Other information and appropriation of profit

Peab’s sustainability work

As a community builder and a major employer Peab’s operations have an impact on society and those living and working in it, both long and short term. Therefore we put great effort into ensuring that what we plan and carry out is ethical and sustainable throughout an entire life cycle. Our aim is to run our company sustainably and responsibly encompassing Social (employees and society), Environmental and Economic aspects. Peab’s strategic sustainability work is primarily focused on preventing risks, systematic quality work and, in an inventive and responsible manner, enabling sustainable development. In accordance with the Annual Reports Act chapter 6 paragraph 11 Peab has chosen to present the statutory sustainable report outside of the Board of Directors’ Report. The required parts of a sustainable report can be found under sections Goals and strategies, Our take on sustainable business, Risks and risk management and Corporate governance report.

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 2017. 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 (eight) percent of Group net sales in 2017.

Research and development

Research and development is necessary in order to meet the changing demands that society, customers and we ourselves put on our business. Peab does not have a central unit for research and development. Instead this is a cross-functional process between support functions and business areas steered by current needs. The new knowledge is used to improve or develop new products, services and production processes. Peab cooperates with universities, colleges and trade organizations and is an active participant in many trade organization projects.

Some trade organization projects in business area Construction in 2017 were “New moisture sensors for concreting”, “Dewatering concrete through electroosmosis ” and “Possibilities for greater circular flows of building materials”. Some projects in business area Civil Engineering were “Successful partnering projects”, “Extending the life of old steel bridges” and “Non-destructive tests of thick concrete constructions”. Examples of trade organization projects in business area Industry in 2017 were “Sustainable community building with resistant concrete”, “Safer functional pavement for pedestrian and bicycle lanes” and “Proportioning slag asphalt”.

IMPORTANT EVENTS DURING THE YEAR

In October 2017 Peab divested all its 2,458,447 shares in Lemminkäinen Oyj. The divestment generated a positive cash effect of around SEK 575 million. The divestment has affected the Group’s net financial items positively by SEK 93 million.

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 the disposal of votes at the AGM. On 31 December 2017 there were approximately 37,000 shareholders in Peab. At the beginning of 2017 Mats Paulsson with companies held 28.6 percent of the votes, Fredrik Paulsson with family and companies held 14.5 percent of the votes and Anita Paulsson with family and companies held 14.5 percent of the votes. As part of the generation shift, in the spring of 2017 the Paulsson families merged the majority of their indirect holdings into a holding company, Ekhaga Utveckling AB, which is controlled by Mats Paulsson’s son Fredrik Paulsson. Ekhaga Utveckling AB has 48.2 percent of the votes. At the end of 2017 the collective ownership connected to the Paulsson families amounted to a total of 25.5 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.

Peab’s AGM decided on 10 May 2017 to authorize the Board to decide, during the period up to the next AGM, on new issues of B shares with rights for current shareholders to participate in the issue or without preferential rights for current shareholders to participate in the issue in connection with acquisitions. The authorization may be used on one or more occasions and correspond to, at the most, a total of 10 percent of the registered share capital at the time of the authorization. During the year the Board has not decided to issue any new 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 2017 the foundation owned 9,439,000 B shares in Peab, corresponding to 3,2 percent of the the total number of shares.

HOLDINGS OF OWN SHARES

At the beginning of 2017 Peab’s own B shareholding was 1,086,984 which corresponds to 0.4 percent of the total number of shares. Peab’s AGM on 10 May 2017 resolved to authorize the Board to, during the period until the next AGM, 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 2017 which means that Peab’s own shareholding was 1,086,984 B shares at the end of 2017. For more information see note 29.

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.

Renumeration for senior officers

The Board will submit the following remuneration principles to the AGM on 7 May 2018:

This remuneration policy covers salaries and other conditions for executive management in Peab AB (“Peab”) comprising the CEO and the other members of executive management, named below as “Senior officers”. This remuneration policy shall be applied to new contracts, or changes in existing contracts, with Senior officers, after the AGM in Peab has adopted the policy.

1. Basic principle
Salary and other terms of employment shall be of such standing that Peab will always be able to attract and retain competent Senior officers.

2. Fixed salary

Senior officers shall be offered a fixed salary on market terms based on the responsibility and qualifications of the Senior officer. Salaries are determined for each calendar year.

