Annual and Sustainability Report 2016 A LOCALLY ENGAGED COMMUNITY BUILDER Content 2016 in summary 1 Comments from the CEO 2–3 External circumstances and the market 4–5 Goals and strategies 6–9 Market summary – Peab’s business areas 10–11 Peab’s take on sus- P21 Our take on sustainable operations 12–35 tainable operations Attitude The Employees 16–21 changing The Business 22–25 Five initiatives that reflect our work with workshops sustainability in the focus areas The Climate and Environment 26–31 Employees, The Business, Climate and Environment and Social Engagement. Social Engagement 32–35 Board of Directors' report 36–56 The Group 36–39 Business area Construction 40–41 Business area Civil Engineering 42–43 Business area Industry 44–45 P24 P28 Business area Project Development 46–49 Everything Peab’s ECO- Risks and risk management 50–52 in order Asfalt – a better Other information and appropriation of profit 53–56 choice for the Financial reports and notes 57–109 environment Auditor's report 110–113 Corporate governance 114–117 Board of Directors 118 Executive management and auditor 119 The Peab share 120–121 Five-year overview 122 Alternative performance measures P31 P33 and definitions 123 Forward-looking The Peab School About the sustainability report 124 neighborhood with trains young Global Compact principles 124 a strong environ- immigrants mental profile Active memberships 125 GRI Index 126–127 Annual General Meeting 128 Shareholder information 128 Formal annual and Group financial reports which have been audited by company accountants, pages 36–109. Peab AB is a public company, Company ID 556061-4330. Domicile Båstad, Sweden. All values are expressed in Swedish krona. Krona is abbreviated to SEK, thousands of krona to TSEK and millions of krona to MSEK. Numbers presented in parentheses refer to 2015 unless otherwise specified. Data regarding markets and the competition are Peab’s own assessments, unless another source is specified. These assessments are based on the best and latest available facts from, among others, previously published material. Cover picture: Construction work on Vindö Bridge. Photo: Bert Leandersson Photographers other pictures: Bert Leandersson, Nicolas Tourrenc, Alen Cordic, Magnus Torle, Peter Steen, Stefan Ed, Klas Andersson, Lars Bendroth, Lena Börjesson Gustav Kaiser & Carbonwhite (Vision photo), Arkitekt Krook & Tjäder (Vision photo), Björn Tesch, KGZ Fougstedt. Peab at a glance Vision The Nordic community builder Peab is one of the leading construction and civil engineering companies in the Nordic area with operations in Sweden, Norway and Finland. Peab affects society and the environment for the people who now and in the future will live with what we develop, build and Operative net sales construct. Peab is also a big employer with local roots and has consequently a considerable responsibility. Peab participates in developing a more sustainable society. This means SEK 46.5 billion Peab meets the demands and expectations from our surroundings and at the same time strives to create new business opportunities. Per business area 2016 Peab’s business contributes to society by developing and building new homes and offices, public functions like schools, libraries, hospitals and Construction 44% (46%) infrastructure in the form of bridges and roads. We make a difference Civil Engineering 20% (20%) in daily life in both small and large places. Industry 22% (20%) Project Development 14% (14%) Long-term relationships with customers and suppliers result in better financial, social, and environmental projects that are good for society on the whole. Stable profitability generates the funds necessary to Per geographic area 2016 develop our business and returns for our shareholders. Sweden 84% (84%) Norway 10% (9%) Finland 6% (7%) Per customer type 2016 Private 68% (70%) Public 32% (30%) Employees Peab is a lasting and secure employer that prioritizes health and a safe work environment. Peab offers personal development opportunities in a company culture based on respect for equal rights and characterized by our core values Down-to-earth, Developing, Personal and Reliable. Employees 14,000 Share per country Gender distribution Sweden 85% (86%) Men 88% (88%) Norway 10% (9%) Women 12% (12%) Finland 5% (5%) Organization Peab is characterized by a decentralized and cost-efficient organization with four cooperating business areas whose operations are based on local entrepreneurship close to the customer. The business areas have a regional structure that works together with central resources and they profit from support functions on business area and Group levels in sharpening their competitive edge. Business area Construction works Business area Civil Engineering Business area Industry delivers, Business area Project Development with everything from new construction builds and maintains