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 sustainability and responsibly encompassing Social (employees and society), Environmental and Economic aspects. Peab’s strategic sustainability work is primarily focused on preventing risks, working with continuous improvement and monitoring as well as driving development and contributing to innovation. As of 2021, we have an external target that claims we will lead in social responsibility. In accordance with the Annual Reports Act chapter 6 paragraph 11 Peab has chosen to present the statutory Sustainability Report outside of the Board of Directors’ Report. The parts required in a sustainability report can be found under sections Targets and strategies, Our take on sustainable business, Social, Environment, Economic, Risks and risk management and Corporate governance report.

Operations with permit and notification obligations

Operations required to have permits or to notify the authorities according to the environmental code are found in the Swedish sub-groups Swerock, Skandinaviska Byggelement, Peab Asfalt, Peab Anläggning and Peab Bostad.

Operations with permit in Sweden are land remediation, intermediate storage and recycling of excavated soil, work in/next to protected areas/objects, water operations/management, extraction of mineral aggregates, transportation of waste and hazardous waste as well as production of polymer modified bitumen (PMB). These operations primarily affect the environment through the extraction of finite resources, future land use, emissions and noise.

Operations required to notify authorities are concrete manufacturing are concrete manufacturing, production of prefabricated concrete elements, permanent and mobile asphalt plants, actions taken in contaminated areas, intermediate storage of excavated soil and waste, recycling of excavated soil, water operations/management and transportation of waste and hazardous waste.

There are also operations in the other Nordic countries with an environmental impact that must be approved by authorities. They are production of asphalt in Finland, Norway and Denmark as well as extraction of mineral aggregates and concrete manufacturing in Finland and Norway.

Renewal and supplementation of permits as well as submitting notifications.

Research and development

The purpose of Peab’s research and development is to provide society, our customers and ourselves with added value and sustainable development by using new discoveries to improve or develop new products, services and production processes. Research and development is run close to operations in the different business areas so that it can be steered by current needs. Therefore Peab does not have a central unit for research and development. Peab collaborates with universities, colleges and trade organizations and is an active participant in many trade organization projects.

Development focused on the environment is a constant theme that Peab has worked with in recent years and which we will continue to develop. In 2020 we worked with the EU project REWOFUEL – where lignin replaced part of the binder in asphalt. Lignin is a renewable product which in this case was produced from forest residue. Other projects spotlighted environmental product declarations, EPD, for both asphalt, concrete and rock material as well as an initiative that looks into the possibility to productify circular stone material. In order to realize the way forward for climate-improved concrete we have worked to produce new material and methods in the project Betcrete 2.0.

Productivity is another important area we are focused on. In part we are researching how, through digitalization, we can work with better production planning and increase comprehension of what a finished product will look like before it is built and in part how future leaps in technology will increase quality in our production and make it more efficient. Measurement and layout robotics are examples of how we can improve precision and information feedback, which contributes to better quality and higher productivity.

To enable infrastructure investments research is being done aimed at finding methods for the foundation work in high speed railroads and uncertainty models for optimizing infrastructure projects. These are two examples in this field but there are a great number of ongoing initiatives focused on infrastructure investments.

The environment and productivity are constant themes as well as how we can use new methods to ensure sustainable community building and, in this case and many others, this includes a higher degree of digitalization – as an enabler and not a standalone phenomena.

IMPORTANT EVENTS DURING THE YEAR

Dividend proposals and realized distribution of Annehem Fastigheter

In con­junc­ture with the year-​end re­port 2019 Peab’s Board de­cid­ed to pro­pose to the AGM an un­changed cash div­i­dend of SEK 4.20 per share and an extra dis­tri­b­u­tion of the shares in a newly found­ed real es­tate com­pa­ny (An­nehem Fastigheter).

When the de­ci­sion was made the glob­al spread of the coro­n­avirus had not yet begun. It has there­after de­vel­oped into a pan­dem­ic, which in turn has cre­at­ed enor­mous un­cer­tain­ty con­cern­ing glob­al fi­nan­cial de­vel­op­ments.

