Risks and risk management

Peab’s business is largely project-related which means many risks are linked to carrying out projects. Erroneous calculations with, for example, mistakes in amount computations can lead to incorrect bids and losses in projects.

Deficient analysis of requirements can lead to commitments we cannot deliver. Responsibility allocation and risk levels vary depending on the type of contract.

Grey areas in the contract language can lead to discussions with counterparties and even disputes.

Price risks can be unforeseen cost increases for, for example, material.

Other risks can be linked to technical solutions and method choices.

Structured risk analysis is crucial to ensure that risks are identified and correctly priced in bids.

The right resources in projects ensure that they will be carried out according to contract terms and our established processes and procedures.

Our Procurement Council ensures that risks are identified and handled before the bid is presented. The composition of the Procurement Council varies depending on the project’s size and complexity.

Correct and well-crafted contract templates ensure that suppliers/SCs are procured properly, which also reduces risks.

Peab also has access to technical specialists to ensure that projects are carried out according to tried and true methods and solutions.

Flaws in control of the supply chain is a major risk. Choosing the wrong supplier/SC can lead to quality defects and delivery disruptions.

Suppliers/SCs who defy laws, contracts and other regulations or show a neglect of ethics, entail unacceptable risks for Peab. There are also risks connected to dependence on one or a few suppliers.

In the current economic downturn there is a higher risk for Suppliers/SCs going bankrupt.

Peab’s Suppliers Code of Conduct and the ethics clause for suppliers are attached to all contracts Peab signs with suppliers/SCs.

Peab has developed procedures to monitor the work environment, work conditions, reliable supplier chains and environmental demands.

Peab uses a system that blocks rogue suppliers and SCs from being procured.

In Sweden Peab also has third party checks of workplaces and works with audits of certain suppliers/SCs.

Peab signs framework contracts with suppliers/SCs to minimize risks in projects.

To further reduce vulnerability Peab works with strategic supply plans.

Peab also takes various steps to note early signs of suppliers/SCs struggling to pay their bills and be prepared for a bankruptcy.

Peab is dependent on attracting and keeping talent in order to reach our targets.

There is competition for certain expertise on the labor market. There is a risk that the industry is not considered attractive, especially in the current economic situation or that the industry will fail in increasing gender equality and diversity.

We are also facing challenges with new areas of expertise.

Peab works strategically with both talent management and developing our attraction as an employer. Positions in our company have clear career paths and we continually update our succession plans.

Peab works with diversity and equal opportunity and we have set targets for gender equality recruitment. During 2023 we launched The Construction Year, a program to bring more women into the construction industry.

As a community builder Peab strives constantly to create new talent supply channels together with schools and colleges, internal education and our own high school, the Peab School.

Serious accidents at Peab’s workplaces can lead to employees or suppliers/SCs being injured or, in the worst case, killed. These accidents can also lead to legal sanctions and damage confidence in the company.

Another risk area is the organizational and social work environment, which includes unhealthy stress and victimization. This can result in mental illness and considerable costs if someone gets sick or is injured at work.

The industry has experienced a rise in threats and violence against employees, particularly in roadwork situations.

Peab has a zero vision for workplace accidents and plays an active role in the industry’s network for zero fatal accidents in the construction business. Accidents are prevented by planning and risk analysis observations early on. In addition, we continually monitor reported risk observations and investigate incidents and accidents. Risk observations are the basis for organizational learning about where, when and why risks occur. Peab also teaches employees about equal treatment and has procedures to prevent discrimination and victimization.

To handle threats and violence against employees Peab works with training, collaboration in the industry, analysis and follow up.

Customer behavior and demands can change at such a rate that Peab cannot adapt to these changes quickly enough.

Peab can also risk investing in the wrong markets or market segments.

Peab can fail to handle different competitive situations.

Peab has a broad market offer for both the public and private sectors comprising the entire production chain from manufacturing construction material to producing complete buildings and roads. Peab always strives to offer customers a comprehensive solution through close collaboration between Group companies.

By reallocating Group resources Peab can quickly adapt to market needs.

We constantly work on developing our employees, construction methods and new climate smart construction material in order to supply the market of the future.

Political decisions, decisions by authorities and changes in laws can have negative effects on Peab’s business. Examples of this are higher demands on capital input when buying a home or authorities’ zoning decisions that impact land development and land values.

Public investments in community building have direct consequences for Peab’s business.

Political unrest, war and conflicts affect our business in different ways, e.g. regarding material supplies.

Peab’s broad geographic presence and our operations in different business areas with customers in both the private and public sectors dampens the effect of political risks as well.

Peab can often handle risks in a variety of ways. In the example of changes in market conditions we can work to shorten lead times from land acquisition to finished project in project development operations.

Through strategic purchasing we avoid supplier dependency, which reduces vulnerability regarding material supplies.

Peab is active in social debate and strives to highlight barriers to streamlining community building in the countries we operate in.