highways, rail- among other things, ballast, concrete, handles Group acquisitions as well of homes, public and commercial roads and bridges both on the local asphalt, electricity and prefabricated as development, management and premises to renovations and extensions civil engineering market as well as in concrete elements to external customers divestment of housing and commercial as well as offering construction services. larger Nordic infrastructure projects. and the other business areas in Peab. property. Housing Development is It also manages and maintains The business area also provides mainly geared towards private con- streets and roads. equipment and transportation and sumers while Property Development takes care of production waste. is aimed at real estate investors. Operative operating profit and operative Orders received and order backlog Operative net sales operating margin MSEK MSEK MSEK % 45,000 50,000 3,000 6 2,500 5 40,000 30,000 2,000 4 30,000 1,500 3 20,000 15,000 1,000 2 10,000 500 1 0 0 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Order backlog per 31 Dec Orders received Operative operating profit Operative operating margin 1 2016 in summary 2016 in summary The operative net sales increased by 5 percent and amounted to SEK 46,489 million (44,252). A strong housing market positively affected all business areas. The operative operating profit improved to SEK 2,075 million (1,052) and the operative operating margin improved to 4.5 percent (2.4). Orders received increased by 10 percent to SEK 41,445 million (37,812). The number of orders received has risen in all business areas, driven by a strong housing market. Order backlog per 31 December 2016 amounted to SEK 33,572 million (26,991) with a broad range of products and spread geographically. Reinforced financial position with reduced net interest as a result of lower debt levels. The strong cash flow has contributed to net debt falling to SEK 1,862 million (3,118). Equity/assets ratio amounted to 29.7 percent (28.8). Return on equity improved to 20.1 percent (9.9). The Board proposes a dividend of SEK 3.60 per share (2.60), which corresponds to 61 percent (96) of the profit for the year. Financial summary 2016 2015 2014 Financial goals Operative net sales, MSEK 1) 46,489 44,252 43,820 Net sales, MSEK 46,337 44,376 43,630 Operative operating profit, MSEK 1) 2,075 1,052 1,783 Operative operating margin, % 1) 4.5 2.4 4.1 Operating profit, MSEK 2,098 1,009 1,752 Operating margin, % 4.5 2.3 4.0 Pre-tax profit, MSEK 2,050 906 1,230 Proft per share, SEK 5.85 2.71 3.48 Dividend per share, SEK 2) 3.60 2.60 2.25 > 50% Return on equity,% 20.1 9.9 13.1 > 20% Equity/assets ratio, % 29.7 28.8 28.2 > 25% Cash flow before financing, MSEK 2,651 1,787 2,803 Net debt, MSEK 1,862 3,118 3,886 Orders received, MSEK 41,445 37,812 31,690 Order backlog, MSEK 33,572 26,991 24,922 Number of employees per 31 December 13,869 13,300 13,213 1) Operative net sales and operative operating profit are reported according to percentage of completion method following operating segment reporting. Net sales and operating profit are reported according to legal accounting. 2) Board of Directors’ proposal to the AGM for 2016. Financial goals Return on equity Equity/assets ratio Dividends % % % 40 40 200 30 30 150 20 20 100 10 10 50 0 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016* Goal >20% Goal >25% Goal >50% * Board of Directors’ proposal for 2016 ANNUAL AND SUSTAINABILITY REPORT 2016 2 Comments from the CEO Strong joint effort behind this year’s result The year as a whole was characterized by improved profitability, robust cash flow and a good financial position for Peab. With our four complementary and cooperating business areas we are well-equipped to take on the market’s opportunities and challenges. Improved profitability and a robust cash flow helped Peab achieve all its financial goals and pre-tax profit of over two billion Swedish krona. Orders increased in all 41.4 the business areas and totaled SEK 41.4 billion (37.8) for the year while order backlog Orders received in 2016 increased to at the end of December was SEK 33.6 billion (27.0). The improved profit stems mainly SEK 41.4 billion. from business areas Industry and Project Development but the contract operations in Construction and Civil Engineering showed stable results. In Project Development it was particularly positive to see that in Housing Development the operative operating margin continued to develop well and for the entire year of 2016 improved to 8.5 percent (6.5). In business area Industry sales volumes and profit increased in Concrete, Gravel and Rock, Asphalt as well as Rentals. Given Peab’s good financial “ Peab is a reliable and compe- position and a balanced need for investments the Board believes there is room to tent partner with strong local raise dividends to SEK 3.60 (2.60).