Risks and uncertainty factors

Peab’s business is exposed both to operative and financial risks as well as compliance risks and external and market risks. How much risks affect Peab’s profits and position depends on how well the company handles daily operations. External and market risks are events that are out of Peab’s control but which affect the business environment. These are, for example, developments in the economy, customer behavior, climate impact and political decisions.

Managing operative risks is a continuous process considering the large number of projects the Group is always starting up, carrying out and completing. Operative risks are managed in the line organization in the business areas through established procedures, processes and control systems. Peab’s business is largely project-related. There are 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. For further information about risks and uncertainty factors, see the Annual and Sustainability Report 2021.

In the beginning of 2020 the coronavirus spread out over the world and the pandemic has raged ever since, although a stage was reached in the beginning of 2022 where countries and companies more or less opened up. During the pandemic governments and central banks introduced different forms of crisis packages to reduce its financial effects. The effects of the corona pandemic on Peab’s operations have been limited but we continue to follow developments to assess any further effects.

An uncertainty that can still upset the market is access to cement. In 2021 the Supreme Land and Environment Court dismissed Cementa’s application for a renewed permit to continue to quarry limestone in Slite on Gotland. The government granted Cementa a time-​limited license until December 31, 2022 but this has been appealed to the Supreme Administrative Court and the issue of a long-​term solution remains unresolved. On April 18, 2022 Cementa submitted a new application to quarry limestone for four more years in Slite. A substantial shortage of cement would impact the entire construction and civil engineering market in Sweden. As a significant actor Peab would therefore also be affected by the situation. Peab has already begun working with our own alternative binder and certain degree of cement importation to handle the risk of lower or no cement deliveries.

There has been a significant rise in the price of materials and energy during 2021 and 2022. We have handled cost increases along with supply chain disturbances through adjusting and streamlining operations as well as in pricing to customers although the cost increases have not been fully compensated, which has affected the operating margin. We continually work to streamline production all the while expecting a gradual increase in construction costs if the trend in material and energy prices does not turn.

Long-​term interest rates have continued to rise and in Sweden The Riksbank raised the policy interest rate further during the quarter, by 1 percentage point in September. Inflation has tightened its grip on the global economy and several central banks indicate further hikes in interest rates. Higher interest rates are expected to stymy investment appetite and diminish demand.

The recent dramatic developments in Ukraine have a key impact on the world around us. In addition to the terrible tragedy for the people the war touches, the situation risks hampering macroeconomic growth in the world. For Peab this can affect the construction industry through greater uncertainty and cautiousness concerning investments, continued high material and energy prices and material shortages and delivery problems. We are not ourselves 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.