On March 24, 2020 the Board re­viewed the de­ci­sion of an extra dis­tri­b­u­tion of all the shares in An­nehem Fastigheter. The Board put off the de­ci­sion to ac­tu­al­ly dis­trib­ute and list the com­pa­ny until there was less un­cer­tain­ty and cir­cum­stances im­proved. The strat­e­gy to cre­ate the com­pa­ny, dis­trib­ute and list it did not changed.

On April 7, 2020 Peab’s Board also de­cid­ed to with­draw in its en­tire­ty the pro­pos­al to the AGM for a cash div­i­dend of SEK 4.20 per share. The Board and ex­ec­u­tive man­age­ment re­viewed the sit­u­a­tion fo­cus­ing on iden­ti­fy­ing mea­sures that need­ed to be taken for dif­fer­ent sce­nar­ios on the Nordic con­struc­tion mar­ket. Their main pur­pose is to be able to cre­ate the pre­req­ui­site con­di­tions to han­dle over­head in a con­tract­ing busi­ness and at the same time safe­guard long-​term pro­duc­tion ca­pac­i­ty. Ex­am­ples of mea­sures are fur­loughs and train­ing.

The Board’s am­bi­tion has been to reg­u­lar­ly eval­u­ate the div­i­dend ca­pac­i­ty and de­pend­ing on de­vel­op­ments make a de­ci­sion on both a cash div­i­dend and when dis­tri­b­u­tion of all the shares in An­nehem Fastigheter could take place. Based on mar­ket as­sess­ments and 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. Peab’s Board fur­ther de­cid­ed not to put forth a new div­i­dend pro­pos­al but let the AGM’s de­ci­sion of no cash div­i­dend for 2019 re­main un­changed.

On Oc­to­ber 19, 2020 the Board sum­moned an Extra Gen­er­al Meet­ing on No­vem­ber 12, 2020 and Peab’s share­hold­ers adopt­ed its pro­pos­al to dis­trib­ute An­nehem Fastigheter. Dis­tri­b­u­tion was car­ried out in De­cem­ber 2020. The dis­tri­b­u­tion ratio was 1:5 which means that one share in Peab en­ti­tled to one share right of the same sort in An­nehem Fastigheter, and five share rights en­ti­tled to one share of the same sort in An­nehem Fastigheter. The first day of trad­ing was De­cem­ber 11, 2020 and the first trad­ing price was SEK 35 per share. For more in­for­ma­tion see the sec­tion An­nehem Fastigheter and note 46.

Coronavirus

In the be­gin­ning of the year the coro­n­avirus spread to a large part of the world. Coun­tries are still implementing dif­fer­ent mea­sures to limit the spread of the in­fec­tion, for ex­am­ple entry and quar­an­tine reg­u­la­tions. Gov­ern­ments and cen­tral banks are in­tro­duc­ing dif­fer­ent forms of cri­sis pack­ages to re­duce the fi­nan­cial ef­fects. This will af­fect the glob­al econ­o­my but to what ex­tent is still dif­fi­cult to say.

Peab is a major em­ploy­er with many em­ploy­ees and many peo­ple at our work­places. As em­ploy­er we care about our em­ploy­ees but nat­u­ral­ly we also care about our cus­tomers, sub­con­trac­tors, sup­pli­ers and other part­ners. For Peab it’s im­por­tant from a so­ci­etal per­spec­tive that we do every­thing we can to thwart the spread of in­fec­tion and keep our op­er­a­tions going.

Peab’s mea­sures to limit the spread of the in­fec­tion are found­ed on The Pub­lic Health Agency of Swe­den’s guide­lines and in­struc­tions as well as cor­re­sponding guidelines in the other coun­tries we work in. Since the sit­u­a­tion and in­struc­tions from the au­thor­i­ties are con­stant­ly chang­ing, we close­ly fol­low de­vel­op­ments and adapt to them. Above all they af­fect the di­rec­tives we give our em­ploy­ees.

