Risks and risk management
Proactive and structured risk management on all levels creates resilience to risks, ensures a long-term sustainable business and builds our ability to take advantage of opportunities.
Established processes for managing risks
Risk management, clear delegation of responsibility and an established risk culture are cornerstones of Peab’s governance and control, operatively and strategically. Peab’s risk management is both forward looking, in order to identify new or changed risks and looks back to learn from past experience. The ability to systematically identify, evaluate and manage risks is crucial for Peab to achieve its targets and ensure a long-term sustainable business.
Risks are identified on various levels – from project level to business area and Group level. The work on structured risk management is led by Group function Risk and Insurance. Every identified risk is categorized and assessed and a risk management plan is drawn up. Almost all risks are managed on the local level but the most substantial risks are consolidated on Group level. These risks are presented in the illustration on material risks below and are thereafter described more in detail as well as in note 33, Financial risks and Finance Policy.
Peab has updated the process for identifying sustainability-related risks based on the CSRD framework. Material risks from this analysis have been integrated into the overall risk management process to ensure systematic work with risks and cohesive risk management in the organization. There is a risk register on both business area and Group levels with the associated ownership and risk management plans. Risk management work, which follows an annual calendar, includes monitoring incurred events and implementing management plans.
Executive management is ultimately responsible for risk management and reports the comprehensive risk spectrum to the Board of Directors. Clear guidelines and systems steer operations into following set processes in different areas to limit risks.
Risk management is built on a strong risk culture that is well-rooted in the Group. Our risk culture is built on decentralized delegation of responsibility, process and governance documents as well as control and monitoring.
Continuity planning and preparedness for crisis management
An integrated part of Peab’s risk management is continuity planning and preparedness for crisis management. Peab has analyzed how operations could be impacted based on different scenarios and produced measures and action plans to ensure continuity in the organization.
Continuity planning focuses on ensuring that critical functions can be maintained or quickly restored after a potential disturbance. This includes having reserve plans for key people, supply chains and technical systems. The continuity administration makes regular checks to ensure that continuity leaders can act quickly when necessary.
Peab has an incident management plan that describes how an incident can escalate depending on the degree of severity. Crises are dealt with by Peab’s crisis organization.
By integrating crisis management and continuity planning into risk management we have created a platform for long-term stability.
Risks in Peab
Peab’s business is exposed to several different types of risks but Peab’s presence in four Nordic countries, operations in four business areas and customers in the private and public sectors provide the foundation for spreading risks well. Some risks lie outside of Peab’s control but can in different ways impact the conditions for running our business. Some of these are developments in the economy, interest rate developments, customer behavior, climate impact and political decisions. Peab can affect other risks in different ways by reducing the impact of them or eliminating them completely. These are primarily risks in operations that are handled in the line organization in the business areas based on established procedures, processes and governance systems.
Group risks are divided into four risk categories: operative risks, financial risks, strategic risks as well as compliance risks.
There are always operative risks in a project-related business like Peab and managing these risks is a continuous process due to the large number of projects the Group is always starting up, carrying out and completing. Peab’s project operations work with 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.
Financial risks are primarily associated with the company’s need for capital, tied-up capital and access to financing. Financial risks are managed on Group level.
Strategic risks like, for example, the political turbulence in the world around us create an uncertain macroeconomic environment. Since Russia invaded Ukraine the global situation has changed dramatically. In addition to the terrible tragedy for the people the war touches, the situation risks further hampering macroeconomic growth in the world. The construction industry is affected through greater uncertainty and cautiousness concerning investments and continued high material and energy prices. Peab is not directly exposed to Russia, Ukraine or Belarus but may be indirectly affected through material suppliers. We follow developments carefully to continually assess any effects on Peab. In recent years there has been a significant rise in the price of materials and energy. However, during the past year we have noticed that material prices have stagnated and there has even been a slight decline in prices, mainly regarding energy. We follow developments carefully and continually work to adapt and streamline production all the while expecting continued high construction costs. High construction costs make it harder for calculations to come out ahead, which dampens demand on the construction market throughout the Nordic region.
