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 2023 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 2023 amounted to SEK 61,600 million (61,933). Adjusted for acquired and divested units and exchange rate effects net sales decreased by two percent. Adjustment to the completion method for own housing development projects affected net sales by SEK 2,779 million (-1,202). During the year more homes have been completed and turned over than production started.

Group net sales according to segment reporting decreased by seven percent in 2023 and amounted to SEK 58,821 million (63,135). After adjustments for acquired and divested units and exchange rate effects net sales decreased by eight percent. Of the year’s net sales SEK 16,740 million (18,892) were attributable to sales and production outside Sweden. The proportion of public sector customers has increased and was 48 percent (43) while private customers represented 52 percent (57) of total net sales.

Net sales in business area Construction decreased by four percent compared to the previous year. The lower demand for new production of housing could not be fully compensated for by other kinds of projects, which affected all the countries we operate in. Activity remained high in business area Civil Engineering and net sales increased slightly compared to last year. Net sales in business area Industry decreased by seven percent which was primarily due to lower net sales in paving and concrete. In business area Project Development net sales decreased by 34 percent in 2023. The decrease was due to the weak demand for housing throughout the Nordic region, which impacted net sales in Housing Development while net sales in Property Development were on par with last year.

Profit/loss

Operating profit for 2023 according to IFRS amounted to SEK 2,586 million (2,557) and the operating margin was 4.2 percent (4.1). Adjustment to the completion method for own housing development projects affected operating income by SEK 696 million (-219).

A decision in the case between Peab and Unibail Rodamco Westfield regarding the contract for Mall of Scandinavia (MoS) in Solna was handed down on June 30, 2023. The judgement entailed a positive effect on operating profit of SEK 400 million in the second quarter 2023. For more information on the judgement see the section Other information and appropriation of profit on page 89.

Operating profit for 2023 according to segment reporting amounted to SEK 1,853 million (2,741) and the operating margin was 3.2 percent (4.3). Excluding the effect of the judgement regarding MoS operating profit was SEK 1,453 million and the operating margin was 2.5 percent.

To counteract the diminished housing market operations in construction production, housing development, rental operations and central support functions are being streamlined which generates restructuring costs but also lower overhead going forward. In business area Construction housing projects received before the outbreak of war in Ukraine that have been affected by price hikes and are on the verge of completion, and some projects in Norway have been written down. All in all provisions, write-​downs and restructuring costs amounted to SEK 525 million, of which SEK 125 million were write-​downs of goodwill. Of the total sum of SEK 525 million, SEK 465 million have charged business area Construction and SEK 60 million charged Group functions. After taking these measures we are well-​equipped to handle both a continued weak housing market and meet a growing market.

In business area Construction the operating margin excl. MoS was 0.1 percent (2.2). In business area Civil Engineering the operating margin was unchanged at 3.3 percent (3.3). Despite the impact of the high prices for material and energy on contracts received before the outbreak of war in Ukraine Civil Engineering reported a high and stable margin. All in all, the operating margin for construction contract operations amounted to 1.3 percent (2.6). The operating margin in business area Industry was higher during the year and amounted to 4.8 percent (3.5), which is mostly explained by increased earnings in paving. Operating profit in rentals declined during the year due to a weaker construction market. Operating profit in business area Project Development was considerably lower due to the weak demand for housing. There were fewer sold homes and production-​started housing projects in Housing Development, which has affected operating profit negatively. The operating margin in Housing Development was 3.8 percent (11.5). In Property Development, profit contributions from partly owned companies were lower compared to the last year. The drop is mainly due to higher interest costs in the partly owned companies. Capital gains from real estate transactions were SEK 96 million (85).

Elimination and reversal of internal profit in our own projects have affected operating profit during the year net by SEK -56 million (-58).

Depreciation and write-​​downs according to IFRS were SEK -1,904 million (-1,713).

Depreciation and write-​downs according to segment reporting were SEK -1,532 million (-1,349). Included in the amount were goodwill write-​downs of SEK -125 million (-1).

Net financial items according to IFRS amounted to SEK 0 million (-117), of which net interest amounted to SEK -458 million (-340). A large part of the interest expenses refer to financing of own housing development projects, which are capitalized on the properties and therefore have a positive affect on net financial items.

Net financial items according to segment reporting amounted to SEK 42 million (-71) of which net interest was SEK -30 million (-120). A higher level of net debt and higher interest rates have had a negative effect on net interest during the year. Net financial items include a positive effect of SEK 390 million as a result of the arbitration decision in MoS.

Pre-​tax profit according to IFRS was SEK 2,586 million (2,440). Tax for the year was SEK -598 million (-609) corresponding to a tax rate of 23 percent (25).

Pre-​tax profit according to segment reporting was SEK 1,895 million (2,670). Tax for the year was SEK -481 million (-633) and corresponds to a tax of 25 percent (24). The high tax rate is primarily due to non-​capitalized deficits.

