Board of Directors’ Report

The Board of Directors and the Chief Executive Officer of Peab AB (publ), Corporate ID Number: 556061-4330, hereby submit the following annual report and consolidated accounts for the 2021 financial year.

The Group has different accounting principles in segment accounting for our own housing development projects and IFRS 16 (previously operational leases) compared to accounting according to IFRS. For more information concerning accounting principles and the differences between segment accounting and accounting according to IFRS see note 1 and 4. For information concerning alternative performance measures see the section Alternative performance measures and definitions.

Net sales

Group net sales according to IFRS for 2021 decreased by two percent to SEK 58,923 million (59,852). Even after adjustments for acquired and divested units net sales decreased by two percent. Adjustment to the completion method for own housing development projects affected net sales by SEK -1,103 million (2,491). During the year, more homes have been production-started than have been completed. In the comparable year more homes were completed than production-started.

Group net sales according to segment reporting increased by five percent and amounted to SEK 60,026 million (57,417). Even after adjustments for acquired and divested units net sales increased by five percent. Of the year’s net sales SEK 17,298 million (17,005) were attributable to sales and production outside Sweden. Customers in the public sector stood for 42 percent (43) while private customers stood for 58 percent (57) of total net sales.

Net sales in business area Construction were unchanged compared to last year. In both Sweden and Norway net sales increased while they contracted in Finland. The proportion of housing projects has increased compared to last year. Net sales in business area Civil Engineering increased by ten percent and the increase is related to Local market and Operation and maintenance. Net sales in business area Industry were largely unchanged compared to last year. Net sales increased in Mineral Aggregates, Concrete and Construction System while they contracted in Rentals and Transportation and Machines. Paving had lower volumes during the year but as a result of higher prices for bitumen net sales were on the same level as last year. In business area Project Development net sales increased by 27 percent, the increase primarily due to Housing Development where there has been more activity in both Sweden and Finland. The greater number of production-​started homes, resulting from a continued good housing market in all countries, has had a positive effect on net sales.

Profit/loss

Operating profit for 2021 according to IFRS declined to SEK 2,975 million (3,922). Adjustment to the completion method for own housing development projects affected operating income by SEK -152 million (331). The operating margin was 5.0 percent (6.6).

Operating profit according to segment reporting for 2021 amounted to SEK 3,098 million (3,541). Last year included the effect of the distribution of Annehem Fastigheter by SEK 952 million. Operating profit for 2021 includes the repayment of AGS premiums of SEK 179 million recognized in Group functions. The operating margin was 5.2 percent (6.2). Excluding the effect of the distribution of Annehem Fastigheter the operating margin in 2020 was 4.5 percent. During the year the cost of certain construction materials as well as energy prices have gone up but so far the financial consequences for Peab have been limited.

The operating margin in business area Construction improved to 2.6 percent (2.5) in 2021. Earnings increased in both Sweden and Finland while operating profit decreased in Norway. In business area Civil Engineering the operating margin improved to 3.3 percent (3.0). Earnings were good in all the product areas in Civil Engineering. All in all the operating margin for construction contract businesses Construction and Civil Engineering amounted to 2.9 percent (2.6).

Operating profit was lower in business area Industry compared to the last year and the operating margin was 5.0 percent (5.9). The lower operating margin is primarily due to seasonal effects in Paving and Mineral Aggregates related to the acquisition of paving and mineral aggregates operations in 2020. Peab acquired YIT’s Nordic paving and mineral aggregates operations on April 1, 2020. The acquired operations have a very clear seasonal pattern which means the first quarter carries 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 2020 would have been affected by SEK -297 million. Depreciation on surplus values related to customer contracts in taken over order backlog and tangible assets have charged profit by SEK -80 million (-189). The comparable year also included acquisition costs and transfer tax of SEK -55 million. The long, cold winter in the beginning of 2021 has had a negative effect on profit in operations in business area Industry since the season started up later than last year.

