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 2022 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 2022 increased by five percent to SEK 61,933 million (58,923). Adjusted for acquired and divested units net sales increased by three percent. Adjustment to the completion method for own housing development projects affected net sales by SEK -1,202 million (-1,103).

Group net sales according to segment reporting increased by five percent in 2022 and amounted to SEK 63,135 million (60,026). After adjustments for acquired and divested units and exchange rate effects net sales increased by four percent. A large part of the increase is explained by higher material and energy costs which have affected pricing to customers. Of the year’s net sales SEK 18,892 million (17,298) were attributable to sales and production outside Sweden. The proportion of public sector customers was 43 percent (42) while private customers represented 57 percent (58) of total net sales.

Net sales in business area Construction increased by seven percent and the increase was related to all countries. Net sales in business area Civil Engineering increased by six percent with increases in Infrastructure and Operation and maintenance. Net sales in business area Industry increased by 14 percent with the increase primarily related to Paving, Concrete and Construction System. In business area Project Development net sales decreased by nine percent where the decrease was mainly generated in Housing Development. Demand for housing has dropped in all the countries, particularly in the second half of the year, which has contributed to a lower sales rate and fewer production starts of homes.

Profit/loss

Operating profit for 2022 according to IFRS declined to SEK 2,557 million (2,975) and the operating margin decreased to 4.1 percent (5.0). Adjustment to the completion method for own housing development projects affected operating income by SEK -219 million (-152).

Operating profit for 2022 according to segment reporting amounted to SEK 2,741 million (3,098) and the operating margin contracted to 4.3 percent (5.2). During 2021 and 2022 prices for material and energy rose dramatically. We have for the most part handled price hikes and delivery disruptions through adjustments and streamlining but since we have not been able to fully compensate for cost increases they have had negative impact on the operating margin. Last year operating profit was positively affected by a repayment of SEK 179 million for AGS premiums reported in Group functions.

In business area Construction the operating margin contracted to 2.2 percent (2.6) where the effect of rising costs was apparent in all countries. In business area Civil Engineering the operating margin was unchanged at 3.3 percent (3.3). All in all the operating margin for construction contract operations amounted to 2.6 percent (2.9).

The operating margin in business area Industry was 3.5 percent (5.0). The operating profit in Paving was lower as a result of higher energy and fuel costs that have not been fully recompensed through higher prices to customers, particularly in Norway, Finland and Denmark. Profitability was also lower in Mineral Aggregates compared to last year, while profitability improved in the other product areas in business area Industry.

In business area Project Development the operating margin was unchanged at 13.0 percent compared to last year. In Housing Development the operating margin was 11.5 percent (11.2). In Property Development profit contributions from partially owned companies were higher during the year. Capital gains from property transactions amounted to SEK 85 million (218) and included the divestiture of a logistics facility in Södertälje to Annehem Fastigheter and a sports arena in Sundsvall to Balder. Last year included the divestiture of office buildings in Helsingborg and Solna to Annehem Fastigheter.

Elimination and reversal of internal profit in our own projects have affected operating profit during the year net by SEK -58 million (-31).

Depreciation and write-​​downs according to IFRS were SEK -1,713 million (-1,707). Depreciation and write-​downs according to segment reporting were SEK -1,349 million (-1,341).

Net financial items according to IFRS amounted to SEK -117 million (-73), of which net interest amounted to SEK -340 million (-194). A large part of the interest expenses refer to financing of own housing development projects, which are capitalized on the properties.

Net financial items according to segment reporting amounted to SEK -71 million (-22) of which net interest was SEK -120 million (-59) and exchange rate differences were SEK -6 million (7). Dividends and capitalized interest have had a positive effect on net financial items.

Pre-​tax profit according to IFRS was SEK 2,440 million (2,902). Tax for the year was SEK -609 million (-525) corresponding to a tax rate of 25 percent (18).

Pre-​tax profit according to segment reporting was SEK 2,670 million (3,076). Tax for the year was SEK -633 million (-569) corresponding to a tax rate of 24 percent (18). The high tax rate is primarily due to deficits that have not been capitalized and non-​deductible pension costs.

Profit for the year according to IFRS was SEK 1,831 million (2,377).

Profit for the year according to segment reporting was SEK 2,037 million (2,507).