Profit for the year according to IFRS was SEK 1,988 million (1,831).

Profit for the year according to segment reporting was SEK 1,414 million (2,037).

Financial position

Total assets according to IFRS per December 31, 2023 were SEK 49,176 million (51,011). The adjustment of differences in accounting principles in relation to segment reporting has affected total assets according to IFRS by SEK 4,881 million (7,791) and most of it consists of adjustments for own housing development projects. Equity according to IFRS amounted to SEK 14,470 million (13,786) which means the equity/assets ratio was 29.4 percent (27.0). Interest-​bearing net debt according to IFRS amounted to SEK 14,537 million (16,681).

Total assets according to segment reporting per December 31, 2023 were SEK 44,295 million (43,220). Equity amounted to SEK 15,082 million (14,978), which means the equity/assets ratio was 34.0 percent (34.7). Interest-​bearing net debt amounted to SEK 8,676 million (6,899) on December 31, 2023. The increase in net debt refers to more tied up working capital mainly in business area Project Development. Net debt includes project financing of the unsold part of our own housing developments as long as they are in production. The unsold part was SEK 2,685 million (2,209). Interest-​bearing receivables amounted to SEK 2,638 million (1,617). The increase is primarily due to a capital claim of SEK 1,067 million on Unibail Rodamco Westfield according to the arbitration decision announced on June 30, 2023. The average interest rate in the loan portfolio, including derivatives, was 5.7 percent (3.3) on December 31, 2023.

Group liquid funds according to IFRS, including unutilized credit facilities but excluding project financing, were SEK 6,410 million at the end of the year compared to SEK 7,640 million on December 31, 2022.

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 2,468 million at the end of the year compared to SEK 2,843 million on December 31, 2022. Surety for credit lines in tenant-​​owner associations regarding the unsold part after deconsolidation made up SEK 328 million of contingent liabilities compared to SEK 97 million on December 31, 2022.

Investments and divestments

Tangible and intangible fixed assets according to IFRS were net invested in 2023 for SEK 1,702 million (2,529).

In 2023 tangible and intangible fixed assets were net invested according to segment reporting for SEK 1,488 million (2,152). The investments mainly refer to investments in machines as well as construction of production facilities for concrete elements in business area Industry.

Net divestments in project and development properties according to IFRS totaled SEK 1,096 million. Last year net investments in project and development properties totaled SEK 2,945 million.

Net investments in project and development properties were SEK 1,608 million (2,268) in 2023. The investments mainly refer to development rights, construction of rental apartment projects as well as a more capital tied ​up in unsold apartments in our own housing developments.

Cash flow

Cash flow from current operations according to IFRS amounted to SEK million 3,916 (-1,556), of which cash flow from changes in working capital was SEK 631 million (-4,920).

Cash flow from current operations according to segment reporting amounted to SEK -56 million (-352). Cash flow has been charged by higher interest costs. Dividends from partly owned companies had a positive effect of SEK 84 million (185). Cash flow from changes in working capital was SEK -2,357 million (-3,521). The negative cash flow from changes in working capital is primarily related to business area Project Development where higher investments in rental apartment projects and capital tied up in unsold homes in our own housing developments tie up a lot of working capital.

Cash flow from investment activities according to IFRS was SEK -1,261 million (-1,603).

Cash flow from investment activities according to segment reporting was SEK -1,261 million (-1,603). Investments during the year consisted mainly of machine investments and investments in production facilities in Construction System in business area Industry as well as greater engagement and loans to partly owned companies in Project Development. Last year cash flow included, in addition to machine investments and investments in production facilities in business area Industry, acquisitions in Civil Engineering and greater engagement and loans to partly owned companies in Project Development.

Cash flow before financing according to IFRS was SEK 2,655 million (-3,159).

Cash flow before financing according to segment reporting was SEK -1,317 million (-1,955).

Cash flow from financing operations according to IFRS amounted to SEK -2,921 million (1,687).

Cash flow from financing operations according to segment reporting amounted to SEK 1,051 million (483), of which paid dividends were SEK -1,150 million (-1,475) and SEK 2,201 million (2,458) in loans taken out. During 2022 own shares were repurchased for SEK -500 million.

Order situation

The level of orders received in 2023 contracted and amounted to SEK 45,108 million (53,259). The reduction is largely related to business areas Construction and Project Development where the weak demand for housing has had a negative effect on orders received. In business area Industry we have also been more selective about tenders submitted by paving in Norway. The level of orders received in business area Civil Engineering has increased somewhat during the year. There is a large portion of projects for the public sector in orders received for the Group.

Order backlog yet to be produced at the end of the year amounted to SEK 39,060 million compared to SEK 44,389 million at the end of last year. Of the total order backlog, 35 percent (35) will be produced after 2024 (2023). Swedish operations accounted for 82 percent (78) of order backlog.