Other information and appropriation of profit

Peab’s sustainability work

Sustainability – financial, environmental and social is an integral part of our operations. Responsibility and authorization is delegated to the business areas and there is a support system with experts on different levels in the organization. This is complemented by steering and supporting documents. Our code of conduct is based on the UN Global Compact and covers human rights, labor rights, environmental and anticorruption issues. Read more about Peab’s work with sustainability here.

Climate and environmental work

Peab takes responsibility for reducing our environmental impact. We actively strive to reduce our environmental impact, ensure the most material-efficient production possible and phase out environmental and health hazardous substances. Climate and environmental work takes place on all levels of our organization. Since all the business areas share and are affected by many of the same issues they are coordinated on Group level. The business areas are responsible for developing and managing climate and environmental work in their operations.

Less environmental impact

A major part of society’s energy use and carbon dioxide emissions comes from the construction and civil engineering sector. Our ambition is to lower carbon dioxide emissions by reducing total energy consumption and use renewable energy sources whenever possible. Peab’s carbon dioxide emissions primarily come from using fossil fuel in transportation, construction equipment, heating workplaces and manufacturing products. We work hard to use energy as efficiently as possible in these areas in order to lower energy consumption. We also work to successively reduce, and in the long run eliminate, fossil fuel consumption as renewable fuels are being developed. Peab’s ECO-Asfalt, manufactured based on carbon dioxide neutral bio-oil, is a good example of how we drastically reduce carbon dioxide emissions. In accordance with an EU directive Peab started charting energy consumption in 2015. We began with the largest companies in business area Industry and in 2020 the rest of Peab’s operations will be charted.

Efficient use of material

Construction and civil engineering operations generate large amounts of waste in society. Peab aims to have the most material-efficient production possible in all our operations, in part by creating less waste material and in part by taking care of and recycling as much as possible. Waste material in one place can very well be raw material in another. It is therefore crucial to cooperate with other players in the value chain and the industry to create circular flows and more efficient use of materials.

Phasing out environmental and health hazardous substances

Despite comprehensive knowledge and proactive cooperation the construction and civil engineering industry still uses environmental and health hazardous substances and new ones continue to be released on the market. Peab works hard to phase out substances and groups of substances that might be a potential threat to health or the environment by focusing on using the right material and traceability. Peab has expanded collaboration with a number of suppliers to help Peab’s personnel choose the right products. Peab uses systems produced by the industry that facilitate making the right choices aimed at phasing out hazardous substances. Collaboration and shared systems have been effective and several hazardous products have disappeared from the Swedish market.

Operations required to have permits or submit reports

Operations required to have permits and submit reports according to the environmental code are found in the Swedish sub-groups Swerock, Skandinaviska Byggelement and Peab Asphalt. In Finland permit operations are run according to the Environmental Protection Act. Operations required to have permits in Sweden are gravel and rock quarries, transportation of waste and hazardous waste and asphalt plants. These operations primarily affect the environment through the extraction of finite resources and future land use. Operations required to have permits in Finland are mainly concrete manufacturing and ballast operations.

Permit operations represented about three (three) percent of Group net sales in 2016. Renewal and supplementation of permits is continuous. Swerock’s concrete factories and Skandinaviska Byggelement’s concrete product factories as well as Peab Asphalt’s permanent and mobile asphalt plants are operations that must submit reports. Operations that must submit reports represented about eight (seven) percent of Group net sales in 2016.

Peab’s employees

It is crucial for Peab’s competitive capacity to attract, recruit, keep and develop employees, both long and short term. Together we want to build a company characterized by abundant opportunities to develop, diversity, equality, good leadership and a safe work environment so that we can offer the best workplace in the industry.

A healthy and safe work environment

Peab’s work environment policy is integrated into the company policy and is the basis for our strategic work environment measures. Our work environment management system is integrated into the business management system and Peab follows the laws and regulations of each country.