Compliance risks concern, for example, lack of compliance with laws, contracts or internal regulations and guidelines. Other examples are involvement in corruption or improper competition. Compliance risks are not only found in Peab’s own organization but in our supply chains as well. The consequences of compliance risks include fines, damaged trust, failed projects and exclusion from procurements.
Arbitration judgement Mall of Scandinavia
A decision in the case between Peab and Unibail-Rodamco-Westfield regarding the contract for Mall of Scandinavia in Solna was handed down in Peab’s favor on June 30, 2023. Thereafter Unibail-Rodamco-Westfield petitioned the Swedish Court of Appeal to set aside the judgment in its entirety in a so-called protest action. After a thorough legal trial through arbitration lasting nearly seven years Peab cannot see any grounds for a protest action. In the further process Peab will counter the protest action. During the process the arbitration judgement is suspended and thereby unenforceable, which defers the time of payment. For details see note 20.
Forward looking risks and their management
In Peab’s risk management process Peab has chosen to group risks into four categories: operative risks, financial risks, strategic risks as well as compliance risks. These risks can separately or in combination have a material negative impact on Peab’s business, strategy, financial outcome, cash flow, share value or repute. The illustration below visualizes the most material risks for Peab. Risks closer to the center of the illustration have a higher probability of impacting Peab negatively. The risks are described in more detail in the following text table.
Strategic risks
Refer to our mission, our long-term targets and our strategy
Operative risks
Refer to threats to implementing our business plan and other short-term targets and ambitions or efficient resource use
Financial risks
Refer to our financial position and our assets
Compliance risks
Refer to compliance with applicable legislation, external ordinances and internal regulations
| Strategic risks | Description | Action |
| Market | Customer behavior and demands can change at such a rate that Peab cannot adapt to these changes quickly enough. At the same time many new regulations are currently being introduced, among them concerning sustainability, that impact Peab’s operations in different ways. The political landscape also has a significant influence on how we act. We can risk investing in the wrong markets or market segments. There is also a risk that Peab cannot compete with other actors on equal terms. | 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. We continuously follow the market to comprehend changes in politics, new regulations and new standards that impact our operations. Peab is also active in social debate and strives to highlight barriers to streamlining community building in the countries we operate in. |
| Brand risks | Brand risk is an indirect risk and arises from other risks that can occur. A badly managed risk can result in substantial damage to a brand and a credibility crisis on the market. Information spreads rapidly with today’s technology and that makes quick, correct and efficient communication vital. | Peab primarily handles brand risks through actively working with our culture which is founded on our ingrained core values. Our Code of Conduct provides employees with concrete guidance in their daily work. In addition, Peab has a communication organization close to operations. This way risks can be identified early on and managed based on the situation. At the same time our organization model ensures that Peab’s overarching communication plan is followed. |
| Operative risks | Description | Action |
| Work environment | Serious events at Peab’s workplaces can lead to employees or subcontractors being injured or in the worst case die. These events can even have legal consequences and damage confidence in the company. Another risk area is shortcomings in the organizational and social work environment that entail unhealthy stress and victimization that can lead to mental health problems. The industry has seen an increase in threats and violence towards employees, particularly in roadway environments. | Peab has a zero vision for workplace accidents and we are active in the industry’s network for zero fatal accidents. Accidents are prevented through planning and risk assessments at an early stage. In addition, we continually follow up reported risk observations and investigations into incidents and accidents. Risk observations are the basis of organizational learning about where, when and why risks occur. Peab trains employees in equal treatment and has procedures to prevent discrimination and victimization. In dealing with threats and violence directed at employees Peab works with competence reinforcement, industry collaboration and monitoring reported events.