Financial position

Total assets according to IFRS per December 31, 2022 were SEK 51,011 million (47,170). The adjustment of differences in accounting principles in relation to segment reporting has affected total assets according to IFRS by SEK 7,791 million (6,840) and most of it consists of adjustments for own housing development projects, which have increased during the year. Equity according to IFRS amounted to SEK 13,786 million (13,682) which means the equity/assets ratio was 27.0 percent (29.0). Net debt according to IFRS amounted to SEK 16,681 million (10,515).

Total assets according to segment reporting per December 31, 2022 were SEK 43,220 million (40,330). Equity amounted to SEK 14,978 million (14,656) which means the equity/assets ratio was 34.7 percent (36.3). Interest-​bearing net debt at the end of December 2022 amounted to SEK 6,899 million (2,404). Net debt includes project financing for the unsold part of our own housing development projects as long as they are in production. The unsold part was SEK 2,209 million (958) and the increase is due to a high production rate but a lower level of sales in ongoing production compared to the same time last year. Net debt has also been affected by repurchasing own shares for SEK 500 million (–). The average interest rate in the loan portfolio, including derivatives, was 3.3 percent (1.4) on December 31, 2022.

Group liquid funds according to IFRS, including unutilized credit facilities but excluding project financing, were SEK 7,640 million at the end of the year compared to SEK 10,590 million on December 31, 2021.

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 that covers 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 2,843 million at the end of the year compared to SEK 3,263 million on December 31, 2021. Surety for credit lines in tenant-​​owner associations regarding the unsold part after deconsolidation made up SEK 97 million of contingent liabilities compared to SEK 19 million on December 31, 2021.

Investments and divestments

During 2022 tangible and intangible fixed assets according to IFRS were net invested for SEK 2,529 million (1,765).

During 2022 tangible and intangible fixed assets according to segment reporting were net invested for SEK 2,152 million (1,453). The investments refer primarily to investments in machines.

Net investments in project and development properties according to IFRS totaled SEK 2,945 million (2,202) during 2022.

Net investments in project and development properties according to segment reporting totaled SEK 2,268 million (1,067) during 2022. Project and development properties include the unsold part of our own ongoing housing development projects, which has increased during the year. In addition, we have invested in development rights and in several rental projects in our own balance sheet. During last year, among others, 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.

Cash flow

Cash flow from current operations according to IFRS amounted to SEK -1,556 million (2,818), of which cash flow from changes in working capital was SEK -4,920 million (-1,275).

Cash flow from current operations according to segment reporting amounted to SEK -352 million (4,807), of which cash flow from changes in working capital was SEK -3,521 million (874). The negative cash flow from changes in working capital derives from all business areas, even if a large part is related to business area Project Development through acquisitions of project and development properties. Cash flow from current operations included dividends from partially owned companies of SEK 185 million (307).

Cash flow from investment activities according to IFRS was SEK -1,603 million (-1,766).

Cash flow from investment activities according to segment reporting was SEK -1,603 million (-1,766). Investments mainly consisted of machines and vehicles in business area Industry as well as business combinations in business area Civil Engineering. In addition, business area Project Development increased its exposure and lending to joint ventures. Besides machine investments in business area Industry, last year included business combinations in business area Civil Engineering and increased exposure to joint ventures in business area Project Development.

Cash flow before financing according to IFRS was SEK -3,159 million (1,052).

Cash flow before financing according to segment reporting was SEK -1,955 million (3,041).

Cash flow from financing operations according to IFRS amounted to SEK 1,687 million (907).

Cash flow from financing operations according to segment reporting amounted to SEK 483 million (-1,082), of which paid dividends were SEK -1,475 million (-1,327) and repurchasing of own shares was SEK -500 million (–).

Order situation

Orders received in 2022 amounted to SEK 53,259 million compared to SEK 55,848 million last year.

Orders received contracted in business area Construction during the year but were relatively unchanged in business area Civil Engineering compared to 2021. Orders received in business area Industry increased but declined in business area Project Development as a result of fewer production starts of our own housing developments due to a drop in demand in the housing market during the year.

Order backlog yet to be produced at the end of the year amounted to SEK 44,389 million compared to SEK 45,318 million at the end of last year. Of the total order backlog, 35 percent (34) is expected to be produced after 2023 (2022). Swedish operations accounted for 78 percent (75) of the order backlog.