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. Based on market assessments as well as the development presented in the second quarter report Peab’s Board decided in August 2020 to propose a new date for the distribution of Annehem Fastigheter. In October the Board summoned to an Extra General Meeting on November 12, 2020.
Annehem Fastigheter is 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 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
July – September 2020
Group net sales for the third quarter 2020 increased by 12 percent and amounted to SEK 14,837 million (13,301), of which SEK 2,738 million are related to the acquisition of paving and mineral aggregates operations. Not including the acquired operations net sales contracted by nine percent. Net sales in business area Construction decreased by eleven percent compared to third quarter 2019. Net sales in business area Civil Engineering decreased by seven percent. Business area Industry presented an increase in net sales of 63 percent. Not including the acquired operations net sales contracted in business area Industry by nine percent. Even in business area Project Development net sales decreased compared to the third quarter last year. The decrease stemmed from both Property Development and Housing Development. Of the quarter’s net sales SEK 4,783 million (2,891) were attributable to sales and production outside Sweden. The increase is primarily due to operations acquired within business area Industry.
Operating profit for the third quarter 2020 amounted to SEK 844 million (763). Not including the acquired operations operating profit was SEK 667 million. The operating margin was 5.7 percent (5.7). Not including the acquired operations the operating margin was 5.5 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 273 million in the third quarter. Depreciation on surplus values for, among other things, customer contracts in the order backlog taken over and fixed assets amounted to SEK -96 million. Depreciation on surplus values for customer contracts in the order backlog taken over will be high throughout 2020 and part of 2021. All in all operating profit for the third quarter was positively affected by SEK 177 million related to the acquired operations.
In business area Construction operating margin was 2.4 percent (2.3) and in business area Civil Engineering the operating margin was 3.0 percent (2.3). Business area Industry showed a margin of 7.6 percent (9.4), not including the acquired operations the operating margin was 8.5 percent. Operating profit in Project Development contracted in the third quarter. In Project Development operating profit was lower in both Property Development and Housing Development. The operating margin in Housing Development was 8.9 percent (10.2).
Depreciation and write-downs for the third quarter were SEK -406 million (-284), of which SEK -138 million is related to acquired business. Net financial items amounted to SEK -20 million (-14) of which net interest was SEK -18 million (-20). Pre-tax profit was SEK 824 million (749). Profit for the third quarter amounted to SEK 664 million (629).
Operating profit and operating margin, per quarter
January – September 2020
Group net sales for the period January-September 2020 increased by six percent to SEK 41,993 million (39,491), of which acquired operations were SEK 4,479 million. After adjustments for acquired and divested units net sales decreased by five percent.
Net sales in business area Construction reduced by seven 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 shrunk by three percent compared to same period last year. Net sales in business area Industry grew by 41 percent. Not including the acquired operations net sales in business area Industry contracted by five percent. The reduction stems from Transportation and Machines, Rentals and Construction System. In business area Project Development net sales shrunk in both Property Development and Housing Development. Last year the operations now included in Annehem Fastigheter were part of Property Development. The reduction in Housing Development primarily stems from Swedish operations.
Of the period’s net sales SEK 11,899 million (7,821) 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 period January-September 2020 amounted to SEK 1,716 million (1,813). Not including the acquired operations the operating profit was SEK 1,508 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 4.1 percent (4.6). Not including the acquired operations the operating margin was 4.0 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 during the period April-September to the operating profit by SEK 422 million. Depreciation on surplus values for, among other things, customer contracts in the order backlog taken over and fixed assets amounted during the same period to SEK -159 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 208 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 for January-September 2020 of SEK 125 million.
The operating margin in business area Construction was unchanged with 2.4 percent (2.4) during the period January-September 2020. In business area Civil Engineering the operating margin improved to 2.8 percent (2.5). The operating margin in business area Industry was 5.1 percent (5.9). Not including the acquired operations the operating margin was 5.4 percent. The lower operating margin in Industry is due to a lower margin in Rentals and Construction System. The operating profit 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 the period some operations in Property Development were affected negatively by SEK -59 million due to the corona pandemic, where SEK -44 million was related to Ängelholm Helsingborg Airport, of which SEK -20 million refers to writing down goodwill. The operating profit in Housing Development decreased slightly during the period but the operating margin improved to 8.4 percent (8.0).
Eliminations and reversal of internal profit in our own projects have affected operating profit net by SEK -14 million (-89). Last year several of our own major office 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 -1,064 million (-802), of which SEK -240 million is related to acquired business.
Net financial items amounted to SEK -90 million (-6), of which net interest amounted to SEK -43 million (-48). Net financial items from acquired operations amounted to SEK -19 million during the period. Net financial items included currency exchange rate differences of SEK -81 million (8). 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 1,626 million (1,807).
Profit for the period was SEK 1,293 million (1,518).
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.