The short-​term ef­fects of the coro­n­avirus on Peab’s op­er­a­tions are lim­it­ed at the mo­ment but nat­u­ral­ly we close­ly fol­low de­vel­op­ments so that we can con­tin­u­al­ly as­sess pos­si­ble ef­fects in a longer per­spec­tive. Under the cur­rent cir­cum­stances we see what a strength it is for us to be the local com­pa­ny with the big group re­sources. Peab has four busi­ness areas – Con­struc­tion, Civil En­gi­neer­ing, In­dus­try and Project De­vel­op­ment that col­lab­o­rate lo­cal­ly and a large part of input goods and per­son­nel are our own. This gives us good con­trol over the con­struc­tion process and makes us there­fore less vul­ner­a­ble to pro­duc­tion dis­rup­tions.

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. The op­er­a­tions are con­sol­i­dat­ed into the Peab Group as of that date.

Through the ac­qui­si­tion Peab ex­panded its pres­ence in Swe­den, Nor­way and Fin­land and was es­tab­lished in the paving busi­ness in Den­mark. This gives Peab a unique and mar­ket lead­ing po­si­tion in this busi­ness in the Nordic re­gion. The ac­qui­si­tion en­tails tak­ing over some 2,000 em­ploy­ees, around 200 strate­gi­cal­ly lo­cat­ed quar­ries and 63 pro­duc­tion as­phalt plants in the Nordic re­gion. The deal also in­crease the im­por­tance of in­dus­tri­al op­er­a­tions for the Group.

Greater ge­o­graph­ic pro­lif­er­a­tion in areas that are nor­mal­ly less sen­si­tive to the busi­ness cycle in­creas­es sta­bil­i­ty in the Group. The ac­qui­si­tion also pro­vides a plat­form for fur­ther ex­pan­sion and de­vel­op­ment in other op­er­a­tions such as Re­cy­cling and Con­crete.

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. In 2019 the ac­quired op­er­a­tions had net sales of SEK 5,878 mil­lion with an ad­just­ed EBIT­DA of SEK 282 mil­lion.

For more in­for­ma­tion, see sec­tion Busi­ness area In­dus­try and note 6.

Changes in Peab’s executive management

Peab’s ac­qui­si­tion of YIT’s paving and min­er­al ag­gre­gates op­er­a­tions in the Nordic re­gion was fi­nal­ized in the spring of 2020. As a re­sult of the ac­qui­si­tion the im­por­tance of op­er­a­tions in In­dus­try in the Group have grown at the same time Peab has in­creased its pres­ence in Swe­den, Nor­way and Fin­land and es­tab­lished it­self in paving in Den­mark. Peab has there­by tran­si­tioned from being a Swedish com­pa­ny with op­er­a­tions in Nor­way and Fin­land to be­com­ing a Nordic com­pa­ny based in Swe­den.

Today Peab has 15,000 em­ploy­ees. We now have a greater ge­o­graph­ic spread and our local pres­ence is stronger, which makes it pos­si­ble for us to de­vel­op with­in the frame­work of what we call lo­cal­ly pro­duced com­mu­ni­ty build­ing. Through Peab’s four col­lab­o­rat­ing busi­ness areas we can, as far as pos­si­ble, en­sure that we use local re­sources in the form of our own em­ploy­ees, our own input goods and sub­con­trac­tors.

Busi­ness area In­dus­try changes
Busi­ness area In­dus­try con­sists of a num­ber of com­pa­nies that de­liv­er input goods and ser­vices to the con­struc­tion in­dus­try. Due to the ac­qui­si­tion from YIT our op­er­a­tions have grown ex­ten­sive­ly and there­fore need to be steered and led at com­pa­ny level rather than busi­ness area level. The in­dus­tri­al com­pa­nies will con­tin­ue to re­port ex­ter­nal­ly as one busi­ness area. Op­er­a­tive­ly they will be led by MDs that re­port to two mem­bers of ex­ec­u­tive man­age­ment re­spon­si­ble for them, Roger Linnér and Niclas Winkvist. Karl-​Gunnar Karls­son will leave his role as Busi­ness Area In­dus­try Man­ag­er and there­fore ex­ec­u­tive man­age­ment. Karl- Gun­nar has been ap­point­ed MD for Swe­rock.

