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 profit
October – December 2018
Group net sales for the fourth quarter 2018 increased by two percent and amounted to SEK 14,845 million (14,490). Net sales in business area Construction increased by seven percent spread over all the business area’s countries. Net sales in business area Civil Engineering increased by eleven percent and stemmed from Infrastructure and Operations and maintenance. Business area Industry presented an increase in net sales of three percent. Net sales in business area Project Development were slightly lower compared to the fourth quarter last year. Net sales decreased in Housing Development by 18 percent compared to the same period last year due to slowdown in the housing market while net sales in Property Development increased slightly compared to the same period last year.
Of the quarter’s net sales SEK 2,836 million (2,377) were attributable to sales and production outside Sweden.
Operating profit for the fourth quarter 2018 amounted to SEK 863 million (753) and the operating margin improved to 5.8 percent (5.2). In business area Construction operating margin was 2.5 percent (2.4) and in business area Civil Engineering the operating margin was 3.5 percent (3.6). Business area Industry showed an improved operating margin of 10.5 percent (8.2). Operating profit in business area Project Development was unchanged compared to the fourth quarter last year where operating profit in Housing Development was lower while in Property Development it was higher. The operating margin in Housing Development amounted to 10.3 percent (11.5). The higher operating profit in Property Development is explained by the improved profit in primarily wholly owned and partially owned companies.
Eliminations and reversal of internal profit in our own projects have affected operating profit net by SEK 20 million (17). Elimination is reversed in connection with the external divestment of a project.
Depreciation and write-downs for the fourth quarter were SEK -281 million (-257).
Net financial items amounted to SEK -24 million (72) of which net interest was SEK -13 million (0). Last year included gains of SEK 93 million from the divestiture of 2,458,447 shares in Lemminkäinen Oyj.
Pre-tax profit was SEK 839 million (825).
Profit for the fourth quarter improved to SEK 706 million (680).
Operating profit and operating margin, per quarter
Prostneset Port terminal
Tromsø
January – December 2018
Group net sales for 2018 amounted to SEK 52,233 million (49,981), 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 year. Net sales in business area Construction increased by six percent spread over all three countries. Net sales in business area Civil Engineering increased by 16 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 in both Housing Development and Property Development. The reduction in Housing Development is due to less activity in the housing market in Sweden, primarily in Stockholm. 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 year’s net sales SEK 10,297 million (9,089) were attributable to sales and production outside Sweden.
Operating profit for 2018 increased to SEK 2,573 million (2,418) and the operating margin was 4.9 percent (4.8).
Development has stable in both contract businesses in Peab during the year. The operating margin in business area Construction amounted to 2.4 percent compared to 2.3 percent the last year and in business area Civil Engineering the operating margin was 3.0 percent (3.2). Business area Industry showed an improved operating margin of 7.4 percent (6.8). Business area Project Development had a lower operating profit but the operating margin improved to 10.0 percent (9.6). Operating profit in Housing Development declined as a result of fewer production starts in Sweden, primarily in Stockholm, and lower income recognition from projects in Norway and Finland. The operating margin in Housing Development was 8.7 percent (9.6). 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. Last year in Property Development also included capital gains of SEK 75 million from the divestiture of Peab’s share in the joint venture company to Catena.
Eliminations and reversal of internal profit in our own projects have affected operating profit net by SEK 0 million (-1). Elimination is reversed in connection with the external divestment of a project.
Depreciation and write-downs for the year were SEK -1,024 million (-957).
Net financial items amounted to SEK -55 million (40) of which net interest was SEK -48 million (-44). Last year net financial items included dividends from Lemminkäinen Oyj of SEK 16 million as well as capital gains of SEK 93 million from the sales of 2,458,447 shares in Lemminkäinen Oyj.
Pre-tax profit was SEK 2,518 million (2,458). Tax for the year was SEK -418 million (-391), which corresponds to 17 percent (16) in tax. The lower tax is due to non-taxable income from the sales of companies as well as the revaluation of deferred taxes.
Profit for the year was SEK 2,100 million (2,067).
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.