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| Technology | Technical developments in the construction sector are moving fast with new materials and methods. Peab is part of that development and we must be sure to use the right material, resources and methods to ensure quality and achievement our financial and non-financial targets. These are important elements in both the calculation and production phases. | Peab has our own R&D departments that work with product and method development of future construction processes. For instance, in our concrete operations we are reducing the amount of cement as a binder, increasing recycled material in new production and optimizing the durability of concrete to enable building constructions that require less concrete. We always strive to focus intensely on calculations, reconciliations and follow-up to understand how the construction process is affected by new technology. Peab is also in the process of building up a more comprehensive expertise within project management in order to improve our control over risks in construction and planning. |
| Strategic input goods | Access to certain raw material 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 raw materials with few suppliers are cement for our concrete production and bitumen for our asphalt production. | Peab has a policy for strategic input goods aimed at proactively working to secure access to these materials. We have been working on our own alternative binders for our concrete production for quite a while as well as the possibility of importing cement and bitumen to manage the risk. Peab has also a strategy with alternative suppliers to safeguard access to critical raw material. |
| Competence | There is competition for certain talent 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. Peab is dependent on attracting and keeping talent in order to reach our targets. There are also challenges with new areas of skills such as the field of sustainability. In some parts of our operations we are dependent on certain key people and we risk losing vital information that impacts our business if an employee for some reason cannot work or leaves Peab. | Peab works strategically with both recruitment and developing our power of 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. Since 2023 we run the trainee program The Construction Year, in an effort to bring more women into the construction industry. As a community builder Peab strives constantly to create new recruitment channels together with schools and colleges, internal education and our own high school, the Peab School. |
| Governance | Governing-related risks refer to both overriding Group governance and project steering. Since Peab’s business is largely project-related this means many risks are linked to carrying out projects. Many of these risks are related to mistakes and shortcomings in calculations with mistakes in amount computations can lead to incorrect bids or losses in projects. The increasing number of regulatory requirements from lawmakers and customers requires an intense focus on compliance with internal and external regulations. The consequences of a realization of these risks include fines, legal sanctions, damaged credibility, failed projects and exclusion from procurements. | Peab manages governance-related risks by establishing and routinely monitoring targets and checkpoints as well as by using management systems to strengthen Group and project steering. We work actively to promote efficient governance and skills development, especially at strategic levels. We make structured risk assessments and have established processes and procedures like our Tender Council through which we ensure that risks are identified and dealt with before we submit a tender. Dialogue with, and advice to, our customers is customized to meet changes in project needs. In addition, sustainable targets are integrated into business strategies and project planning, which guarantees that environmental and social aspects will be taken into account in all our decisions. |
| Suppliers and subcontractors (SC) | 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 or go against Peab’s Code of Conduct create unacceptable risks. There are also risks connected to dependence on one or a few suppliers. In the current economic downturn there is also a higher risk for Suppliers/SCs going bankrupt. | Peab’s Suppliers Code of Conduct is one of the enclosures used in procurements of suppliers/SCs. We continually develop procedures to monitor the work environment, work conditions, safe supply chains and environment and climate demands. We are focused on blocking rogue suppliers/ SCs from being procured. In Sweden Peab has third party checks on our workplaces and audits selected 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. |
| Information security | Information is an important asset and access to information is crucial to Peab’s ability to run its business. External developments have raised the risk of direct cyberattacks or indirect attacks via digital supply chains that have consequences for operations. This area is also subject to legislation that makes demands on data protection, personal integrity and information security in general. | Peab’s information security work is risk-based and systematic, focused on preventative protection and security measures in step with company development. Our employees are trained for heightened awareness of risks that can affect our information resources while organizational risk minimizing guidelines are continually implemented and improved. Managing information security risks is an integrated part of Peab’s continuity planning and crisis management. |
