Executive Management has together with the Board of Directors discussed developments, selections and information regarding the Group’s important accounting principles and assessments, as well as the application of these principles.

Certain important accounting estimates made when applying the Group’s accounting principles are described below.

The sources of uncertainty in the assessments given below refer to those that entail a risk that the value of assets or liabilities may have to be significantly adjusted in future financial years.

Peab’s operative business is sensitive to changes in, among other things, volume and margins. The financial risks are connected to the business’ tied-up capital, capital needs, interest risk and currency risk. For more information about how the changes in important variables affect Group profit/loss, see the section Risks and risk management under the Sensitivity Analysis.

Construction contracts recognized over time

Profit/loss recognized for construction projects in progress is calculated over time based on the degree of completion of the project. This requires that project revenue and expenses can be calculated in a reliable manner. A prerequisite is a well functioning system for calculation, forecasting and project monitoring. Forecasts regarding the final outcome of the projects are critical estimates crucial to profit/loss recognition during the project. Project forecasts are evaluated on a regular basis as each project progresses and if necessary adjusted. There is a risk that the final profit/loss of a project may deviate from the profit/loss recognized over time.

Impairment tests of goodwill

Total Group goodwill amounts to SEK 3,112 million (3,068). The acquisition of YIT’s Nordic paving and mineral aggregates operations in April 2020 within the business area Industry, SEK 1,397 million in goodwill was added.

When calculating cash generating units’ recoverable amount in order to assess the need to write-down goodwill several estimations and assessments about the future have been made. They are presented in note 15. As is apparent in the description in note 15, changes beyond what can reasonably be expected during 2022 in these estimations and assessments could have an effect on goodwill. Regarding the acquired paving and mineral aggregates operations in the business area Industry the difference between recoverable values and booked values is lower than in older acquisitions. It is, however, common that differences between recoverable values and booked values are lower in new acquisitions. The acquired operations have developed well since the acquistion in 2020 and follows plan which is why Peab does not believe there is any major risk for a material write-down of goodwill in the coming fiscal year. The risk for write-downs of other goodwill values is very low since the recoverable values to a large extent exceed the booked values in cases where the goodwill values are significant amounts.

Project and development property

Project and development property amounts to SEK 16,258 million (14,074), of which SEK 15,932 million (13,670) refers to owned assets and SEK 326 million (404) refers to leased assets. The recognized value for owned assets has been calculated as the lowest of the purchase price and the net sales price based on current price levels in the respective locations. Changes in supply and demand may alter recognized values and write-downs may be required. Peab is using an internal model to test the value of project and development property. As a complement to this valuation external market values are annually reviewed for some of the properties. For more information on project and development property, see note 23.

Disputes

Peab’s business is largely project-related. There are a number of different contract forms where risk levels vary depending on the type of contract. However, with any type of contract ambiguities can arise concerning the terms, which can lead to delimitation issues that create a dispute with the customer.

The construction contract for the production of the Mall of Scandinavia in Solna was signed at the end of 2011. Major changes in the project during production together with insufficient dialogue with our customer led to significantly higher costs. The original contract was SEK 3.5 billion. The project was reviewed after the mall was inaugurated in November 2015 and then written down by SEK -800 million in the fourth quarter 2015. Negotiations with the customer have not yet reached a final agreement. Peab’s assessment of the financial situation is the same as what has previously been communicated.

The actual outcome in disputed amounts may deviate from those recognized according to the best estimate. For more information on disputes, see note 31.

Taxes

Changes in tax legislation and changed practice in the interpretation of tax laws can have a considerable impact on the size of recognized deferred taxes. For more information on taxes, see note 14.

Accounting principles

New or changed accounting standards and interpretations of other existing standards can lead to changes that may entail handling certain transactions in the future differently from current practice.