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.
In 2018 the Group began to apply IFRS 9 Financial instruments and IFRS 15 Revenue from contracts with customers. The effects of the changeover to IFRS 9 and IFRS 15 are described below.
Effect of the changeover to IFRS 9 and IFRS 15
Peab applies IFRS 9 Financial instruments and IFRS 15 Revenue from contracts with customers as of 1 January 2018. Changes in the accounting principles subsequent to the implementation of IFRS 9 have been applied retroactively and the total effect has been recognized in equity per 1 January 2018. The Group has applied the exemption of not recalculating comparable information for previous periods.
Peab has chosen to apply IFRS 15 retroactively by recalculating the financial reports for 2017.
The effect on Group equity at the changeover to IFRS 9 and IFRS 15 is presented in the table below.
In the Annual Report 2017 Peab communicated that all housing in Norway would be recognized over time. This assessment was made before IFRS IC presented its interpretation in Agenda Paper 2C. Norway and IFRS IC have been holding discussions for a long time which is why there has been a great deal of uncertainty concerning whether or not the criteria for revenue over time (IFRS 15.35c) were considered met. As a consequence of IFRIC update March 2018 income will be recognized, as previously, at one point in time, and therefore the effects presented in the Annual Report 2017 concerning Norway will not occur.
As a result of the changed interpretation of IFRS 15 the effect of the changeover to IFRS 15 as well as the recalculated income statements and balance sheets presented in the Annual Report 2017 have been changed. New recalculated income statements and balance sheets for 2017 can be found on Peab’s website, www.peab.com/ifrs. Recalculated figures per quarter and segment are also presented there. The recalculations have not had any material effect on either business area Project Development or the Group as a whole.
| MSEK | Equity | |
| MSEK | Equity | |
| Closing balance 31 December 2016 before changeover to IFRS 15 and IFRS 9 | Closing balance 31 December 2016 before changeover to IFRS 15 and IFRS 9 | 9,380 |
| Adjustments at changeover to IFRS 15 | Adjustments at changeover to IFRS 15 | -40 |
| Adjusted opening balance 1 January 2017 | Adjusted opening balance 1 January 2017 | 9,340 |
| Closing balance 31 December 2017 before changeover to IFRS 15 and IFRS 9 | Closing balance 31 December 2017 before changeover to IFRS 15 and IFRS 9 | 10,362 |
| Adjustments at changeover to IFRS 15 | Adjustments at changeover to IFRS 15 | -30 |
| Adjusted closing balance 31 December 2017 before changeover to IFRS 9 | Adjusted closing balance 31 December 2017 before changeover to IFRS 9 | 10,332 |
| Adjustments at changeover to IFRS 9 | Adjustments at changeover to IFRS 9 | -7 |
| Adjusted opening balance 1 January 2018 | Adjusted opening balance 1 January 2018 | 10,325 |
Effects of the recalculation of the income statement and other comprehensive income for 2017 at the changeover to IFRS 15 are presented below.
| Jan-Dec 2017 | |||||||
| MSEK | Reported | Adjustment IFRS 15 | Recalculated | ||||
| Jan-Dec 2017 | |||||||
| MSEK | Reported | Adjustment IFRS 15 | Recalculated | ||||
| Net sales | Net sales | 50,090 | -109 | 49,981 | |||
| Operating profit | Operating profit | 2,405 | 13 | 2,418 | |||
| Profit for the period | Profit for the period | 2,057 | 10 | 2,067 | |||
| Total comprehensive income for the period | Total comprehensive income for the period | 2,043 | 10 | 2,053 | |||
IFRS 9 Financial instruments
IFRS 9 entails changes foremost regarding classification and valuation of financial assets and financial liabilities, write-downs of financial assets and hedging accounting. The standard replaces IAS 39 Financial instruments: Recognition and measurement.
IFRS 9 requires loss reserves for anticipated credit losses. This differs from IAS 39 that only requires loss reserves if something occurs that leads Peab to believe a customer may not be able to pay the entire balance due.
IFRS 9 has not had any material effect on the Group balance sheet. For further information on IFRS 9 please see Peab’s website, www.peab.com/ifrs.