Operating profit in Project Development was lower compared to 2020 but excluding the effect of the distribution of Annehem Fastigheter by SEK 896 million in Property Development in 2020 operating profit improved. A strong housing market in all three countries contributed to a higher operating profit in Housing Development and the operating margin improved to 11.2 percent (9.6). Excluding the effect of the distribution of Annehem Fastigheter last year operating profit was higher in Property Development in 2021 where capital gains from real estate transactions had a positive effect of SEK 218 million (51). During the year, among other things, office buildings in Helsingborg and Solna were sold to Annehem Fastigheter. Profit contributions from partially owned companies have been somewhat lower compared to 2020. Some operations connected to travel and tourism have been negatively affected by the corona pandemic which lowered operating profit in Property Development by SEK -20 million (-64). The comparable period included SEK -44 million related to Ängelholm-​​Helsingborg Airport, of which SEK -20 million referred to the write-​​down of goodwill.

Elimination and resolution of internal profit in our own projects have affected operating profit during the year by net SEK -31 million (23). Last year included the resolution of construction gains in connection with the distribution of Annehem Fastigheter of SEK 56 million. Elimination is reversed in connection with the external divestment of a project.

Depreciation and write-​downs according to IFRS were SEK -1,707 million (-1,734).

Depreciation and write-​downs according to segment reporting were -1,341 million (-1,412).

Net financial items according to IFRS amounted to SEK -73 million (-177), of which net interest amounted to SEK -194 million (-247). A large part of the interest expenses refer to financing of own housing development projects, which are capitalized on the properties. Last year net interest included interest expenses attributable to Annehem Fastigheter of SEK -36 million.

Net financial items according to segment reporting amounted to SEK -22 million (-108) of which net interest was SEK -59 million (-56). In net financial items exchange rate differences had an effect of SEK 7 million (-88).

Pre-​tax profit according to IFRS was SEK 2,902 million (3,745). Tax for the year was SEK -525 million (-564) corresponding to a tax rate of 18 percent (15).

Pre-​tax profit according to segment reporting was SEK 3,076 million (3,433). Tax for the year was SEK -569 million (-485) corresponding to a tax rate of 18 percent (14). The lower tax rate last year was primarily due to non-​taxable income linked to the distribution of Annehem Fastigheter.

Profit for the year according to IFRS was SEK 2,377 million (3,181).

Profit for the year according to segment reporting was SEK 2,507 million (2,948).

Financial position

Total assets according to IFRS per December 31, 2021 were SEK 47,170 million (42,164). The adjustment of differences in accounting principles in relation to segment reporting has affected total assets according to IFRS by SEK 6,840 million (5,560). Own housing development projects have increased during the year while IFRS 16, additional leases decreased. Equity according to IFRS amounted to SEK 13,682 million (12,443) which means the equity/assets ratio was 29.0 percent (29.5). Net debt according to IFRS amounted to SEK 10,515 million (9,682).

Total assets according to segment reporting per December 31, 2021 were SEK 40,330 million (36,604). Equity amounted to SEK 14,656 million (13,251) which means the equity/assets ratio was 36.3 percent (36.2). Interest-​bearing net debt decreased during the year and amounted to SEK 2,404 million (3,873) at the end of December 2021. Net debt includes the unsold part of our own housing development projects as long as they are in production. The unsold part was SEK 958 million (1,055) and the reduction is due to a higher proportion of sold homes. The acquisition of paving and mineral aggregates operations in business area Industry on April 1, 2020 increased net debt by SEK 3,125 million at the time of the acquisition. After the acquisition positive cash flow effects have contributed to lower net debt. The average interest rate in the loan portfolio, including derivatives, was 1.4 percent (1.4) on December 31, 2021.

Group liquid funds according to IFRS, including unutilized credit facilities but without project financing, were SEK 10,590 million at the end of the year compared to SEK 8,822 million on December 31, 2020.