Chief Strate­gic Of­fi­cer ap­point­ed
In order to en­sure scale ad­van­tages, ef­fec­tive­ness and sus­tain­able prod­ucts, at the same time we de­vel­op our local busi­ness, we have to stream­line the way we lead and steer. Dig­i­tal­iza­tion will con­tin­ue to en­able this work going for­ward. In order to sup­port ex­ec­u­tive man­age­ment’s work with these mat­ters Johan Dager­tun has been ap­point­ed CSO.

Johan Dager­tun was most re­cent­ly MD for Con­struc­tion Sys­tem in busi­ness area In­dus­try and has pre­vi­ous­ly been a busi­ness con­troller in Fi­nance and Trea­sury at Peab.

After these changes  Peab’s executive management consists of the following members:

• Jesper Göransson, President and CEO
• Niclas Winkvist, CFO, part of business area Industry
• Roger Linnér, COO, part of business area Industry
• Stefan Danielsson, Business Area Construction Manager
• Lotta Brändström, Business Area Civil Engineering Manager
• Göran Linder, Business Area Project Development Manager
• Camila Buzaglo, CCO
• Johan Dagertun, CSO

The Nomination Committee proposes new auditors

Peab AB’s Nomination Committee proposes that the accounting firm EY be elected new auditor with Authorized Public Accountant Jonas Svensson as lead auditor. The proposal is made in compliance with the obligatory auditor rotation. KPMG has been Peab’s auditor until and including the financial year 2020.

IMPORTANT EVENTS AFTER THE END OF THE YEAR

New financial and non-financial targets

Through the strate­gic trans­ac­tions in re­cent years Peab has more clear­ly be­come a com­mu­ni­ty builder that, through four col­lab­o­rat­ing busi­ness areas and local pres­ence, is ac­tive through­out the Nordic re­gion. Our busi­ness model pro­vides us with unique op­por­tu­ni­ties to, with our own re­sources and con­trol over the en­tire value chain, meet our cus­tomers’ needs and external ex­pec­ta­tions. In order to fur­ther pro­mote value cre­ation we have re­vised every­thing from our mis­sion, busi­ness con­cept and strate­gic tar­get areas to in­ter­nal and ex­ter­nal fi­nan­cial and non-​financial tar­gets.

Both the in­ter­nal and ex­ter­nal fi­nan­cial and non-​financial tar­gets are cat­e­go­rized under the pre­vi­ous strate­gic tar­gets; Most sat­is­fied cus­tomers in the in­dus­try, Best work­place in the in­dus­try and Most prof­itable com­pa­ny in the in­dus­try as well as the new, fourth strate­gic tar­get, Leader in so­cial re­spon­si­bil­i­ty in the in­dus­try. We con­sid­er the ex­ter­nal tar­gets par­tic­u­lar­ly im­por­tant and they are a sub­set of our in­ter­nal tar­gets and ac­tion plans. As of 2021 Peab will ex­ter­nal­ly re­port the per­for­mance of the busi­ness by mon­i­tor­ing nine tar­gets, of which three are fi­nan­cial and based on segment reporting.

Re­vised mis­sion: We im­prove every­day life where it’s lived.

Re­vised busi­ness con­cept: Peab is the Nordic Com­mu­ni­ty Builder with a local pres­ence. Fo­cus­ing on our own re­sources and local part­ners we de­vel­op, do the ground­work and build every­day life where it’s lived.

Peab’s external targets as of 2021:

• Most satisfied customers in the industry; SCI > 75
• Best workplace in the industry; eNPS > Benchmark, Serious accidents: Zero vision for serious accidents through a continuously contracting trend
• Most profitable company in the industry; Operating margin > 6 %, Net debt/equity ratio 0.3 – 0.7, Dividend > 50 % of profit for the year
• Leader in social responsibility in the industry; Carbon dioxide intensity, own production: 60 % reduction by 2030, Carbon dioxide intensity, input goods and purchased services: 50 % reduction by 2030, Equal opportunity recruitment: Number of women recruited should always exceed the education market

The Nomination Committee’s proposed Board members

The Nomination Committee of Peab AB proposes reelection of Board members Fredrik Paulsson, Malin Persson, Karl- Axel Granlund, Liselott Kilaas, Lars Sköld, Kerstin Lindell and Anders Runevad as well as election of Magdalena Gerger. Mats Paulsson and Göran Grosskopf have both declined reelection for age reasons. Anders Runevad is proposed for election as Chairman of the Board.

