 631 |
| Deferred tax recoverables | Uppskjutna skattefordringar | – | 1 |
| Current assets | Omsättningstillgångar | 179 | 138 |
| Total assets | Summa tillgångar | 850 | 770 |
| Equity | Eget kapital | – | -3 |
| Interest-bearing long-term liabilities | Långfristiga räntebärande skulder | 702 | 623 |
| Interest-bearing current liabilities | Kortfristiga räntebärande skulder | 148 | 150 |
| Total equity and liabilities | Summa skulder och eget kapital | 850 | 770 |
Parent company
The new standard IFRS 16, Leases which is applied as of January 1, 2019 does not affect the parent company since the standard is exempt from application in corporations and leasing in the parent company is insignificant.
Revenue recognition of Swedish tenant-owned housing projects
Peab has in quarterly reports and the Annual Report 2018 communicated that together with several other major housing developers Peab has received questions from Nasdaq Stockholm AB (Nasdaq) during 2018 regarding the application of IFRS 15 Revenue from contracts with customers as well as whether the tenant-owned housing association or the final home buyers are, in terms of accounting, Peab’s customers according to IFRS 15. The reconciliation between Nasdaq and ESMA (European Securities and Markets Authority) came to the conclusion that, in this case, the accounting review should be focused on the application of IFRS 10 Consolidated financial statements and to what extent tenant-owned housing associations should be included in Peab’s consolidated financial statements. For more information, see the Annual Report 2018, section Revenue recognition of Swedish tenant-owner projects, page 53.
Regarding the matter of whether or not a company has controlling interest over a tenant-owned housing association, and thereby ought to consolidate the association, there is, taking into consideration all relevant facts and circumstances, room for companies within the framework of IFRS 10 Consolidated financial statements to arrive at different conclusions. After a review of several crucial factors our conclusion is that Peab cannot be considered to have controlling interest over tenant-owned housing associations from the time a tenant-owned housing association signs a contract for a land transfer and turnkey contract according to the stipulations in IFRS 10 Consolidated financial statements. This conclusion is shared by our accountants.
In the beginning of December 2018 Nasdaq sent a letter to Peab with the information that Nasdaq had decided to criticize Peab for a lack of clarity in the Annual Report for 2017 concerning the grounds for Peab’s assessment that controlling interest does not exist when revenue over time is applied to tenant-owned housing associations. Nasdaq required that clearer information should be presented in the Annual Report for 2018, which Peab has done. The letter also stated that Nasdaq considered the case closed and that Finansinspektionen had been notified, which took over the matter as of January 1, 2019. During the spring of 2019 Finansinspektionen continued to examine the matter and put further questions to Peab which the company has answered. On June 3, 2019 Peab received a reconciliation letter from Finansinspektionen containing observations and preliminary judgements from Finansinspektionen. Finansinspektionen’s preliminary judgement is that Peab should have consolidated the tenant-owned housing associations in 2017. Peab was given the opportunity to reply in the form of an opinion regarding Finansinspektionen’s reconciliation letter. Peab delivered its opinion on June 27, 2019 and contested Finansinspektionen’s preliminary conclusion. Peab believes it is wrong to consolidate the tenant-owned housing associations since the company does not have a controlling interest. In addition, in Peab’s opinion the current application best describes Peab’s housing business both in terms of internal steering and risk profile. When there is a broad spectrum of differences in practice in interpretations of IFRS the IFRS Interpretations Committee is usually requested to provide a clarification and possibly make changes in the IFRS. Peab believes the matter is so generally widespread and of such importance that the IFRS Interpretations Committee ought to review it. After reading Peab’s opinion Finansinspektionen will send a new reconciliation letter providing Peab with the opportunity to reply with an opinion before Finansinspektionen makes its decision. Regardless of the accounting method applied Peab’s risk profile, internal steering and monitoring will remain the same. It will only affect the external legal accounting of these operations.