There are risky work activities in the construction industry and Peab has long worked with preventative work environment measures. It is possible to reduce or avoid accidents by systematically working with risk management and exchanging knowledge and experience. Every quarter Peab evaluates the Group goal of halving the number of workplace accidents during the period 2015-2017 and the measures taken to achieve it. Peab’s crisis organization is activated in the event of a serious accident. In order to prevent accidents at worksites Peab continually develops quality assured work methods and trains personnel in this area. Peab continued to spread safety warnings throughout our organization in 2016. Safety warnings contain information about actual incidents or accidents and provide advice on how similar situations can be prevented.

Securing skills for the future

Ensuring a company has the right skills is a great challenge for the construction and civil engineering industry. Peab is no exception and therefore efforts to attract, recruit, develop and keep competence are high on our agenda. We work on recruiting for our current needs and that we have the right competence for each project. At the same time we work proactively to identify changes in skills needed and to make the industry attractive for others to broaden the recruitment base. In addition, there is also the important internal work of taking advantage of the skills we already have in the Group and giving each employee the opportunity to develop in their role. The Handshake measures Commitment, Leadership, Work Climate and Attractive Employer plus a few other specialized areas. The results in 2016 have improved in every aspect compared to 2014.

Equality and diversity

Equality and diversity continue to be a challenge and core issue for the entire industry and Peab. As of 31 December 2016 the number of female employees at Peab was 12.1 percent (11.9). Peab’s goal is to be a role model in the industry in ten years’ time with concrete examples and visible results regarding work on equality and diversity. We want to create a labor force characterized by diversity by going on the offensive for change. To achieve this we will take a number of concrete measures in the coming years:

• Educate all employees in equality, diversity and equal treatment (about 3,000 employees were trained in 2016).
• Managers and HR personnel will receive further training in equal treatment and competence-based recruiting methods
• Peab has established the Employee Program that consists of a number of modules all aimed at changing the culture in our workplaces.
• We will to offer internships to 100 immigrant adults within the framework of the 100 Club.
• We offer language introduction for 100 immigrant youths within the Peab School.

Research and development

Peab’s research and development is aimed at providing society, customers and ourselves with added value and sustainable development. The new knowledge is used to improve or develop new products, services and production processes. Peab does not have a central unit for research and development. Instead this is an ongoing process in each business area. Peab cooperates with universities, colleges and trade organizations and is an active participant in many of the trade organizations that run or fund R&D.

Some projects that Peab ran together with other trade organizations in business area Construction in 2016 are  “BEAst logistics”, “Safe water – Laundry Rooms and Kitchens” and “Systematic Risk Analysis of Robberies and Break-ins on Swedish Construction Sites”, partly financed by SBUF. One project held in business area Civil Engineering in 2016 is “Optimizing Soil Reinforcement through Packing” where we concluded that more effective packing saves a great deal of energy and significantly reduces environmental impact. Some of the trade organization projects held in business area Industry in 2016 are; developing alternative road construction, forgiving asphalt for bicycle lanes, automatic measurement of asphalt specimen stiffness, sustainable community building with resistant concrete and modern dehydration simulation in concrete.

IMPORTANT EVENTS DURING THE YEAR

The Hyllie Deal

The Annual General Meeting on 10 May 2016 approved the Board of Director’s proposal to transfer 50 percent of the shares in Peab’s fully owned subsidiary Peab FU Linné AB with the subsidiaries Annehem Hyllie Point 3 AB and Annehem Hyllie Point 4 AB to Volito Fastigheter AB. Peab FU Linné AB and the subsidiaries own the properties Värdshuset 5 and Värdshuset 4 that contain a hotel and development rights for offices. The property is situated at Hyllie Station Square in Malmö, Sweden.