Climate change with extreme weather can create both physical risks to our construction projects with storms and torrential rain and cause material, commodity and energy shortages.

A lack of competence or adjusting too slowly by Peab or our suppliers/SCs can lead to Peab’s products and services not meeting future demands and expectations.

Laws and regulations are becoming more and more extensive regarding the environment and climate and require new systems and processes.

Risk prevention comes under the Group’s three prioritized environmental areas which are also set targets; climate neutrality, resource efficiency and phasing out environmentally and health hazardous products. We have also solidified our transition plan in a development program we call the “Climate Road Map”.

Peab offers the market a broad range of ECO-products that have been created for construction and civil engineering production with a lower climate impact.

Peab has identified climate risks with support of TCFD and works with climate calculations in projects. We also report according to EU Taxonomy.

Peab has also begun the work to implement climate risk and vulnerability analyses for our production units as well as prepare for incoming new legislation.

Reoccurring extreme weather requires adapting production methods and other measures to limit the risks of damages to, for example, construction projects and real estate.

Access to certain commodities is crucial to our operations and in some cases there are only a few suppliers which entails risks for our business. Sanctions can quickly upturn established supply chains.

Examples of critical commodities with few suppliers are cement and bitumen.

Peab has a policy for strategic input goods aimed at proactively working to secure access to these materials.

We have been working our own alternative binders for quite a while as well as importing some cement to manage the risk. Peab has also chosen several alternative suppliers to guarantee access to critical commodities like bitumen.

Energy is important for our entire business. Producing asphalt is particularly energy intense but major construction projects also consume a great deal of electricity.

Energy shortages or high costs entail risks for our business.

The price of electricity is expected to continue to vary in coming years. The differences between high and low prices are expected to be greater than before because of the expansion of renewable energy in the Nordic region, more cable connections with Europe and a generally higher price level in Europe after the energy crisis in 2022.

Peab has long contracts in Sweden, which provides predictability and stability.

Peab is always working on improving energy efficiency in both the production phase and during the life cycle of a building.

Peab continually lifts the importance of increasing electricity production and the electric grid’s capacity in its discussions with politicians.

Peab faces regulation compliance risks that can affect our business. These entail risks such as non-compliance with contracts and our Code of Conduct and policies, involvement in corruption or improper competition as well as potential transgressions of human rights in our own company or our supply chain.

The consequences of these risks include fines, legal sanctions, damaged credibility, failed projects and exclusion from public procurements.

Peab handles regulation compliance risks through a governance framework including a Code of Conduct, a Suppliers’ Code of Conduct, policies and guidelines that describe how employees act sustainably, responsibly and effectively. This framework is the basis of Peab’s proactive work with ethics and regulation compliance and includes regular education and set consequences for transgressions. Our management system is a central tool in supporting regulation compliance in the business.

All issues concerning ethics and regulation compliance are centralized in the Group function Corporate governance and compliance, which is also part of Peab’s Ethical Council. Peab’s whistleblower system allows internal and external parties to report irregularities, supplemented by internal whistleblower contacts for further reporting and support.

Peab’s purchasing department has an important role in minimizing risks in the supply chain by ensuring responsibility and conducting risk assessments, supplier checks and audits.

Governing-related risks refer to both overriding Group governance and project steering. This includes everything from applying internal and external regulations, defining roles and collaboration to our ability to meet higher customer demands and more formalization.

The consequences of these risks include fines, legal sanctions, damaged credibility, failed projects and exclusion from public procurements.

Financial risk-taking is connected to the business’ capital and investment needs which are different for each of Peab’s four business areas. Business areas Construction and Civil Engineering normally have a positive working capital that contributes to financing the other operations.

Business area Industry binds capital in fixed assets with an ongoing need for investments.

Business area Project Development binds capital through investments in land and development rights.

Peab’s financial targets are the overriding means by which the Group governs financial risk-taking.

Tied-up capital in business areas Construction and Civil Engineering is managed through payment balance requirements.

For business areas Industry and Project Development tied-up capital is managed through set frameworks.

All major investments in Peab go through an established investment procedure where decisions are made by a Group investment team.

Since Peab applies recognition over time as a project is completed for most of our ongoing projects, erroneous project forecasts can entail that recognition and monitoring can be misleading.

A number of balance items, including project and development property, are valued based on estimations and assessments. This value can be affected by, for example, the current market, interest rates and customers’ preferences, which can lead to impairment.

A prerequisite for correct recognition over time is reliably forecasting the outcome. Well-developed procedures and system support for monitoring and forecasting each project is crucial to limiting the risk of erroneous revenue recognition.

The recognized value of project and development property has been calculated as the lowest of the purchase price and the net sales price based on current price levels in the respective locations. Peab is continuously testing the values of project and development property through an internal model. As a complement to this valuation external market values are annually reviewed for some of the properties.