As a consequence of Peab consolidating Swedish tenant-​​owner associations per January 1, 2020 according to IFRS, surety for tenant-​​owner associations under production is not reported. When homebuyers take possession of their apartments and the tenant-​​owner association is no longer consolidated in Peab’s accounts, Peab then reports the part of surety for unsold homes. Peab has a guarantee obligation to acquire unsold homes six months after completion. Group contingent liabilities, including joint and several liabilities in trading and limited partnerships, amounted to SEK 3,263 million at the end of the year compared to SEK 3,500 million on December 31, 2020. Surety for credit lines in tenant-​​owner associations regarding the unsold part after deconsolidation made up SEK 19 million of contingent liabilities compared to SEK 238 million on December 31, 2020.

Investments and divestments

During the year tangible and intangible fixed assets and investment property according to IFRS were net invested for SEK 1,765 million (1,109).

During the year tangible and intangible fixed assets and investment property according to segment reporting were net invested for SEK 1,453 million (732). The investments refer primarily to investments in machines and business combinations.

Net investments in project and development properties according to IFRS totaled SEK 2,202 million (net divestitures SEK 2,842 million) during 2021. During the year more own housing development projects were started-up and are ongoing than have been completed.

Net investments in project and development properties according to segment reporting totaled SEK 1,067 million (net divestitures SEK 1,917 million) during 2021. During the year part of the property Stockholm Primus 1 on Lilla Essingen in Stockholm with development rights for more than 40,000 m2 GFA (gross area) and an underlying property value of SEK 1,167 million was acquired. Project and development properties include the unsold part of our own ongoing housing development projects. During the year the number of production-​started housing projects increased while last year more homes were sold and completed than production-​started.

Cash flow

Cash flow from current operations according to IFRS amounted to SEK 2,818 million (7,693), of which cash flow from changes in working capital was SEK -1,275 million (3,106). More of our own housing developments were production-started than completed and turned over which had a negative effect on cash flow. Last year more homes were sold and turned over than production-​started.

Cash flow from current operations according to segment reporting amounted to SEK 4,807 million (6,749), of which cash flow from changes in working capital was SEK 874 million (2,886). After acquisition of the paving and mineral aggregates operations in 2020 business area Industry has a stronger seasonal pattern which has affected cash flow negatively in the first half of 2021 but has had a positive effect during the second half of the year. During last year a lot of working capital was released primarily in Housing Development due to the fact that more housing projects were sold and turned over than were production-started. The number of production starts of our own housing developments increased in 2021. In December part of the property Stockholm Primus 1 on Lilla Essingen in Stockholm with an underlying property value of SEK 1,167 million was acquired which had a negative effect on cash flow from working capital. Cash flow from current operations included dividends of SEK 307 million (306) from partially owned companies.

Cash flow from investment activities according to IFRS was SEK -1,766 million (-3,940).

Cash flow from investment activities according to segment reporting was SEK -1,766 million (-3,970) and for the most part consisted of machine investments, business combinations as well as increased engagement in joint ventures in business area Project Development. The purchase price of the paving and mineral aggregates operations in Industry was included in the comparable year by SEK -3,125 million.

Cash flow before financing according to IFRS amounted to SEK 1,052 million (3,753).

Cash flow before financing according to segment reporting improved during the year and amounted to SEK 3,041 million (2,779).

Order situation

The order situation is based on segment reporting which means that tenant-owner associations and housing companies are considered external customers regarding our own housing development projects.

The level of orders received increased by twelve percent in 2021 and amounted to SEK 55,848 million compared to SEK 49,735 million for the last year. The level of orders received increased in all business areas. The increase in business area Industry is primarily related to the paving and mineral aggregates operations that were taken over from YIT on April 1, 2020. Group orders received for the year are well spread both in product segment and geographically.

Order backlog yet to be produced at the end of the year amounted to SEK 45,318 million compared to SEK 42,709 million at the end of 2020. Of the total order backlog, 34 percent (32) will be produced after 2022 (2021). Swedish operations accounted for 75 percent (78) of the order backlog.