The purchase price for the transfer is based on an underlying property value of SEK 777 million, of which SEK 565 million refer to Värdshuset 5 (the hotel) and SEK 212 million to Värdshuset 4 (development rights for offices etc.). The Board of Directors believed that based on the fairness opinion and value evaluations conducted that the terms for the negotiated transfer, including the purchase price, were on par with market terms and that the underlying contracts contain the customary guarantees and conditions. Karl-Axel Granlund, member of the Board of Directors of Peab AB is also indirectly the principle owner of Volito AB and therefore indirectly controls Volito Fastigheter AB. The Board of Directors therefore considered the transfer to be a transaction with related parties that according to the Leo Law and general good practice on the stock market should be submitted to the Annual General Meeting for approval.

The transaction had a positive effect on Peab’s profit of SEK 104 million in the second quarter of 2016 and net debt in Peab contracted by around SEK 500 million.

Arenastaden

In December 2016 Peab and Fabege agreed that Peab would sell a number of assets in Solna to Fabege:

• Peab’s entire holdings in Arenabolaget i Solna KB which owns Friends Arena, corresponding to 17.2 percent.
• All Peab’s receivables to Arenabolaget i Solna KB.
• Peab’s entire holdings in Visio Utveckling AB, corresponding to 50 percent, which owns assets connected to Friends Arena as well as development rights in Solna.
• Property and development rights in Ulriksdal.

The divestitures in Ulriksdal refer to the completed property Distansen 6 that has 11,000 m2 rentable space where Johnson & Johnson rents as well as a garage with 327 parking spaces and 15,000 m2 commercial development rights.

The divestitures in Ulriksdal generate a positive operating result of approximately SEK 180 million. The divestitures of assets connected to Arenabolaget and Visio generate a negative operat-ing result of approximately SEK 180 million. In a compound deal Fabege took over the assets in Arenabolaget and Visio at the same time property and building rights in the Ulriksdal area were turned over. All these transactions were based on the condition that they were carried out at the same time as the takeover in January 2017.

The transactions were implemented on 12 January 2017 and will be recognized in the first quarter of 2017. The transactions will have no net effect on the result while Peab’s liquidity will increase by some SEK 900 million and net debt contract by around SEK 500 million.

Changes in Peab’s executive management

The new Business Area Construction Manager will be Stefan Danielsson, previously Deputy Business Area Construction Manager. He succeeds Roger Linnér, who will continue to be COO. The new Business Area Project Development Manager will be Göran Linder, previously Deputy Business Area Project Development Manager. He succeeds Tomas Anderson, who will continue to function as an advisor to Göran Linder. At the same time HR Director Tina Hermansson Berg will leave Peab.

After the above mentioned changes, which were implemented on 1 January 2017, Peab’s executive management consists of the following persons; Jesper Göransson (CEO and President), Roger Linnér, (COO), Niclas Winkvist (CFO), Stefan Danielsson (BA Construction Manager), Karl-Gunnar Karlsson (BA Civil Engineering and BA Industry Manager) and Göran Linder (BA Project Development Manager).

THE PEAB SHARE

At the end of the year Peab’s share capital amounted to SEK 1,583,866,056 divided among a total of 296,049,730 shares, resulting in a nominal value of SEK 5.35 per share. Of the shares, 34,319,957 are A shares with ten votes per share, and 261,729,773 are B shares with one vote per share.

All shares carry equal rights to participation in the company’s assets, profits and dividends. There are no restrictions in the articles of association concerning transferring shares or votes at the AGM. On 31 December 2016 there were approximately 37,000 shareholders in Peab.

Mats Paulsson with companies represents 28.6 percent of the votes, Fredrik Paulsson with family and companies 14.5 percent of the votes and Anita Paulsson with family and companies 14.5 percent of the votes. The total holding connected to the Paulsson families amounted to 25.6 percent of the capital and 57.6 percent of the votes.

The company has no knowledge of any agreements between shareholders that can result in restriction of the right to transfer shares. In 2007 Peab established a profit-sharing foundation. According to the foundation’s placement policy its capital should be placed primarily in Peab shares. On 31 December 2016 the foundation owned 8,928,432 B shares in Peab, corresponding to 3,0 percent of the B shares.

