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 during ongoing production. 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. An Extra General Meeting was held on November 12, 2020 where Peab’s shareholders adopted the proposal from the Board and the shares were distributed in December. December 11, 2020 was the first day of trading in Annehem Fastigheter’s B shares on Nasdaq Stockholm.
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
October – December 2020
Group net sales for the fourth quarter 2020 was SEK 15,424 million (15,858), of which SEK 1,412 million are related to the acquisition of paving and mineral aggregates operations. Not including the acquired operations net sales contracted by twelve percent. Net sales in business area Construction decreased by eleven percent and the reduction primarily refers to Swedish operations. Net sales in business area Civil Engineering decreased by five percent. Business area Industry presented an increase in net sales of 37 percent. Not including the acquired operations net sales contracted in business area Industry by three percent. Net sales in business area Project Development decreased by 33 percent compared to the fourth quarter last year. The reduction is primarily related to Housing Development. Of the quarter’s net sales SEK 5,106 million (3,439) were attributable to sales and production outside Sweden. The increase is primarily due to operations acquired within business area Industry.
Operating profit for the fourth quarter 2020 amounted to SEK 1,825 million (797), of which the acquired operations within business area Industry made up net SEK 42 million and the effect of the distribution of Annehem Fastigheter was SEK 952 million. The operating margin was 11.8 percent (5.0). Without the effect of the distribution of Annehem Fastigheter the operating margin was 5.7 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 72 million in the fourth quarter. Depreciation on surplus values for, among other things, customer contracts in the order backlog taken over and fixed assets amounted to SEK -30 million. Depreciation on surplus values for customer contracts in the order backlog taken over have been high throughout 2020 and will also affect part of 2021. All in all operating profit for the fourth quarter was positively affected by SEK 42 million related to the acquired operations.
In business area Construction operating margin was 2.6 percent (2.5) and in business area Civil Engineering the operating margin was 3.6 percent (3.5). Business area Industry showed a margin of 8.1 percent (10.1), not including the acquired operations the operating margin was 10.2 percent. Operating profit in Project Development increased in the fourth quarter and amounted to SEK 1,195 million (278), of which the effect of the distribution of Annehem Fastigheter was SEK 896 million. Even without the effect of the distribution of Annhem Fastigheter, operating profit improved in Property Development. Housing Development had a slightly lower operating profit during the quarter but the operating margin improved to 13.5 percent (10.0).
Elimination and reversal of internal profit amounted to SEK 37 million (-53) of which the reversal of construction profit in connection with the distribution of Annehem Fastigheter was SEK 56 million. Depreciation and write-downs for the fourth quarter were SEK -348 million (-292), of which SEK -70 million is related to acquired business.
Net financial items amounted to SEK -18 million (-25) of which net interest was SEK -13 million (-24). Pre-tax profit was SEK 1,807 million (772). Profit for the fourth quarter amounted to SEK 1,655 million (620).
Operating profit and operating margin, per quarter
January – December 2020
Group net sales for 2020 increased by four percent to SEK 57,417 million (55,349), of which acquired operations were SEK 5,891 million. After adjustments for acquired and divested units net sales decreased by seven percent.
Net sales in business area Construction contracted by eight 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 four percent compared to last year. Net sales in business area Industry grew by 40 percent. Not including the acquired operations net sales in business area Industry contracted by four 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. The reduction in Housing Development stems from Swedish and Finnish operations.
Of the period’s net sales SEK 17,005 million (11,260) 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 2020 amounted to SEK 3,541 million (2,610), of which the acquired operations were SEK 250 million and the effect of the distribution of Annehem Fastigheter was SEK 952 million. Last year included an income contribution of SEK 170 million from the divestiture of property in the partially owned company Acturum. The operating margin was 6.2 percent (4.7). Without the effect of the distribution of Annehem Fastigheter the operating margin was 4.5 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 during the period April-December to the operating profit by SEK 494 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 -189 million. Depreciation on surplus values for customer contracts in the order backlog taken over hace been high throughout 2020 and will also affect 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 year was positively affected by SEK 250 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-December 2020 of SEK 197 million.
The operating margin in business area Construction was 2.5 percent (2.4) in 2020. In business area Civil Engineering the operating margin improved to 3.0 percent (2.8). The operating margin in business area Industry was 5.9 percent (7.0). Not including the acquired operations the operating margin was 6.7 percent. The lower operating margin in Industry is due to a lower margin in Rentals and Construction System. Operating profit in Project Development increased to SEK 1,669 million (1,015), however, without the effect of the distribution of Annehem Fastigheter of SEK 896 million operating profit contracted. Last year an income contribution of SEK 170 million from Acturum was included in Property Development. During the year some operations in Property Development were affected negatively by SEK -64 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 year but the operating margin improved to 9.6 percent (8.6).
Eliminations and reversal of internal profit in our own projects have affected operating profit net by SEK 23 million (-142), of which the reversal of construction profits in connection with the distribution of Annehem Fastigheter was SEK 56 million. 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 year were SEK -1,412 million (-1,094), of which SEK -310 million is related to acquired operations in business area Industry.
Alta Assisted Living
Alta, Norway
Net financial items amounted to SEK -108 million (-31), of which net interest amounted to SEK -56 million (-72). Net financial items from acquired operations amounted to SEK -27 million during the year. Net financial items included currency exchange rate differences of SEK -88 million (-2). Currency exchange rate differences have for the most part occurred on receivables in subsidiaries in Norway and Finland, and have no effect on cash flow.
Pre-tax profit was SEK 3,433 million (2,579). Tax for the year was SEK -485 million (-441) corresponding to a tax rate of 14 percent (17). The lower tax rate is due to non-taxable income from, among others, the profit/loss effect of the distribution of Annehem Fastigheter.
Profit for the year was SEK 2,948 million (2,138).
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. The seasonal pattern will be even stronger with the acquisition of the paving and mineral aggregates operations.