IFRS 15 Revenue from contracts with customers
IFRS 15 Revenue from contracts with customers, replaces IAS 18 Revenue, IAS 11 Construction contracts and IFRIC 15 Agreements for the construction of real estate.
For business area Project Development implementing IFRS 15 means our own home (villas) developments in Sweden are reported according to so-called revenue over time. Swedish tenant-owned housing projects will continue to be recognized as previously through revenue over time. IFRS 15 has not led to any changes in reporting regarding housing projects in Finland and Norway since income is first recognized when the home is turned over to the buyer.
After implementation of IFRS 15 segment reporting mirrors legal reporting. The differences between operative and legal reporting no longer exist after implementation of IFRS 15. In regards to Peab’s construction contract operations in business area Construction and Civil Engineering, IFRS 15 does not entail any material change in when income is recognized or for what amount. The changeover to IFRS 15 does not entail any material change for business area Industry either.
For further information on IFRS 15 please see Peab’s website, www.peab.com/ifrs.
Revenue recognition of Swedish tenant-owned housing projects
Together with several other major housing developers Peab has received questions from Nasdaq Stockholm AB (Nasdaq) during the year 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. Peab has answered Nasdaq’s questions, we have had a dialogue and motivated why we consider the tenant-owned housing association to be Peab’s customer. This conclusion is shared by our accountants. For this reason Peab applies revenue over time accounting to Swedish tenant-owned housing projects.
The reconciliation between Nasdaq and ESME came to the conclusion that, in this case, the accounting review should be focused on the application of IFRS 10 Consolidated financial statements. 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 to arrive at different conclusions. There are variations between different companies’ operational, business and contractual structures and several factors can be significant, such as board composition, terms for land procurement, contract work, financing and divestment as well as the tenure of the condominiums, in deciding whether or not controlling interest exists. With this in mind Nasdaq believes that a presumption for consolidation (in accordance with IFRS 10) exists if the construction company (or representatives for it) make up a majority of the members of a tenant-owned housing association or have the right to appoint more than half of the members in its board. However, a judgement must be made in each individual case and specific circumstances in a company’s business model, such as the statutes in a tenant-owned housing association and contract terms, can render different conclusions regarding whether or not tenant-owned housing associations ought to be consolidated or not.
After a review of the factors above our conclusion is that Peab cannot be considered to have controlling interest over tenant-owned housing associations according to IFRS 10 Consolidated financial statements.
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 requires that clearer information is presented in the Annual Report for 2018. Nasdaq explained that any changes concerning consolidation of tenant-owned housing projects should be through a correction with retroactive application in the Annual Report for 2018. The letter also stated that for Nasdaq the matter is now concluded and that Finansinspektionen has been notified. Finansinspektionen has announced that they intend to continue to review the question of tenant-owned housing project accounting in the Annual Report for 2017.
New IFRS and interpretations that have not yet been applied, IFRS 16 Leases
IFRS 16 Leases replace IAS 17 Leases as of 1 January 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. Peab does not believe this will have any material effect on profit before tax. Affected leases primarily cover rent for offices and other premises, leaseholds, land rentals and vehicles.
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 are 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.
Effects of the changeover to IFRS 16 are given below.
| MSEK | Adjustment 1 January 2019 | |
| Mkr | Justering 1 januari 2019 | |
| Fixed assets, right-of-use | Materiella anläggningstillgångar, nyttjanderätt | 671 |
| Project and development property, right-of-use | Projekt- och exploateringsfastigheter, nyttjanderätt | 206 |
| Prepaid costs | Förutbetalda kostnader | -27 |
| Leasing liabilities, interest-bearing | Leasingskulder, räntebärande | 850 |
Parent company
IFRS 15 Revenue from contracts with customers has not had any effect on parent company revenue accounting. IFRS 9 Financial instruments, entails new rules for writing down receivables based on anticipated credit losses. The parent company’s current receivables from Group companies fall within the area of application for impairment rules in IFRS 9. The receivables are overwhelmingly Group contributions that are settled shortly after the balance sheet date. On material grounds no reserve is reported for anticipated credit losses regarding these receivables. Otherwise IFRS 9 had no effect on accounting on 1 January 2018. The new standard IFRS 16 Leases does not affect the parent company since the standard is exempt from application in legal entities and leasing in the parent company is insignificant.