| Environment & climate | Climate change with extreme weather can entail everything from direct consequences with physical risks to our construction projects to more indirect consequences in the form of material, raw material 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 requiring new systems and processes and there is always a risk that we do not meet our environmental and climate targets. | Risk prevention comes under the Group’s three prioritized environmental aspects which are also 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 supported by the framework TCFD and works with climate targets in projects and reports according to EU Taxonomy. Peab also implements climate risk and vulnerability analyses for our production units. Reoccurring extreme weather requires adapting production methods and other measures to limit the risks for damages to, for example, construction contracts and real estate. |
| Compliance risks | Description | Action |
| Ethics and compliance | Peab faces regulation compliance risks that entail non-compliance with laws, contracts, Peab’s Code of Conduct and policies. There are further risks regarding involvement in corruption or improper competition as well as transgressions of human rights in our own company and in 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 that includes our Code of Conduct, Suppliers’ Code of Conduct, policies and guidelines that describe how employees act sustainably, responsibly and efficiently. This framework includes frequent education and set consequences for transgressions. Peab’s management system is a key tool in supporting daily operations. Issues concerning ethics and regulation compliance are dealt with 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. Peab’s purchasing department has an important role in minimizing risks in the supply chain by ensuring responsibility, conducting risk assessments and audits. |
| Financial risks | Description | Action |
| Capital | Financial risk-taking is connected to the business’ capital and investment needs which are different in Peab’s various operations. Construction contract operations normally have a positive working capital that contributes to financing the other operations. Business area Industry binds more 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 construction contract operations is managed through payment balance requirements. Large tenders are handled according to set investment procedures where the Tender Council decides. 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. |
| Inflation | Dramatically rising inflation can get central banks to raise the policy rate which affects our customers’ investment appetite. Inflation has been stable and low for many years but rose steeply during 2022-2023, in part due to the effects of the pandemic and Russia’s invasion of Ukraine. As a result of this construction costs have increased in recent years. High construction costs dampen demand on the construction market. | Inflation impacts Peab’s profitability in different ways. The good span Peab has between different kinds of projects and operations in several countries as well as customers in both the private and public sectors has a dampening effect. |
| Other financial risks | The Group is exposed to financial risks such as interest rate risks, liquidity risks, refinancing risks, raw material risks, currency risks and credit risks. | Peab’s Finance Policy is adopted by Peab’s Board of Directors and creates a framework for risk mandates and limits. The Treasury function is centrally organized. For further information on financial risks, see note 33. |
| Financial reporting | 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 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 regularly tests the values of project and development property through an internal model. In addition, external market values are annually obtained for some of the properties. |
Sensitivity analysis
Peab’s operations are sensitive to changes in, among other things, volumes and margins. The sensitivity analysis below describes how pre-tax profit according to segment reporting is affected by changes in some of the important Group variables.
| MSEK | Calculation basis | Change | Pre-tax profit effect | ||
| Mkr | Beräkningsbas | Förändring | Resultateffekt (före skatt) | ||
| Segment reporting | Segmentsredovisning | ||||
| Volume (operating margin constant) | Volym (rörelsemarginal konstant) | 58,697 | +/- 10% | +/- 10% | +/- 276 |
| Operating margin (volume constant) | Rörelsemarginal (volym konstant) | 4.7% | +/- 1 percentage point | +/- 1 procentenhet | +/- 587 |
| Production costs | Produktionskostnader | 41,580 | +/- 1% | +/- 1% | +/- 416 |
| Financial | Finansiellt | ||||
| Average effective interest rate1) | Genomsnittlig effektivränta1) | 5.1% | +/- 1 percentage point | +/- 1 procentenhet | +/- 80 |
1) The sensitivity analysis shows the effect of a change in interest on Group pre-tax profit based on an assumption of unchanged net debt. The calculated net debt of SEK 7,954 million is based on net debt according to IFRS reduced by liabilities for Swedish tenant-owner associations and additional leases according to IFRS 16. It is further assumed that a change in interest would directly affect the interest Peab pays respectively receives on liabilities and receivables with a floating interest rate. Activating interest is not taken into account in the sensitivity analysis. For more information about net debt, see note 33.