THE PEAB SHARE

At the end of 2020 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 December 31, 2020 there were approximately 53,000 shareholders in Peab. 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 2019 the collective ownership connected to the Paulsson families amounted to a total of 25.7 percent of the capital and 57.7 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 May 6, 2020 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 December 31, 2020 the foundation owned 12,019,000 B shares in Peab, corresponding to 4.1 percent of the total number of shares.

HOLDINGS OF OWN SHARES

At the beginning of 2020 Peab’s own B shareholding was 1,086,984 which corresponds to 0.4 percent of the total number of shares. On May 6, 2020 Peab’s AGM  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 2020 which means that Peab’s own shareholding was 1,086,984 B shares at the end of 2020. 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 the Corporate governance report.

REMUNERATION POLICY FOR EXECUTIVE MANAGEMENT

For information on the latest adopted Remuneration Policy containing guidelines for determining salaries and other compensation to senior officers see note 10.

The Board hereby proposes that the AGM adopt the following changes in the Remuneration Policy regarding guidelines for remuneration to senior officers:

Short-term incentives (STI)

From time to time executive management may be offered STIs. A STI may not exceed 60 percent of basic pay and is based primarily on the Peab Group’s profitability and, at each time, other material Group goals. In the current program result measurements are connected to the company’s strategy in the form of profitability, customer focus, work environment and sustainability.

STIs are determined for each financial year and are settled the year after being earned. They may either be paid out as salary or be invested as a pension savings in a financial instrument connected to the Peab share.

Long-term incentive programs (LTI)

Every year the Board of Directors must consider whether or not to propose a share-based incentive scheme to the AGM. From time to time the CEO, other members of executive management and key personnel may be offered participation in a LTI program. The maximum annual amount in a LTI program (excluding social security costs) may not exceed 40 percent of annual basic pay. The programs are performance-based and only deliver an outcome if predefined goals are met. The outcome of a LTI program is invested as a pension savings in a financial instrument connected to the Peab share.

EXPECTATIONS CONCERNING FUTURE DEVELOPMENT

The recovery in Sweden’s economy has been surprising and many forecasts have been adjusted upward. Unemployment is expected to continue to rise in 2021, pressure from inflation will probably be weak for several years and therefore the repo rate is expected to remain around zero over the next two to three years. Housing construction is expected to develop horizontally during the period 2021-​2022. After the dramatic drop in 2020 private premises are expected to turn during 2021. Public building construction is expected to increase in 2021. The forecast for civil engineering indicates greater investments in 2021 with a particular focus on public spending.

The Norwegian economy has made a good recovery after falling in the spring and growth forecasts have been adjusted upwards. Recovery has been driven by domestic demand where private consumption has been a particularly strong force. Development on the construction market is somewhat fractured. Housing construction is expected to develop horizontally during the period 2021-​2022. Other building construction is expected to decline in 2021. Investments in industrial and commercial premises are expected to contract while public sector construction is expected to grow. The government’s economic policy is expected to continue to be expansive next year and there is room for investments in civil engineering construction, which is expected to continue to grow in 2021.

Finland’s economy has so far shown strong resistance to the global economic downturn created by the pandemic. Housing construction is expected to develop horizontally during the period 2021-​2022. Other building construction is expected to remain unchanged where investments in industry are expected to drop while public sector construction is expected to grow. Civil engineering construction is expected to decline in 2021.

PARENT COMPANY

The parent company’s business consists of executive management and Group functions. Net sales in 2020 were SEK 346 million (348) and consisted primarily of internal Group services. Operating profit for the year was SEK -199 million (-160). Profit after net financial items amounted to SEK 243 million (-98). Net financial items included dividends from subsidiaries of SEK 500 million (200). Of the appropriations, Group contributions were SEK 1,587 million (2,130). Profit for the year amounted to SEK 1,304 million (1,263).