3. Variable remuneration
From time to time Senior officers may be offered variable remuneration. Such variable remuneration may not exceed 60 percent of the fixed salary and shall be based primarily on goals connected to Peab Group’s profitability as well as, at certain times, other significant Group goals. Variable remuneration is determined for each fiscal year. Variable remuneration is settled the year after being earned and may either be paid out as salary or be invested as a pension savings in a financial instrument connected to the Peab share. The Board shall annually evaluate whether or not to propose a share-related incentive program to the AMG.

4. Long-term Incentive program (LTI program)
From time to time Senior officers may be offered participation in a LTI program (Long-term Incentive program). The maximum annual amount in a LTI program (including social security) may not exceed 40 percent of fixed annual salary. The amount in a LTI program is invested as a pension savings in a financial instrument connected to the Peab share.

5. Pension
Senior officers are entitled to pension according to collective bargaining agreements and contracts with Peab. All pension obligations shall be defined contribution pensions. Wage waives may be used to increase pension contributions through one-off pension contributions.

6. Non-monetary benefits
Senior officers are entitled to extra health insurance and health care insurance as well as those benefits otherwise enjoyed by other Peab employees.

7. Period of notice and severance pay
The period of notice from Peab is, at the most, 24 months and the period of notice from Senior officers is, at the most, 6 months. If severance pay is paid the total remuneration for salary during the period of notice and severance pay may not exceed 24 months wages.

8. Board preparations and decisions
The Board of Directors decides on the salary and other terms for the CEO based on a proposal from the Board’s Remuneration Committee. The Board’s Remuneration Committee decides on salaries and other terms for the other Senior officers based on proposals from the CEO.

9. Exceptions
According to chapter 8 paragraph 53 in the Companies Act the Board has the right to deviate from the guidelines if there are reasons to do so in individual cases.

For more information about adopted guidelines regarding salaries and other remuneration to the CEO and other members of executive management, see note 9.

ANTICIPATED FUTURE DEVELOPMENT

Growth in building construction investments in Sweden has continued during 2017. The rate of growth has, however, slowed since housing construction is leveling out. Unease on the housing market increased during the autumn, partially because of the new regulation requiring higher amortization. Reports about over production and problems finding renters in newly built housing along with more objects for sale have no doubt contributed to the drop in prices during the year. At the same time there are still a number of factors in favor of housing construction such as low interest rates, strong external growth, an expanding population and lower unemployment. Although housing construction may be losing speed, activity is running high in private and public premise construction. Industrial construction has especially accelerated after the past few years of weak growth. Zero growth is expected in building construction investments in 2018 in total. Civil engineering investments rose in 2017 and are predicted to grow in 2018 as well.

The Norwegian construction market has developed positively in 2017, primarily driven by greater activity in private and public premise construction. Housing construction is expected to have developed sideways since weaker prospects in single home construction are expected to be balanced by stronger development in apartment buildings. A turndown is expected in 2018 as price developments settle down before housing construction lands in zero growth again in 2019. Zero growth is also anticipated in other building construction during the forecast period 2018-2019. Civil engineering construction, however, is expected to develop strongly, stimulated by good financial development and stronger government finances.

Finland is favored by a general rise in the world’s economy. Consumer confidence is high and industry reports higher levels of orders received and in production. Housing construction has accelerated and is expected to grow for another couple of years. Private premise construction is growing due to a need for more offices and retail space. At the same time both industrial construction and public building construction are declining, which has slowed growth in total building construction in 2017. All in all, building construction volumes are expected to grow weakly during 2018 and 2019. The forecast for civil engineering investments indicates a leveling out in 2018, following the weak growth in 2017.

PARENT COMPANY

The parent company’s business consists of executive management and Group functions. Net sales in 2017 were SEK 262 million (242) and consisted primarily of internal Group services. Operating profit for the year was SEK -150 million (-162). Net financial items included a capital gain of SEK 163 million from sale of shares in Lemminkäinen Oyj. For more information regarding the effect on the Group, see Important events during the year. Profit after net financial items was SEK -100 million (-300). During the year the parent company received net Group contributions of SEK 3,419 million (2,377). Profit for the year amounted to SEK 2,017 million (1,221).

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
Profit brought forward 1,123,233,744
Profit for the year 2,016,785,296
Total 5,503,227,988
The Board of Directors propose the following appropriation of disposable profit and non-restricted reserves;
Dividend, 296,049,730 shares at SEK 4.00 per share 1,184,198,920
Carried forward 1) 4,319,029,068
Total 5,503,227,988
1) of which to share premium reserve 2,308,208,948