Other information
Risks and uncertainty factors
Peab’s business is exposed to operational and financial risks. The impact of these risks on Peab’s result and position depends on how well the day-to-day business is handled in the company. In addition, Peab faces circumstantial risks such as developments in the economy and altered conditions like changes in laws and regulations and other political decisions.
Handling operational risks is a constant ongoing process since there are always a large number of projects that are beginning, up and running and ending. Operational risks are taken care of in the line organization in each business area. Peab’s business is to a large extent project related. Grey areas concerning contract terms can lead to borderline issues followed by negotiations with customers.
The financial risks are connected to tying up capital and the need for capital, primarily in the form of interest rate risk and refinancing risk. Financial risks are dealt with on Group level. For further information on risks and uncertainty factors, see the 2018 Annual and Sustainability Report.
Holdings of own shares
At the beginning of 2019 Peab’s own B shareholding was 1,086,984 which corresponds to 0.4 percent of the total number of shares. No changes have taken place during 2019.
The Peab share
Peab’s B share is listed on the Nasdaq Stockholm, Large Cap list. As of December 31, 2019, the price of the Peab share was SEK 93.75 an increase of 29 percent during 2019. During the same year, the Swedish stock market increased by 30 percent according to the general index in the business magazine “Affärsvärlden”. During 2019 the Peab share has been quoted at a maximum of SEK 94.85 and a minimum of SEK 71.00.
Important events during the report period
Peab has signed an agreement to acquire YIT’s Nordic paving and mineral aggregates business. Through the acquisition Peab will expand its presence in Sweden, Norway and Finland and become established in the paving business in Denmark and this will give Peab a unique and market leading position in this business in the Nordic region. The deal will also increase the importance of industrial operations for the Group as well as reduce sensitivity to fluctuations in the business cycle.
Peab is currently a leading player in manufacturing and paving of asphalt as well as in mineral aggregates operations in Sweden and Norway. The acquisition entails taking over some 200 strategically located quarries along with 63 production asphalt plants in the Nordic region. The acquisition also entails taking over some 1,700 employees. Greater geographic proliferation in businesses that are normally less sensitive to the business cycle increases stability in the Group. It also provides conditions for further expansion and development in other operations such as Recycling and Concrete.
The transaction is a combination of an asset deal and a share purchase. The purchase price is expected to amount to SEK 2,966 million for a debt-free business and is fully financed.
The acquired business had net sales of SEK 6,005 million with an adjusted EBITDA of SEK 240 million in 2018.
The transaction is conditional on approval from competition authorities as well as the fulfillment of certain contractual conditions. The takeover is expected to occur in the first or second quarter of 2020.
Important events after the period
In addition to the ordinary dividend of SEK 4.20 (4.20) per share Peab’s Board has decided to propose an extra distribution of all the shares in a newly formed company holding Peab’s wholly owned, fully developed commercial properties to the Annual General Meeting. When the real estate company is distributed the difference between market values and book values as well as eliminated construction contract profit will be taken up as income in Peab. This amounts preliminarily to around SEK 1,200 million, which primarily corresponds to the reduction in equity caused by the extra distribution.
Peab consists of four collaborating business areas – Construction, Civil Engineering, Industry and Project Development, each one of them an essential component of the Group.
In recent years Peab has invested considerable resources in the capital intense business areas Industry and Project Development, a strategy that will continue in the future.
Project development operations comprise development of both housing and commercial projects and are run primarily in wholly owned form but in certain cases through partially owned companies as well. For appreciation purposes fully developed properties have mainly been kept in partially owned companies but they have also been on Peab’s balance sheet. In order to create the right conditions in the future for operative steering, tied up capital and income recognition in project development operations various alternatives have been analyzed. At the beginning of the year the Board and executive management therefore evaluated the future direction of wholly owned, fully developed commercial property.
With this in mind the Board has today decided that for Peab’s shareholders the best alternative for long-term value growth is to form a separate real estate company (Real Estate Company) holding Peab’s wholly owned, fully developed commercial and housing properties that will be distributed to existing shareholders according to Lex Asea and listed. In this way Peab can focus on developing and building while the Real Estate Company can focus on its business of owning and managing fully developed property.
The Real Estate Company will preliminarily own fully developed property with a market value of SEK 3,600 million. This will include around SEK 400 million in property in Bara outside Malmö consisting of homes and community premises. The assets in Bara are currently owned by Nya Bara Utvecklings AB, a joint venture owned equally by Peab and Volito. Volito’s stake will be acquired before the distribution.
The Real Estate Company will agree to acquire two other properties from Peab with a total market value of around SEK 400 million that will be completed and occupied in 2021.
The Real Estate Company will also own 50 percent of the shares in Point Hyllie Holding AB that holds Choice Hotel and office building The Point in Hyllie, Malmö. The shares have a preliminary market value of around SEK 400 million.
The property portfolio that for the most part consists of commercial property but even some rental apartment buildings is concentrated to Nordic big city areas.
After the distribution Peab’s project development operations will consist of wholly owned development rights for housing and commercial projects, projects under construction as well as ownership of the major joint ventures that contain fully developed property but also a large portion of future project developments. This consists primarily of Peab’s 50 percent in Fastighets AB Centur and 33 percent in Tornet Bostadsproduktion AB.
The Board has decided to propose an extra distribution of all the shares in the Real Estate Company to existing shareholders according to Lex Asea to the Annual General Meeting. Peab’s shareholders will then receive shares in the Real Estate Company in addition to their existing stake in Peab.
The Board has decided to propose authorization of the Board to determine the record day for the distribution of all the shares in the Real Estate Company which is intended to be listed on Nasdaq Stockholm to the Annual General Meeting. The distribution and listing will take place at an appropriate time after the listing process is completed, which is expected to happen during the second half of 2020.
The distribution is conditional on the consent of Peab’s lenders and that the Real Estate Company receives financing on market terms. The level of equity and pledges in the Real Estate Company will be decided in consultation with the financing banks.
When the Real Estate Company is distributed the difference between market values and book values as well as eliminated construction contract profit will be taken up as income in Peab. This amounts preliminarily to around SEK 1,200 million, which primarily corresponds to the reduction in equity caused by the extra distribution.
Further information to Peab’s shareholders regarding the proposal for distribution of the Real Estate Company, in the form of an information brochure, will be published on Peab’s website in connection with publishing the summons to attend the Annual General Meeting.
PROPOSED DIVIDEND
A dividend of SEK 4.20 (4.20) per share is proposed for 2019. Excluding the 1,086,984 shares owned by Peab AB per February 4, 2020, which are not entitled to dividends, the proposed dividend is equivalent to a total dividend distribution of SEK 1,239 million (1,239). Calculated as a share of the Group’s reported profit for the year, the proposed dividend amounts to 59 percent (59). The proposed dividend is equivalent to a direct return of 4.2 percent based on the closing price on February 4, 2020.
In addition to the ordinary dividend, Peab’s Board has decided to present the Annual General Meeting with a proposal for an extra distribution of all the shares in a real estate company, which holds Peab’s fully developed commercial properties, to be distributed to existing shareholders according to Lex Asea and listed.
ANNUAL GENERAL MEETING
The Annual General Meeting of Peab will be held on May 6, 2020 at Grevieparken in Grevie.
NOMINATION COMMITEE
At the Annual General Meeting held on May 9, 2019, Göran Grosskopf, Malte Åkerström, Mats Rasmussen and Ulf Liljedahl were appointed to the Peab Nomination Committee and Ulf Liljedahl was named its Chairman.