HOLDINGS OF OWN SHARES

At the beginning of 2016 Peab’s own B shareholding was 1,086,984 which corresponds to 0.4 percent of the total number of shares. Peab’s Annual General Meeting on 10 May 2016 resolved to authorize the Board to, during the period until the next Annual General Meeting, acquire shares so that the company would have at most 10 percent of the total shares in Peab. No own shares were purchased nor divested during 2016 which means that Peab’s own shareholding was 1,086,984 B shares at the end of 2016.

CORPORATE GOVERNANCE

For a detailed description of the work of the Board of Directors, corporate governance and systems for internal control, see here, Corporate governance.

REMUNERATION FOR SENIOR OFFICERS

The Board will propose to the Annual General Meeting on 10 May 2017 that the remuneration policy will be unchanged. For more information about adopted guidelines regarding salaries and other remunerations to the Chief Executive Officer and other members of executive management, see note 9.

ANTICIPATED FUTURE DEVELOPMENT

Sweden is experiencing good growth and an economic boom which will continue to get stronger. Growth in 2016 was primarily driven by public and private consumption along with rising invest-ments, where building construction has been a main factor. The strong economy is expected to hold throughout 2017 according to Industrifakta’s forecasts. Growth is expected to decelerate as both consumption and investments are likely to develop less rapidly. Growth in building construction was strong and broad in 2016 and basically only industrial building construction went in the opposite direction. The considerable development in building construction start-ups may have a negative effect in 2017, primarily due to a lack of personnel and material, followed by a leveling out in 2018. The forecast for civil engineering construction indicates some increase 2016, largely due to notable escalation of investments in water and sewage plants. Investment volumes 2017 and 2018 expected to be somewhat higher than in 2016.

Last year’s economic growth in Norway is estimated to land at around one percent. The weak development is largely due to a drop in investments in the oil industry. Despite an expansive financial policy growth in household consumption declined and unemployment rose. Driven primarily by increasing investments and accelerating household consumption there should be greater growth in 2017. Building construction is expected to have increased somewhat in 2016. Total building construction investments will probably remain on more or less the same level in 2017-2018 according to Industrifakta. Housing construction might contract but public invest-ments and civil engineering is forecasted to grow.

The Finnish economy seems to have come out on the other side of the recession. Household consumption and rising investments are expected to have contributed to a GDP increase of slightly more than one percent in 2016. Continued growth over the next two years will probably be moderate with an increase of around one percent a year according to Industrifakta’s forecasts. Although unemployment will most likely decrease it is still expected to remain on a relatively high level, which will deter household consumption. Finnish building construction investments were strong for the second year in 2016. This might have a slight negative effect in 2017, which can be followed by a slight increase in 2018. Civil engineering construction appears to have grown last year and there may even be growth in 2017.

PARENT COMPANY

The parent company’s business consists of executive management and Group functions. Net sales in 2016 were SEK 242 million (267) and consisted primarily of internal Group services. Operating profit for the year was SEK -162 million (-17). The reduction in operating profit is largely due to greater investments in Group functions and provisions for the Long-term incentive program (LTI). Profit after net financial items was SEK -300 million (-166). During the year the parent company received net Group contributions of SEK 2,377 million (220). Profit after tax amounted to SEK 1,221 million (63).

Proposed appropriation of profit

The following amounts in SEK are at the disposal of the Annual General Meeting;
Share premium reserve	2,308,208,948
Special reserve	55,000,000
Fair value reserve	74,605,289
Profit brought forward	981,169,299
Profit for the year	1,220,650,374
Total	4,639,633,910
The Board of Directors propose the following appropriation of disposable profit and non-restricted reserves;
Dividend, 296,049,730 shares at SEK 3.60 per share	1,065,779,028
Carried forward 1)	3,573,854,882
Total	4,639,633,910
1) of which to share premium reserve	2,308,208,948
of which to special reserve	55,000,000
of which to fair value reserve	74,605,289